Interview

"We know exactly what our plans look like by region for the next five years" - Interview, Michael Clarke, CEO, Treasury Wine Estates - Part II

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Earlier this week, Treasury Wine Estates released its results for the first six months of fiscal-2017. Following the announcement, just-drinks spoke to CEO Michael Clarke and, in this, the second part of our interview, we discuss the performances of TWE's regions and ask Clarke what he has brought to the group since he joined, three years ago.

Treasury Wine Estates released its half-year results earlier this week

Treasury Wine Estates released its half-year results earlier this week

just-drinks: Let's start in Europe - the smallest of TWE's reporting regions.

Michael Clarke: The team there has been phenomenal, generating double-digit EBITS margin for the last three half-years in a row. That's a massive achievement.

I often get asked, if the US and Asia are far more important than Europe for growth, then why haven't we walked away? Well, I'm not going to walk away from Europe, I still think it's an important business for the future. Maybe not right now, while we're prioritising our resources to grow in America and Asia and then Australia. But, there are going to be opportunities in the future for us to have further expansion with, potentially, European propositions. So, I want to maintain a foothold in Europe and I also don't want to give up that space to a competitor.

There will come a time when Europe is going to be more of an opportunity than it is today. But, I'm after the best returns and, currently, the best returns are from the US and from Asia. We might surprise people in the future, where we might have some interesting things that we'll do in Europe, but I'm not going to say anything further right now.

Brexit is such a worry with regard to what's happening with currencies. It's making it very difficult for a number of players to operate in Europe: That makes it a good thing for us. I'm prepared to play a waiting game for Europe to become a more important priority for us.

Treasury Wine Estates CEO Michael Clarke has a background in FMCG companies including Coca-Cola Co and Kraft Foods

just-drinks: The Americas, meanwhile, is the group's largest region in sales terms. And, it's growing well.

MC: There's still a lot of fixing and a lot of getting things right for us to do in the US. What I would want in the future is for us to have even stronger relationships with national accounts and with all of our distributors. I don't see why we can't drive stronger connections between our brands and US consumers - I know we can. I also think we can be a great business partner for distributors, where they can get a better margin and better cash conversion on our products.

In the US, we have 3% to 4% share of the market: Here in Australia, we're at 21% share. I look at that as an opportunity. I'd like us to be healthier in the US, by which I mean growth at every line in our P&L in the country. That also gives us the opportunity to do another acquisition - we're not desperate to do one, we're generating a ton of cash. That would be a good thing for our investors. Our business model is to layer on incremental portfolios or businesses. That is incredibly margin-accretive for us.

j-d: You said this week that you're going to split your time in 2017 between head office in Australia and the US. Why not focus your attention more on the potentially-lucrative markets of Asia?

MC: The biggest opportunity for us to drive organic growth - not just volume growth - comes from the US. We are working to a five-year horizon: We know exactly what our plans look like by region for the next five years. Range is allocated five years out. We're really disciplined in our thinking on the future.

We don't have any intention to move the business to the US. I want to accelerate some of that momentum. I can lend a pair of hands and help. We are listed in Australia and our headquarters are in Melbourne and that's where we will stay until something significant changes.

j-d: You've made a few changes in TWE's executive team since you joined. Can we expect this to continue?

MC: I'm very happy with the team that I've got going forward. The thing that my team know I look for is people who are strategic and who are good at execution - you can't just talk about things, you need to roll up your sleeves to be able to deliver.

I will always constantly make sure that no-one is slowing us down. If they can't keep up, then we'll change that person and then accelerate the team. We will never let the weakest link drag us back - that's key.

j-d: Considering your background (Coca-Cola Co, Kraft Foods, Premier Foods), how does a brand-driven person get to grips with as brand-phobic a category as wine?

MC: I'm a big believer in backing yourself - you should always invest in what you believe in. With brands, we're investing in our propositions. We're not going to dump the product on retailers and have it sit on their shelves - we'll help pull it through. And that's true for wine, food, soft drinks. I've brought a lot of FMCG people into the wine business here.

Within that, there are some very simple formulas that I'm using - we build one portfolio at a time, we make sure that it's strong, we allocate it as we drive consumer pull-through - meaning it's margin-accretive, because it's allocated. We did that with Penfold two-and-a-half years ago, we've been doing it for the past year-and-a-half with our Australian portfolio, and we're doing it now with our American portfolio. There will be a fourth portfolio - I'm not going to say what it is. And then, there'll be a fifth.

The reasoning behind operating on allocation is that I want us to get the right return for every dollar we spend. I don't mind going through a period of resetting where, sometimes, external commentators will comment on the negatives around the resetting. I'm happy to do that so that when we come out of it, I know we can be so much stronger in the market where we've conducted the resetting. I've got no problem facing potentially-negative noises in a half or in a quarter.

j-d: What's your exit strategy for TWE?

MC: I would like for this business to be a very successful, very profitable, predominantly luxury/mass-tige business that is truly global. I think we're the only really global wine company out there today. Our competitors are either very big in America and nothing outside, or they might be quite large in Australia, or in Europe.

This is going to sound corny, but I'd like to leave this business in a better shape than it was when I joined, than it is today and than it is in three years time. We're working hard and I'm having a lot of fun.

For part one of just-drinks' interview with Michael Clarke, click here


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