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Treasury Wine Estates Is Launched As A Stand Alone, Global Wine Company

May 9, 2011

This morning in Sydney, Australia, the demerger of Foster’s Ltd.’s wine and beer operations officially took effect. Shares of the new wine company, Treasury Wine Estates, are expected to begin trading on Tuesday.

For its last fiscal year ended June 30, 2010, Treasury Wine Estates reported global sales revenue of just under A$1.9 billion, volume of 35.6 million cases and global EBIT of A$221.3 million. The company’s Americas division, which includes the U.S., Canada, Latin America and the Caribbean, generated A$933 million in sales and A$107 million in EBIT. Treasury’s total depletions in the U.S. market for calendar year 2010 were 14.4 million cases, down 12.6%. The company attributed that decline to weaker demand and a U.S. distribution realignment. In all, the U.S. market comprises around 50% of Treasury’s global business.

Shanken News Daily spoke to Stephen Brauer, managing director of Treasury Wine Estates Americas, to get his view on the new company and the future for the brand portfolio.

SND: Treasury Wine Estates is now separated from Foster’s Ltd. How will this move impact the wine business?

BRAUER: From day one, Treasury Wine Estates—our board and the new management team led by David Dearie—will be exclusively focused on the wine business. Up until now, Treasury has been part of a much bigger Australian business that was primarily involved in beer. We now have an opportunity to develop a stand-alone identity focused exclusively on wine, as well as a culture that’s uniquely Treasury Wine Estates.

SND: How will that play out in terms of the American business?

BRAUER: In terms of the American business, the benefit of the demerger will be an increased focus on our foundation brands and stronger support for our brand priorities. A good example of that is Beringer—the most important brand in our portfolio. There will be increased focus and support behind Beringer, and David Dearie has clearly expressed an ambition to build our California business in overseas markets.

SND: Do you have a conflict between investing more in marketing to drive brands so that share appreciation will occur, versus investing less in order to lower costs and maximize near term earnings. How will you handle that?

BRAUER: We’re taking a long-term view. Our plan is to ensure that we achieve consistent, top-line growth as well as earnings growth to create value for our shareholders. Driving growth of both our core brands and our luxury business while expanding the innovation pipeline are central components of our strategy. We believe that the time is ripe for those businesses to take off, and we will put the proper investment against them to ensure that we drive the appropriate level of shareholder value.

SND: Beringer basically has been flat to down over the past five years. What needs to be done to get the brand on a positive track?

BRAUER: Our strategy has three critical components: simplify, premiumize and differentiate. We’ve cleaned up the brand architecture over the past year and made it much simpler. We’re rolling out new packaging that clearly separates the entry-level tier (anchored with White Zinfandel and Moscato) from our Founder’s Estate tier, and from the Napa and Knight’s Valley tier. Our fourth tier, Beringer Private Reserve, has had a less dramatic transformation, but the other three tiers have been essentially rebranded and are now clearly differentiated from one other.

We’ve placed greater emphasis on the root of Beringer’s historic success—the Napa and Knight’s Valley wines and the Private Reserve Cabernet and Chardonnay. We’ve also invested more against the consumer, including a multi-year program with the PGA. That investment exemplifies our integrated approach, delivering to consumers whether they’re in stores, dining out, at country clubs, at PGA events (where we have tasting booths) or on the Web.

SND: Given the competitive marketplace of recent years, how have you handled pricing for Beringer? What about the reset of prices, dollar-wise and/or percent-wise?

BRAUER: Beringer has always been known for providing great value at every price point where we compete. Over the last few years, of course, consumers have been more demanding in regard to price-value. We’ve invested to ensure that our portfolio achieves a balance between profitability and value for the consumer. During key promotional periods, we tend to increase our investment. But our pricing strategy aims to be pragmatic—to respond to consumer demand for value while making sure we’re also achieving the appropriate returns.

SND: But to what extent did you reduce prices to be more competitive?

BRAUER: In general, we did not reduce prices on Beringer. We shifted the promotional investment during key holiday periods.

SND: Beringer has been somewhat under the radar over the past few years. What are your plans to raise its profile in the Americas?

BRAUER: We’ve invested in a number of activities, including above-the-line advertising. We have a Knights Valley campaign currently running combined with the PGA investment, which includes in-store activity as well as on-premise and event marketing. We’re focusing on all the critical channels, including off-premise chains and on-premise national accounts. Lastly, we’ve taken a slightly different approach to winemaking for our Napa Valley wines. The latest vintage of the Napa Valley Chardonnay has a more balanced style, emphasizing fruit flavors with a little less oak influence on the wine, adapting to current consumer tastes.

SND: You have a number of California brands besides Beringer, some of them very high-end and renowned. Which are your major priorities?

BRAUER: Beringer, Chateau St. Jean and Penfolds are the three top growth priorities within our Foundation tier. At the luxury tier, where we’re placing increased emphasis, the priorities are clear. In addition to Beringer Private Reserve and Chateau St Jean Cinq Cépages—both of which have been fortunate enough to be Wine Spectator’s number-one wine in the world—the priorities are with Stag’s Leap and Etude, which are part of our Estates Group.

SND: You mention Penfolds. Obviously the Australian wine industry has been under a lot of duress. How do you plan to reposition Penfolds so that it becomes a more prominent player in the U.S. market?

