The just-drinks interview – George Marsden, E&J Gallo
In spite of the tough conditions, rising alcohol duties and the grim task of cutting his UK workforce, George Marsden, E&J Gallo's vice president and general manager for Europe, is relishing what he considers to be the most challenging opportunity of his career. He spoke with Olly Wehring about his first two years heading up Gallo's European operations and the way ahead.
Having joined Gallo in the US almost 20 years ago, George Marsden moved over to Europe in early 2007 to head up the company's operations in the region. After 17 years working around the US and considering the grim outlook for the vast majority of wine companies operating in Europe, one might imagine homesickness would be setting in.
On the other hand, given the state of the US economy, Marsden may feel he's better off just where he is. But his enthusiasm for his current role is borne out of something rather more positive. He is quite simply relishing the challenge.
"Coming here was the best opportunity I've ever had, and also the most challenging I've had in my 18 years in the industry," he says. "The diversity of challenges, for example the different tax codes and the different brands, has made this an unbelievable challenge but one I've enjoyed every minute of."
With around 60% of the unit's sales coming from the UK, and with Gallo Europe's HQ in the country, it is not surprising that Marsden sees the UK as epitomising the sort of challenges he means. "Overall," he says, "the second half of last year and now this year, the economic conditions have been very challenging. At the same time, especially here in the UK, a lot of government regulation has had an almost crippling effect on the industry."
Marsden is keen to voice his feelings on the duty rises in the UK, in particular the latest 2% increase, introduced to a chorus of industry condemnation in April.
"These types of increases are not sustainable for this industry to continue to grow," he says. Along with the Wine and Spirits Trade Association, I met with a lot of top Government officials, and we laid out that we believe continued duty increases were the straw that would break the proverbial camel's back. So, we were very disappointed to see another duty increase."
At a time when industries are asking for government aid, Marsden believes the drinks industry's request simply to be left unhindered is more than reasonable. "Every other industry is asking the Government for handouts," he says. "Our message was that we're not asking you to do anything for us, we're asking you not to do anything against us."
The Government even flouted its own tax escalator which allowed for a rise 2% above inflation in 2009, Marsden points out. "Inflation was called at -2.2% last fall, which should have been the benchmark. We actually should have had a 0.25% decrease in duty. But they still found a way to put a 2% increase on."
Away from the UK, the rest of Marsden's region is very much a game of two halves. In Western Europe, he notes, Gallo is seeing improvement in Germany, "but this will always be a difficult market in which to drive profitable growth," he warns. Belgium and the Netherlands continue to do well for the company, although, by Marsden's admission, the presence of New World wines in these countries is relatively small.
One country that Marsden is particularly excited about, however, is Poland, which has delivered double-digit growth "year after year", he says. Indeed, Poland is one of the top five markets for Gallo in Europe, along with the UK, Germany, Ireland and the Netherlands.
Returning a little closer to home, earlier this year, Gallo confirmed that it will cut 50 jobs in the UK, signalling the beginning of what many fear will be a sustained period of job insecurity in the wine industry. "You have to step back and see that this is not a Gallo issue," Marsden says. "It's an industry issue. This is the most challenging economic - and regulatory - environment that we've seen for 20 years. The challenges are that great."
Considering that Gallo remains a privately-owned concern, however, I suggest that the company feels less pressure than its plc-peers. "As a family business," Marsden says, "we take great pride in the care and concern we have for all of our employees. At the end of the day, though, we are a business for profit, and we need to have a business model that is sustainable and will provide sufficient returns. While there isn't the external pressure of shareholders, we still need to run a business that is profitable in order to reward employees, to invest and to innovate."
Looking to the future, Marsden says the company is looking to streamline in more ways than one. "We've taken the position where we've needed to re-base our business so that we could get on to some firm ground, and then look at growing our business profitably and sustainably," he says.
The impact of this can be seen, Marsden notes, not only in the company's organisation, but also in its product range. "We have re-focused all of our attention on just our core brands: Gallo Family Vineyards, Turning Leaf, Redwood Creek, Barefoot and McWilliams in the UK, and Carlo Rossi, our number one core brand for Eastern Europe," he says. "We've made the decision to focus our resources on these brands and get out of other brands that cannot add sustainable profitability.
"In the US," Marsden adds, "Gallo competes in every single category, from the least expensive to the very high-end. In Europe, we've gone down the path of [operating in] all these countries at all these price points. In the economic environment that we're in now, you've got to be incredibly focused on what you do. The realisation has hit that we probably can't be the best at everything, so we've looked at what we can do best, and drive that. It's definitely less about being the biggest, and more about being the best. Gallo has always been considered the biggest, we want people to rethink and consider Gallo the best in what we do."
So, 12 months from now, where does Marsden see Gallo Europe? "We will be an organisation completely focused on delivering exceptional value to the consumer, through core brands in core countries," he predicts. "Quality will be the central focus of everything that we do."
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