The Wine Rules

Australia’s Best Independent Wine Shops 2014

TheWineRules second annual on-line competition; Australia’s Best Independent Wine Shops 2014, will launch on 1 May and conclude 31 May 2014.

Winners will be announced online on 2 June 2014.

Nominations will open the last week of April so all entrants have the whole month to run their campaigns.

All rules, etc will be posted on the blog as well at that time.

All announcements will be made on Twitter, Facebook and LinkedIn directing you to the blog.

We will also be posting some tips to maximise the value of this on-line event for your business.

Finally, we’re very excited to have WBM Magazine back on board as a sponsor again this year! Now, if vintage would just end….

Cheers, Dudley

 

Life During Wartime

This ain’t no party, this ain’t no disco. This ain’t no fooling around. No time for dancing, or lovey dovey. I ain’t got time for that now.‘ – Talking Heads, “Life During Wartime”

After the Australian wine industry’s annus bizarrus of 2013, I’ve been ruminating on what steps (short of electro-shock therapy) that could be taken to nudge the industry powers that be, and our national industry, towards a path that leads to the top in 2014. While the conversation about the future of the industry seemed to come out of the closet in 2013, it also saw the industry appearing to expose itself as being run by conspiratorial corporate interests more concerned with their share of the industry pie than the size of the pie.

Despite the foregoing mash-up of mixed metaphors, it is logically impossible for forward looking, positive change to occur that benefits the entire industry with this belief system intact. To that end, I’m proposing an alternative (and abbreviated) list of proposed “actions” to those proposed by the WFA. But first, a telling joke.

Q: Whats the difference between a pig and a chicken?

A: They both make a contribution to breakfast but the pig’s committed.

chicken-pig2

Performance based pay

What if the CEO’s of the Winemakers Federation of Australia (WFA) and / or Wine Australia (WA) were paid for results that actually affect and benefit the entire grape and wine industry? In a scenario where growers and wineries were increasingly sustainable with grape and wine prices rising and world interest in Australian wine increasing, I would have no objection to these CEO’s making significantly more than what they earn today.

With “behavior follows compensation” being just about the only management nostrum that is demonstrably true, I propose that $750,000, or even $1,000,000 per year is required to make these difficult jobs attractive to superstars. Here’s the catch; the base pay needs to be a minimum / livable rate paid against results. Say, $80,000 per annum.

Their contract term would be annual. These people should be comfortable living with the same anxiety every grower and winemaker lives with every single vintage and release while juggling the short and long term needs of their business. In short, they should have the courage of their convictions and real skin in the game.

I propose three indicators that would be used to assess their performance:

1) Membership. That the government is now well aware that WFA is not a broadly representative body is the result of WFA’s ‘own goal’ in 2013. To correct this, what if WFA’s CEO went out and attracted 60%-80% of wineries in Australia to become members of WFA? Think of the credibility WFA would gain across the industry and with government. Right now, there are a number of regional associations with larger memberships than WFA.

To successfully woo this many new members, the CEO would have to create an offer so compelling that it spread by word of mouth. The imagination and discipline required to be successful in this endeavor is worth tens or hundreds of millions of dollars to the future value of the industry and needs to be rewarded accordingly.  No wine company is forever, but the wine regions, and their voters, are. The politicians know this.

2) Export price per litre. Because a large majority of Australian wine is export bound, this is as good an indicator as any other as it captures lots of upstream activities of wine companies. The obvious counter argument to this approach is to suggest that the CEO’s of WFA and WA don’t control currency fluctuations, crop size, etc. Well, winemakers don’t control these things either but this is what we deal with every day. And, we’re in this together and pay their salaries, no?

3) Grape prices – increasing prices for grapes would indicate that demand had finally exceeded supply. The CEO’s would have an interest in both reduction of undesirable supply as well as demand creation for supply. While it might seem counter-intuitive for the CEO of WFA or WA to get compensated for improving the growers lot, any compensation scheme that doesn’t embrace the needs of the entire supply chain dooms the entire industry to failure.

