Standing alone: David Dearie, Treasury Wine Estates

With Treasury Wine Estates now decoupled from Foster’s, CEO David Dearie is determined to turn the firm’s fortunes around with a centrally controlled global focus.

Foster’s separate stock market listing for its wine division in May this year only confirmed what any party goer has doubtless discovered at some point in their lives: beer and wine don’t mix.

But in the case of the brewing leviathan, the testing of this theory was particularly prolonged and extravagant, lasting 15 years and costing the company rather more than a packet of paracetamol – it had lavished almost £4 billion on vinous assets, and, when the wine division appeared on the Australian stock market three months ago as Treasury Wine Estates, investors valued it at a little under £1.5bn.

So what went wrong? David Dearie, who was appointed CEO of the new, standalone company, which contains some of the wine world’s most iconic labels, suggests it could be connected to the brewer’s failure to appreciate the cyclical nature of the wine business – or its particularly weather-sensitive production – as well as Foster’s regionally distinct management style, which split the world into quarters, preventing the full and efficient development of global wine brands.

Today, however, decoupled from the brewer, Treasury can pursue a strategy to fit the quirks of the international wine trade and one that Dearie, with over 20 years’ experience of alcoholic drinks, seems well placed to impose and direct. Further, speaking to the drinks business just two month’s after his elevation from MD of Foster’s Wine Group Australasia to CEO of Treasury Wine Estates, he records an air of renewed enthusiasm at the company, despite rumours of possible takeovers from initially Constellation Brands and then China’s Bright Food Group.

“People are very excited about being a dedicated standalone wine business because there are some who joined a wine business and through no fault of their own ended up being part of a beer business.” As for the threat of incorporation into another multinational operation, he adds: “There is a lot of speculation now Foster’s is in two parts, but we are focusing on turning ourselves into the most successful wine business we can, and if we are successful, then the ownership will stay as it is and the shareholders will be happy with our returns.”

The Foster’s Group, to use its official and full name, is, Dearie admits, “predominantly a beer business in one market with one competitor”. Treasury Wine Estates is, however, “a more competitive business, more of a global business, and an agri-business at heart”. The latter aspect he says needs particularly careful management. “Mother nature has proven to us she can do funny things at inappropriate times,” he remarks, only half joking.

Continuing, he says: “The wine business is very cyclical and you get around 15 year cycles, with six to seven years of undersupply, then a period of balance, and then six to seven years of oversupply.” Excusing the underperformance of Foster’s wine division, he continues: “The problem is that companies track it [the wine business] and see that during the good times there is growth and the margins are good and then they buy, but, by the time they buy, along comes oversupply, and they have to change their techniques.”

Then, admitting failure on the part of Foster’s, he says: “And I’m not sure Foster’s really understands the business we are in.” In contrast, turning to Treasury, he adds: “But we understand it is a cyclical business, and you can make good returns through the downside and really good returns through the upside if you know what you are doing.”

When it comes to the current state of the international wine trade, he says: “We are in oversupply, with lots of private label, low pricing and low consumer brand awareness.” This, he thinks, is slowly changing, although for Australia, he believes the country “is still probably 12-24 months away from demand and supply balance”. Indeed, Dearie outlines a worrying situation in the nation. “The estimated crush is 1.6 million tonnes, so slightly higher than last year’s 1.5m – because the rains brought higher yields. Now a lot of that wine will be turned into concentrate, but we are also seeing wine produced that is not good quality.”

He explains: “We’ve been rejecting grapes because of mould but others are saying, ‘we’ll take these off your hands’ and these grapes should not be turned into wine.” Dearie’s concern is the export, mainly to the UK and Asia, of “extremely cheap” and “poor quality” wines, which will damage Australia’s image in these markets.

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