Australian Vintage saw its profits pummelled by the UKs decision last year to leave the European Union

Australian Vintage saw its profits pummelled by the UK's decision last year to leave the European Union

Late last month, just-drinks met up with the CEO of Australian Vintage, Neil McGuigan. The wine company hit the headlines earlier in May, as it secured a Chinese partner through a stake sale. In part one of our two-part interview, McGuigan discusses the thinking behind this, as well as considering the importance - or otherwise - of the UK market for Australian Vintage, particularly as the country - and the company - deal with the fallout of last year's EU referendum.

just-drinks: Can we start by looking at Australian Vintage's split of sales geographically?

Neil McGuigan: The UK accounts for 40% of group sales, 40% in Australia and 20% in the rest of the world. About seven years ago, the UK was about 50%.

j-d: How important is the UK market to you today?

NM: It's incredibly important. Our position has changed quite a bit: When I first came over here ten or so years ago, we only had two or three people here. We now have an office of 17 people. We're not in the on-premise yet, but we're working our way through that. But, now, we have people on the ground, every day.

j-d: You were hit particularly hard by the fallout from last year's EU referendum in the UK - an expected rise in full-year profits to the end of June actually came in as a loss.

NM: It happened - Bang. We fell into a hole. Our view was to suck it up. We've still got other opportunities in this marketplace and we believe the Pound will change and we will come out stronger at the end of this. 

We have no intention of pulling back in markets we are in where we're not currently making money - that's the dumbest thing you'll ever do. We have momentum here, and momentum brings momentum. When Brexit hit, we warned that we were going to lose half our profits. That hurt. But, what do you do? Do you decide not to spend any money, or put off that promotion, or not recruit new sales people? If you do that, the momentum stops and then you get momentum in the other direction, and that goes a hell of a lot faster.

But, sure, I've never seen anything before that has affected us as much as Brexit has. In the seven days after the referendum, it cost us AUD1.5m (US$1.1m) - it was unbelievable. We were going so well, then, in that seven-day period, we wondered what we had done wrong.

j-d: How did you feel the morning after the referendum?

In the seven days after the referendum, it cost us AUD1.5m

NM: My chairman rang me and said: "Where are you?" I said: "I'm on my way to the Harbour Bridge (in Sydney)." He asked why and I said: "Because I'm going to jump off it!"

j-d: Do you worry about AV's over-reliance on a particular market?

NM: We need to have better coverage around the world - Treasury Wine Estates has done an excellent job at that, and we need to do it too. But, we only started in 1992, they started in 1844. A few years ago, we focused so much on the UK because that's where the market was. Now, we're focusing on China, because that's where the market is and will continue to be for the coming years.

Neil McGuigan became CEO of Australian Vintage in 2010

Be warned, though: If we'd put all our effort into China rather than the UK back then, we'd have gone broke.

It's prudent to have a global footprint. But, I don't want to sell one less litre in the UK, I want to sell more litres. I also want to sell more around the rest of the world at the same time.

j-d: Let's look at China. Figures released in January suggest a rosy future for Australian wine in the country.

NM: You have 1.4bn people drinking about 1-litre per head. Three years ago, my chairman told me to build a brand in China. The only way you can do that there is to build a partnership with one company who controls your distribution system in that marketplace. If you deal with 20 distributors, they're not all going to have an allegiance to building your brand.

Today, it's growing nicely for us - China is growing at 40% for Australian wine, and has become the biggest importer of the country's wine. We have to continue to be in on this growth phase. We're in early, and we have a big partner in COFCO, who handles the McGuigan brand for us.

j-d: Earlier this year, you strengthened your relationship with China, selling a 15% stake to Vintage China Fund. Why?

NM: When you find a distributor with an arrangement that looks perfect for your brands, that focuses the mind. Also, they have a vested interest.

You can feel there is a real confidence about the next five to ten years of wine consumption in China

You can feel there is a real confidence about the next five to ten years of wine consumption in China - there's been a change. I was very sceptical to start with, but you can really feel it now. In the early days, there were a lot of tyre-kickers that came over from China to Australia. They all talked huge numbers and said loads would happen, but nothing ever did. There wasn't any real depth of understanding about what was required in the wine industry. But, people that are coming now, actually get it. COFCO, for example, has established its own distribution system, they also have their own salespeople, there's been an education process among them as well. Whereas before there was wine trading, all of a sudden, there's a real wine industry in China.

j-d: Was there any pushback from Australian Vintage shareholders against the stake sale?

NM: Of course, they thought the premium wasn't enough! But, when you explain to them who you're in business with and the opportunity that is available in China, then they get it.

j-d: What advice would you give to others looking to China?

My advice is to leave China to us! Seriously, you must be incredibly patient and persistent.

Things take a long time in China. State-owned enterprises don't make decisions quickly. That's fine - that's just their culture and you need to understand that, it's the big thing. I've been dealing with China for eight or nine years now and I didn't understand the culture - I had no idea. It's a different mindset. With Vintage China, we were very lucky that the guy that put the deal together is Chinese-born and Australian-educated. He understood what we wanted and also understood the way the Chinese do it. He was our bridge.

Click here for part two of this interview: "In the US, we don't sell a litre. Come on, have a go!"

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Global Wine Market 2016-2020

Global Wine Market 2016-2020

Wine is an alcoholic drink produced by the fermentation of grapes or other fruits. It has various health benefits, if consumed in adequate amounts....read more