We got in the position we are in because the big companies and the peak bodies thought an endless supply of low-cost fruit was all they needed to take over the wine world. A CEO who realized they wouldn’t make money in an oversupply situation could have fought that idea then and could have saved members’ investors something on the order of $7-$10 billion dollars (so far). Numbers like these make munificent CEO compensation seem cheap. Rising grape and vineyard prices are perhaps the best KPI of all because everything downstream has to be working for either to increase.

john chambers

I’ve often said that we don’t have a surplus of grapes but, rather, a deficit of imagination and sales skills. In addition to being strategically focused, the CEO’s of the WFA and WA should also be our best salespeople. Great salespeople are game changers at any scale of organization. Treasury briefly understood this when they had David Dearie in charge.

The genius of great salespeople and leaders is their ability to fuse strategic insight to a knack for describing a future we can’t imagine  for ourselves. Listen to Warren Randall explaining why the opportunity in China is a “once in a lifetime gift to be grasped and not to be refused” instead of a “difficult, complicated effort undertaken in an alien business culture and you’re more likely to lose than win.” People with these skills don’t make a couple hundred grand a year. They make much more. We get what we pay for.

While any national industry body requires lobbying talent and a constant presence in Canberra, the defensive nature of lobbying isn’t the focus of a leadership position. The CEO’s job is outwardly focused, selling a positive and unique value proposition that other people want to be a part of.

World class CEO’s like Cisco’s John Chambers insist that 90% of their time be spent in the marketplace with customers and potential customers.  (Chambers has also said he learned this lesson when he had to fire thousands of employees at Wang Laboratories (remember them? they had 33,000 employees) after failing to convince founder An Wang of the growing importance of PC’s. The lesson Chambers learned was to embrace change as the only way to protect his future and that it was customers who had the information he needed to do that.)

A CEO who isn’t in the marketplace selling 90% of the time doesn’t have the right team minding the store and / or isn’t the person to lead in a changing industry.

If this was the compensation plan for these CEOs, what sort of applicants do you think would apply for this job? Compliance officers? Lawyers? Lobbyists? Or, strategic sales and marketing executives motivated by a big ass challenge?

Wine Integrity

Make Australia’s wine labeling rules the toughest in the world – lets say a variance of +/- .3% of alcohol by volume instead of the current +/- 1.5%. By  doing just this, we will send a message to the world that we are winemakers who take our products, and our customers’ health and education, very seriously.

Implement a system better than South Africa’s world’s best label integrity program. Their system leaves our current system in the dust, particularly for sustainability. The result of the integrated approach of the South African system is renewed faith in their country’s products from world markets despite challenging social and political conditions.

In my opinion, South Africa represents the single biggest threat to the main body of the Australian wine industry. Not only are they much more cost competitive than almost anyone, they have a better tourism offering than most, are located in the same time zone as most of Europe and have a fluent English speaking business culture.  Its a formidable combination we seem only dimly aware of. While they aren’t the only ones, we need to learn from any country that is innovating ahead of us.

South African bottle seal

Better Data

We are in the twenty-first century managing an industry like it’s still the twentieth century using processes from the previous millennium. Better data is critical.

Tony Keys recently made the suggestion that bulk wine export sales reporting should be made in ten-cent increments per litre. He’s right. It should.

Much more importantly to our future, export sales over ten dollars per litre need to be published in much greater detail than “greater than ten dollars” as at present . The data are already collected, just not reported in detail. This sort of information could be as critical to a growers’ strategy as it is to wineries’ marketing departments.

Similarly, we need detailed information published on the high-end of the market for grapes. Again, while the data is already collected (and available by request from Wine Australia) it needs to be widely published. This is the segment most likely to change the perception of Australian wine worldwide. It is also the area worth the most potential for profitable growth over time.

