just the Answer - Australian Vintage's CEO, Neil McGuigan
This month, we talk with Neil McGuigan, CEO of Australian Vintage
Earlier today (22 July), Australian Vintage confirmed the permanent appointment of Neil McGuigan as its CEO. To commemorate this, we are running a special just the Answer, taken from our meeting with McGuigan earlier this year.
Neil McGuigan: The Constellation deal would have been good for us and excellent for both companies with a lot of synergies in production and distribution around the world. However, there were a number of commercial issues – which I can't go in to - which could not be resolved. Because of this, our board decided to walk away. There's no animosity between the two companies, we got on well beforehand and we still do now.
j-d: How disappointed were you?
NM: Our company's plans are good and solid – this would have taken us to another level, but as a standalone business we think we still have a lot to offer. Yes, there are some financial hardships right now. Depending on what happens with the Australian economy, those hardships may continue for a while. But we have a strong business. The model is good – it may need caressing as all models do as a business starts to evolve.
To get to the level that the Constellation deal would have taken us to will take us a lifetime – it was set to be a mammoth jump. It was exciting, but there were some issues that meant that right now is not the right time.
j-d: Did you have any reservations of getting together with a company the size of Constellation?
NM: There's no doubt that we'd have had to fight for our brands, but we aren't shrinking violets. We know what we want and we understand how to build brands. You have to fight if you're in a large bureaucratic monolith. You've got to keep the passion and you've got to be very focused on your brands. Your people have to be focused on selling wine and getting the margin, rather than playing the political game.
j-d: Give us an idea of Australian Vintage's place within the country's wine industry.
NM: We crush about 165,000 tonnes of grapes. We have our own brands, plus we do contract processing for a number of wineries both in Australia and around the world. We're about the third or fourth largest winery in the country.
j-d: After the well-documented highs and lows of recent times, where does the Australian wine industry sit today?
Neil McGuigan, CEO of Australian Vintage
NM: We still have to make some changes in the wine industry. If we assume that the exchange rate stays stable, then the main issue is that there are too many grapes in Australia and the balance of irrigated versus dry land is out of kilter. We're pulling grapes out, but we're pulling them out of the irrigated areas. The dry land material will come out as well but I've got a horrible feeling that we're not going to get the right proportion of irrigated versus dry land. Whether that will be in concert with what sales will be, I'm not sure.
At the same time, we'll have some amalgamations and some wineries will go out of business. Then we'll have an industry where the volume is reasonable in relation to what it can sell. It'll be a more profitable industry as a result, because we'll be able to get higher prices.
If the FX comes back, however, all that will change! There are so many variables that we can't control.
j-d: Could the current predicament not have been foreseen? This all sounds rather familiar.
NM: In the '80s, Australia was on a roll – you could not get enough Australian wine and the overall image was powering ahead. We planted like crazy, we were going gangbusters - the US sucked up our wine, and at that time AUD1 bought US$0.50 (Today, AUD1 is worth US$0.89).
The guys running the wine companies at that time were the guys doing tastings every weekend all over the world – we had personality in the industry. Then, corporatisation followed and we stopped talking to the consumer: We weren't continuing to evolve our wine styles.
If we go back just five years, when we got Simeon and McGuigan together, I remember worrying that we had to sell so much. I thought: “We've got to stop it.” So, we went through the contracts and nailed 60,000 tonnes of grapes. We were villified for doing that! We had major wine companies saying that they would never do anything like that – they're the ones that took on AUD350m writedowns last year.
We saw it before everyone else, but it was too late. Five years ago, Chardonnay was at AUD800 a tonne. Today? AUD150. It's unsustainable.
j-d: How big a part did the weather play?
NM: It exacerbated it. When the crop level was down, there wasn't any rain, so you had to buy water, the price of which went through the roof. But now, we've had a bit of rain and we're looking pretty good.
j-d: What's your opinion on the Foster's saga?
NM: I don't know the situation well enough to comment, but Foster's have icon brands. If they get it wrong, then it's going to be difficult for all of us. I just hope they get it right, and put the wine back into the wine business. That's one thing we can control. That, and our cost-base. I have to cut our cloth so that our company is sustainable – it's painful sometimes, but it has to be done.
When it comes to quality, a lot of people are sobbing into their beers, which is driving me insane. It is tough, but you've got to get off your arse and have a go. We'll come out of this by focusing on quality and over-delivering at every price point. We have a fantastic opportunity here. When it turns, if we're at the front end, we'll hit the ground running because we'll be front of mind.
j-d: What's your take on the mood within the wine industry generally now, compared to a year ago?
NM: I can be as pessimistic as you want! I get a whinge-on, but you've got to get over it. There is a way through it, but you've got to have a plan – our plan involves controlling costs and getting our wine quality right. Don't accept what you did last year as being the benchmark.
We're really excited now. We've got to get Australia excited again.
The first management briefing of 2011, brought to you by Euromonitor, looks at what this year will bring for the global drinks industry. Ahead of this, just-drinks looks back to look forward: Our brie...
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