No wine company has come under the kind of scrutiny and pressure from press, trade and analysts as Australia’s Southcorp has endured over the last year. Chris Brook-Carter spoke to its global marketing manager, Chris Hancock, about recovery from the perfect storm.
I have to admit that it was one invite I had not expected to receive while at the London Wine & Spirits Fair this year – an opportunity to interview a senior executive at Southcorp, the embattled Australian wine company. Listed businesses are not prone to give interviews in times of trouble. And Southcorp has had its fair share of trouble in the last year, with around six profit warnings in nine months, crumbling margins and a share price that has followed suit.
So, the chance to talk to Chris Hancock, Southcorp’s global marketing director and one of the Australian wine industry’s senior statesmen, was not an opportunity to pass up. However, if I thought the company’s present condition would amount to an easy target for a journalist after another “hard-luck” angle, I was very much mistaken.
Hancock, like so many of his compatriots, is a tough and uncompromising interviewee. He is an engaging talker but is also quick to pounce on any criticism he judges as unfair, dismissing one well-known critic’s views of the company by saying: “He wouldn’t have a clue, and I’ll go on record saying that. I would entirely discredit any statements that he made. His views happen to be purely personal and he is entitled to them but they mean absolutely nothing.”
Meeting towards the end of what must have been a challenging show for the group, Hancock’s mood was mixed. He was buoyed, he said, by the response he had had from the UK buyers, who had apparently understood Southcorp’s vision to re-establish normal business over the coming months. But he was also clearly irked by some of the coverage the company had received in the UK press and the gossip, rumour and speculation that inevitably follows a company in Southcorp’s position.
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By GlobalData“I am very disappointed in aspects of the UK trade and the UK journalists who invent and perpetuate fallacious rumours about this company. I wish they would get over it and get on. There is material coming out that really is slanderous. The tones I have noticed are unbecoming to the wine trade,” he says.
Such words run the risk of being hypocritical, coming as they do from within a company whose recent conduct itself many have felt “unbecoming” – in particular the investigation by the Australian Stock Exchange into unorthodox financial disclosures to analysts, and the unceremonious dumping of the now ex-CEO Keith Lambert.
But Hancock’s authority lies in a long and established career in winemaking and marketing that puts much of the rest of the New World to shame. He pruned his first vine in 1954, before becoming assistant winemaker with Penfolds Wines for the 1964 vintage. And it is within this long-term framework that he places Southcorp’s present woes.
“This is the first protracted economic recession period since the late-1970s,” he says. “Part of the problem for the New World is that a great many of the players have never known how to do business, do not understand how to do business, in a recessionary environment. Seventy percent of all registered wineries in Australia didn’t exist in 1990. So you get a lack of understanding of the cycles and peoples’ reactions are very different. A lot of management decisions are being made without a clear understanding of these circumstances.”
A culmination of events – retail consolidation, a global oversupply of wine and the quasi-commoditisation of the industry – combined with a global economic slowdown, Hancock says, combined to create “the perfect storm”. But, while he candidly admits Southcorp did little to help itself during this time, he firmly points out that it was not a storm of Southcorp’s making.
“It’s a shame that a flawed strategy out of Southcorp put them as the most prominent company to come under pressure. But believe me they did not cause this economic set of circumstances. They did not cause the global economic recession. They didn’t cause retail consolidation. They didn’t cause an oversupply of wine in the market. These things all came at the same time as Southcorp was presenting a strategy that really wasn’t relevant to the time of the economic cycle. And it has paid the price.”
However, while he described Southcorp’s discounting policy as a self-inflicted “uppercut”, Hancock, unlike a number of the city analysts, is keen to play down its long-term significance.
“Three of our brands are more than 150-years-old. They have been through the Boer war, two World Wars, the Great Recession, God knows how many decades of mismanagement over those 150 years and they are still here as strong core brands. This is a pretty extraordinary feat. In retrospect this situation will be shown really to just be a blip on the radar screen as we go along,” he said.
The “uppercut” though was painful enough to knock the then CEO Keith Lambert to the floor and his subsequent resignation has, according to Hancock, resulted in a “complete rethink”, which has involved “a restoration of focus on traditional brand values, development of a consumer-led, marketing-driven, profit growth business.” He added: “In one sentence that just about sums up the macro-strategy of Southcorp in the year 2003.”
Hancock continued: “I foresee a strong turnaround for this company. Don’t ask me to put timeframes on it. The nature of the wine trade is that things move a little slower than other businesses you might characterise as FMCG. But there is an inexorable tide turning.”
That said, he also appears under no illusion of quite how far Southcorp will have to travel in order to regain the confidence of the trade around it. “It’s a considerable task,” he said. “You can’t just unilaterally withdraw heavy discount activity without substituting something else and that’s our job. And nor will the process be immediate.
“We understand what needs to be done. It’s not difficult to do but requires a lot hard work, application and focus. And for a while we are probably going to have to take our lumps during the transition.”
Southcorp’s problem of course is the continuing growth of the retailers’ power base. But given that his company has suffered more than most from the pressure applied by the multi-grocers to cut margins, he is surprisingly philosophical about the future relationship between producer and buyer.
“The wine trade by and large has got to learn better to deal with the retail trade,” he says. “We have got to learn better how to deal in particular with the grocers who are highly professional buyers, who are very well structured and have got great strength. It’s not for them to change to suit us. We have to change to suit them. Those are the rules of the game. It’s a learning experience we have got to get hold of.”
He is also highly aware that for the retailers it will continue to be the logical strategy to discount Australia’s leading brands as opposed to what he calls a “bunch of disparate wines from the south of France”.
“They [retailers] want footfall, they want to get people in their stores they want to be perceived as the best value grocer. It’s much easier to set brands up, I would have thought,” Hancock says. “It’s part of the business we are in – it’s a matter of us learning to manage the process with our retailer colleagues. At the end of the day everybody gets a buck. But the relationship doesn’t work if somebody is being squeezed harder than they can afford.”
Though new Southcorp CEO, John Ballard, has done his best to reassure the City that the worst is over, doubters remain and rumours continue to persist that Southcorp will have to sell brands, merge or go private to save itself and its shareholders further pain.
“John is a new CEO, his first job as a matter of course is to clear the deck, get a baseline for his tenure to be measured. I think this is a reasonable position to take,” Hancock argues. “If people, for whatever reason they might have, aren’t prepared to accept his reassurances on this I don’t know what I can do.”
He adds: “There is nothing that I am aware of that indicates there is going to be any functional or structural changes to the company. This is a fantastic company; it has great resources, wonderful vineyards, great wines, great brands. There is nothing to suggest it can’t be a very strong prosperous business.”
Hancock’s long-term perspective of the Australian wine industry affords him a confidence in the country’s, and in particular Southcorp’s, future, that others are perhaps blinded to, caught up as they are in the numbers and share prices of the moment.
“We will come out of this recession or whatever you’d like to call it. We will come out of it. Why will we? Because we always do. Don’t ask me what’s going to trigger it off. The only thing I can be absolutely certain of is that it won’t be the same thing that triggered it last time,” he concludes.