BRAUER: Penfolds is one of the strongest brands in the Treasury Wine Estates portfolio. In the Americas, Penfolds has the ability to transcend a regional category—especially at the luxury tier. Its luxury wines, from Bin 389 to Bin 70 to Penfolds Grange, are for collectors and connoisseurs not because they’re Australian but because they’re world-class. That luxury range transcends the Australian category and has done exceptionally well this year. Where we need to continue to educate and engage consumers is on the entry-level Penfolds wines in the U.S., such as Koonunga Hill, which retails at around $12-$14 a bottle. That’s where we tend to compete within the Australian category and against other super-premium brands. That’s where we need more investment, more focus and better execution in stores and restaurants.

SND: What about your other Australian wines?

BRAUER: We have a three-point plan on Australia. Firstly, we will educate the sales force, distributor partners, retailers and consumers on the breadth of the Australian wine industry in general and our portfolio in particular. Australia is far more than good-value Shiraz or Chardonnay at $5 or $6 a bottle. Secondly, we must re-engage consumers with Australia. We have a promotion that we kicked off on Australia Day called “You Don’t Know Oz” with a category-wide view, promoting our brands like Greg Norman, Rosemount and Lindemans together so people could discover wines from different regions, appellations and varietals. Thirdly, we’ll continue to premiumize the Australian offering. A good example of re-engaging the consumer is what’s happened over the past 18 months in Canada, where we reinvested in some basic brand-building activities including in-store tastings, on-premise activity and education. We’re now seeing core brands like Wolf Blass Yellow Label back in growth mode. We’ll apply those brand-building activities in the U.S. over the next 12 months and look to achieve similar results.

SND: Looking at your sales through 2010, most of your brands were down. What’s the overall thrust of how you handle declining case sales over next few years?

BRAUER: To put some context behind the sales decline in 2010, we concluded our route-to-market realignment in June of 2010. Over the last nine months, portfolios that transitioned to new distributors were generally our big Australian brands. So part of the decline had to do with an organic drop in consumer demand and partly with the disruption that occurs when moving to a new distributor. But the Australian business is central to our Americas strategy. Our total Australian wine volume in America is more than 9 million cases. It will take time, but our goal is to stabilize the business while growing the more premium and profitable tiers within each brand.

One additional priority is to reshape the portfolio, to ensure we’re offering styles that consumers want. Even though Australia currently is soft, a number of varietals are growing at very respectable rates—including Riesling, Pinot Grigio, Moscato and Pinot Noir, all lighter, sweeter styles. Brands like Lindemans are focusing on those styles to re-engage with consumers.

SND: How extensive have your distributor network changes been?

BRAUER: We concluded Phase One of what we called our route-to-market alignment almost a year ago, in June 2010. That covered approximately 50% of our volume in the U.S. and was in larger states, including California, New York, Texas, Illinois, Florida and Colorado. In almost every case, we aligned with the majority incumbent. In a number of markets, we were split between the (California) and the Australian portfolio. In some cases, we stayed with existing distributors like RNDC in Colorado, Empire in New York and Southern Wine & Spirits in California. In other cases, we consolidated with Glazer’s in Texas and Louisiana, and with Southern in Florida and South Carolina. In the markets where we’ve concluded Phase One, all our brands are consolidated with one distributor.

SND: You mention Phase One. What and when is Phase Two?

BRAUER: We’re bedding down the markets in Phase One and learning from those transitions of the last year. We’re incorporating that learning into our thinking. Within the next few months, we’ll announce strategy for the Phase Two markets. Phase Two will likely commence over the next 12 months.

Treasury Wine Estates – Leading Brands in the US
(thousands of nine-liter case depletions)
Percent Change2
Brand Origin 2008 2009 2010 2008-2009 2009-2010
Beringer California 6,568 7,012 6,658 6.8% -5.1%
Lindemans Australia 2,211 2,237 1,811 1.2% -19.0%
Stone Cellars California 1,372 1,356 1,178 -1.2% -13.1%
The Little Penguin Australia 943 947 792 0.5% -16.3%
Meridian California 952 931 708 -2.3% -23.9%
Penfolds Australia 748 633 517 -15.5% -18.3%
Chateau St. Jean California 540 549 458 1.7% -16.6%
Rosemount Estate Australia 737 579 432 -21.5% -25.4%
Castello di Gabbiano Italy 368 372 339 1.0% -8.7%
Black Opal Australia 318 299 236 -6.2% -21.0%
Cellar No. 8 California 149 184 215 22.9% 16.9%
Bohemian Highway California 218 227 163 4.6% -28.2%
Greg Norman Estates Australia 171 151 130 -11.6% -14.3%
Matua Valley New Zealand 85 93 114 8.9% 23.6%
Souverain California 86 81 90 -5.6% 11.1%
Wolf Blass Australia 129 98 70 -24.1% -28.5%
Colores del Sol Argentina 42 64 53.1%
Other Brands* 817 682 421 -16.5% -38.2%
Grand Total1 16,412 16,470 14,395 0.4% -12.6%
*Includes Stags Leap, St Clement, Etude, Santa Barbara Wine Collection, Sbragia, Devil’s Lair, Annie’s Lane, Wynns Coonawarra Estate and others.
1 Addition of columns may not agree due to rounding.
2 Based on unrounded data. 

Source: Impact Databank


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