Interview - BRL Hardy Europe refuses to fall into US shadow
BRL Hardy's US operations may be taking the limelight, but Europe remains the focus market. European CEO Christopher Carson talks to Chris Brook-Carter about maintaining momentum with strategic acquisitions and plans for the tough German market.
One way or another, all eyes in the Australian wine industry are firmly fixed on the US at the moment. On a business level alone, the terrible events of the last week, it seems, may affect exports of wine to the country, according to the Australian Wine and Brandy Corporation, but no one is sure by how much.
Despite the tragedy though, like everyone else in the US, the wine industry will be keen to get back to "business as usual" as soon as possible. And when it eventually does, the race to capture market share of the most valuable wine market in the world will once more dominate Australian producers' thoughts.
No one has made their intentions more clear in the last month than BRL Hardy. On the back of announcing a 24% increase in net profits for the six months ending 30 June, the company also said it planned to raise A$145m through a one-for-ten rights issue at A$9.30 a share to fund continued development of its Australian and off-shore business.
And at a recent press lunch, managing director Stephen Millar left few in doubt of where the majority of these funds would be directed. "What is missing," he said , "in creating Pacific Wine Partners, [BRL's US joint venture with Constellation Brands], the last piece in the jigsaw, is a 300,000 to 800,000 case US brand. That is the acquisition we are looking for."
Interestingly, however, among all the excitement of the imminent struggle for dominance of the US market, Millar was also keen to point out that he expected the company's European sales to continue to grow strongly, indeed, outstripping growth in the US in terms of cases of wine.
"The US can give you additional growth but we believe Europe is every bit as important"
Be in no doubt the US, Australians believe, is the future of volume and value growth, but Europe remains the present. "We are very pleased by the results from a group point of view and a personal point of view in Europe, where we are going from strength to strength," says Christopher Carson, CEO of BRL Hardy Europe.
But while growth in the US should come quickly from acquisitions, the new JV and a relatively small base from which to work, Europe, and particularly the UK, are far nearer maturity, therefore posing a completely different challenge. And yet Carson proudly reveals that in the last six months sales in the UK continued to perform well, Scandinavia and Denmark grew four times and Dutch sales doubled.
Hardy's success so far, Carson says, has been to establish a range of wines covering the volume end of the market, from £3.99 to £6.00. "We have gone for market share where the volumes are and then been innovative in our promotions," he says. Interestingly he also says that Hardy's has benefited from the actions of its Australian competitors who have looked to increase their price positioning.
"Southcorp has been moving the Penfold's price up over the past years," Carson explains. "And it is not just Penfold's but Jacob's Creek as well. A gap was left for us to march in."
Hardy's Banrock Station available in Europe
What has been particularly pleasing, Carson says, is that Hardy's growth has come despite it too lifting its retail price slightly - the key being a higher level of marketing support to justify the move. The strategy has been similar throughout Europe, except that is for Germany.
Germany is the antithesis of the US for the Australian producers with its low margins and its slow returns on investment. But for Hardy there is clearly potential and the company will focus hard on the country in its plans for growth in the next five years.
Carson says: "For us the big one is what's happening in Germany. We have good growth for branded sales but a disappointing market share. We are fighting own-label and it is a very discounted market, we must encourage the trade to be more discerning, Australian wine is only 0.6% of the market, there is a lot of work to do."
Unlike the rest of Europe promotional activity will focus very strongly on the trade rather than the consumer. "There is a bit of a movement up by the German consumer. But the first place is the trade buyer, a lot have been in their roles for quite some years and they are not looking out of the box or risking experiment. We have to try and excite them to get them to give our brands a go," explains Carson.
The strategy is in marked contrast to the rest of Europe. "In Germany it is more about growth in distribution, driving the volume and opening the doors rather than more finesse with marketing strategy. Market share is the key as it improves the profitability by getting critical mass and efficiencies though the supply chain."
Breakdown of Australian Exports 1999
Volume '000 litres
Source: Australian Bureau of Statistics
Germany is a big piece in a jigsaw Carson hopes will drive European sales for a good time to come. He admits to some intense rivalry between the US and European operations who apparently play out their own Ryder Cup in wine sales. For his part, Carson remains confident of European success. "I can go on record saying we will sustain and exceed growth levels. We will increase market share in Europe comfortably," he reveals.
"The five-year plan for Hardy Europe is to gain one-third of all the Australian category. At the end of last year we had a 21% share, at the end of this year it will be 24% of all Australian wine in Europe."
With these ambitious targets, one does wonder whether the rivalry between the US and Europe will spill over from its sales base into the boardroom. "Europe is the key focus area. The simple factor is that although a lot are looking to the US, the UK for Australian wine is the focus market. The US can give you additional growth but we believe Europe is every bit as important. We will grow as much in Europe if not more than the US."
But can it do it while the US alone remains the focus of acquisitions. So far talk of M&A activity has been firmly rooted in the US, but Cason says: "I've thoughts about ways to strengthen the business. If there was the right opportunity for an acquisition it would be right to expand."
However unlike the US he says the acquisition is unlikely to be a brand or a producer. "It is more likely to be related to supply through the wholesale companies to develop the premium brands," Carson explains. "We are looking to broaden our base in premium wines so we want to develop our sales to the on-trade.
"We have good growth in the off-trade but there are different requirements in the on-trade so we are exploring ways we could invest in routes to market. In the case of the on-trade we are looking at wholesalers, but not necessarily buying," he says.
With the US economy slowing this may become a difficult time for Hardy's US investment, and, the defensive qualities of the European operations in comparison make a strong case for continued focus. It will be interesting to watch the Australian HQ balance the needs of the two regions.
Wines & Spirits in Australia 2001
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