These three suggestions would collectively cost almost nothing to publish.data tag cloud

We only need one system for reporting on grape harvests – preferably through a combination of Wine Australia working in concert with the Australian Bureau of Statistics. In California, the tonnage and price of every single transaction is reported (but not the identity of the buyer and seller) to the Department of Agriculture and published. Is it any wonder California pulled vines equal to all of the vines in South Australia in less than two years in the early 2000′s and have been on an upward course ever since while we are still muddling along with oversupply from the same era?

Not only is this information valuable to growers and winemakers, it is information bankers, investors and potential investors need to fund the continued development of the industry. The money saved by the Phylloxera Board, SAWIA, WFA and others surveys could be better deployed elsewhere or combined to fund a single comprehensive system.

We also need a federal statutory system for recording all vineyards, varieties, disease status and age as a matter of priority. This is necessary to record and prevent pest and disease outbreaks and to protect our oldest vineyards in the world as national treasures.

Grower relations:

Require all payments (including bonuses) for wine grapes to be made by 30 June each year.  This way growers will have the funds to make the improvements and pruning decisions required before the season begins. We have to break the cycle of growers not having the means and information to grow appropriate quality fruit and thereby being unable to supply desirable fruit to wineries.

Also, the current regime of extended payments means growers fund wineries bad decisions and poor cash flow. Wineries that can not pay by 30 June should lose their export license for one year. Demand for grapes will dip initially but a little financial reality tonic will be good for everyone’s long term decision making.

‘There’s no such thing as a little heresy’ – Christopher Hitchens, “Hitch-22″

Industry Structure(s)

The WGGA either needs to be a truly representative body financially supported by levies or similar proportionate contributions from all regions and states or it needs to lose its government status as a “peak body.”

Similarly, if WFA can not convince at least 50% of the wineries in the country to join, it should lose its government status as a “peak body.” And, the same for all the other state based “peak bodies.” Maybe this threat would ensure they focus on the importance of a succinct value proposition.

If these bodies can not meet the standard set out here, we should start over with a clean slate with one body at each level and one funding model that is democratically transparent in application and representation.

In the meantime, all of these bodies should heed the dictum to “lead, follow or get out-of-the-way.” To that end, they need to specialize / focus on where they can create value and get out of the mini-government role they’ve created for themselves trying to rationalize their own existence. Then, they need to be judged by demonstrable / measurable outcomes.

christopher hitchens

Media and Wine Show Transparency:

How about a registry of industry journalists who pledge to publicly declare any compensation (aside from two 750ml sample bottles) received from wine companies whose products they have reviewed?  Amounts are not required, just the employers names.  I have no quarrel with making a living by whatever legal means, but we should ensure the credibility for all involved. Too many in the public believe the system to be a pay to play affair. And, it would be revealing to see who was unwilling to take this pledge.

In wine shows, judges should not be allowed to judge at shows where they have also entered wines they have made. Or, perhaps, they should only be allowed to judge at shows with their own wines. Its one or the other.

What about developing a national standard for double-blind sampling, confidential scoring by all judges (including associates) and data analysis of judges scoring etc at wine shows?  There are statisticians drooling to do work like this. Which show will be the first to take the plunge?

None of this is anywhere near as hard as many would suggest. It just takes imagination and discipline.

The bottom line is that if we want to win, we have to start playing differently. While these proposals are offered in the spirit of getting the blood flowing, they would get different results. Things will not change unless you start openly discussing what you think we can do better and differently to improve our wonderful industry’s chances. The much reported uproar at the McLaren Vale WFA roadshow in October showed how little it takes to change the conversation the industry is having. Lets have more of it.

Please write and let TheWineRules know what you suggest.

All constructive suggestions will be published.

2013 – Reality Wins. Or, It’s a Funny Old World

The Wine Rules wrap up headline for 2013 could be “Reality Beats Fiction” Or, “It’s a Funny Old World.”

