Treasury Wine Estates goes for brand, not land

Sydney

MANY vintners would love to own enough wine country to cover Manhattan twice over. Not Treasury Wine Estates, maker of the US$850-a-bottle Penfolds Grange.

"We don't have to own all the vineyards," said Mike Clarke, a former Coca-Cola executive who took over in March as chief executive officer of the world's second-biggest wine company. Assets including Treasury's wineries and bottling plants "could be in someone else's hands".

In an industry where winemakers cherish their links to the land so closely that some have occupied the same sites for centuries, that's a radical proposition, according to Phil Reedman, an independent wine consultant who spent nine years buying new world vintages for Tesco plc.

"Fine wine is very strongly linked to the winery," Mr Reedman said. "Premium wineries sell themselves on having ownership of land, growing their own fruit, and taking grapes from their vineyards to the bottle."

The Staffelter Hof winery in Germany's Moselle valley has been operating since the 9th century and Florence's Frescobaldi family owns vineyards which supplied wines to the Renaissance sculptor Donatello.

Mr Clarke's taking a different tack, looking to apply lessons he learnt selling soft drinks, peanut butter and instant noodles at Coca-Cola, Kraft Foods and Premier Foods to recover from a US$210 million loss.

He's studying Treasury's 12,778 hectares of vineyards and A$659 million (S$743 million) of wineries, cellars and bottling plants to find assets to sell and leased back to free up funds to invest more productively.

While Mr Clarke is not planning an immediate sale of all Treasury's physical assets, ultimately "brands, knowhow, knowledge and strategic thinking are what we want to own," he said. Treasury needs to change from "an agricultural company to a brand-driven, marketing-led company."

The strategy mimics Coca-Cola's century-old policy of focusing on brand development by leaving costly businesses such as distribution to independent bottlers.

Mr Clarke's efforts to restore profits include selling discount wine fridges to encourage drinkers to buy more bottles and clear retailers' stock; increasing marketing spending 50 per cent and stripping Treasury's brand list down to a core of 10 to 15 labels.

He's also changed the release dates of the Penfolds label to avoid flooding the market with bottles and depressing prices in the last quarter of the company's financial year, and announced plans to stop production at its South Australia winery.

Beyond that, he wants to turn the Etude label into a worldwide pinot noir brand that uses New Zealand grapes in New Zealand and Australian grapes in Australia.The move would allow Treasury to pool its marketing budget and allow Etude "to be a stronger brand", he said. BLOOMBERG