The first funny bit – TheWineRules started out 2013 being described as “very minor” (by someone who considered himself very otherwise) and ended the year being attributed with the force itself; the power of resurrection. Another bit of fun has been observing unintended consequences caroming around the cosmos and, sometimes, coming home to awkwardly roost. The last funny bit is the observation that many years sort of end up where they started. Some years it’s hard to know whether life is a continuum, a series of bookends or just a bit of vinyl spinning at 33 RPM with a scratch in it. 2013 was one of those years. But we persist.

Yesterday, über-imp Zar Brooks called to tell me that, to the great hilarity of numerous industry heavyweights, he had publicly blamed TheWineRules (occasionally TWR hereafter) of single-handedly exhuming and resurrecting Brian Croser from the (metaphorical) dead. Since then, Zar has been sending me emails with various imagined punishments (some in Portugese) for exercising my powers thus. Like I said, it’s a funny old world.

Despite the self-evident quality of Zar’s mischievous mirth, this is not a cross I can fairly bear alone. I have had help. In fact, if I hadn’t had so much help, TheWineRules wouldn’t exist at all. Nor would it need to.

zar brooks

In the spirit of the festive season (or an imaginary awards banquet for contrarian wine industry bloggers), I would like to take the time to thank all those who have made life so much more worth living for an opinion blogger.

First, I have to thank the big man himself – Croser. There really is no one like him for attracting readers. Without his tetchy defense of the hirsute Andrew Cheesman (former CEO of Wine Australia) in January, TheWineRules would have remained an unseen, unread, unknown digital carbuncle. This is one of those unintended consequences for both of us.

Now, with Croser just having had a public dummy spit about the failure of leadership in the Australian wine industry (10 months after attacking TheWineRules for its blog about, um, the failure of leadership in the Australian wine industry), we proudly say, “Welcome to TheWineRules team, Brian.” It’s not a big team but, don’t worry, we have a big tent.

In all seriousness, for things to have gotten so bad that Croser has come out of his den to be heard is a serious indictment of the organization he once led. When distaste for mediocrity galvanises into disgust, it matters.

To give BJC his due:

“The refusal to recognise the different strategic imperatives of the two wine types is a failure of leadership. I had not appreciated until today the same frustrations are shared by many of the small winemakers of Australia whose passionate endeavours are supported by the rebate of the WET tax which the representative organisation, WFA has endangered by trying to act as the moral umpire and neighbourhood watch on potential abuse of the tax. That is not the role of WFA.”

And:

“It is difficult to see why Anthony Madigan is not owed an apology by the WFA for their treatment of an editor going about the business of reporting the industry, which is his brief. If there is reason for not offering an apology, that explanation should be forthcoming from WFA in a very open and public way.”

Bravo Brian. Good deeds deserve recognition.

cantbelieveprotest

In fact, it would be a far better industry if more considered opinions were put “out there”, more apologies were offered and more outliers publicly defended. All are central to the conversation needed to re-build a great and good wine industry. Pity that it was our industry’s nicest booster who was attacked and in need of defense from an unrepresentative wine industry association.

Madigan has been a supporter in a quiet way of TWR in WBM and TWTW even though he clearly thought us a bit OTT. He wrote that TheWineRules was in “dangerous territory” in TWTW at one point (how prescient he was) and, after he was muzzled by the WFA, privately, on TWR’s prescience regarding industry leadership.

Madigan

From the mail I receive, it is certain our industry has suffered from 1) a suffocating fear of the consequences of speaking out and having hard conversations in public and 2) the belief that disagreement is personal. It isn’t. It’s the obligation of a member of a free society and a great industry to honestly and publicly dissent when one believes it is warranted.

It is equally important to say “It was wrong” and / or apologize once one becomes aware of an unintended offense. This is where the offense is greatest – standing behind ones processes etc. while failing to recognize one has been wrong / tone deaf / uninformed etc. WFA should take it disaster management cues from Peter Beattie or Bill Clinton and not Kevin Rudd or “Dubya.” .

What happened at the WFA meeting in McLaren Vale was the tipping point of conservative and sober winemakers breaking out of their gloomy silence by A) publicly dissenting and B) giving the WFA what they needed – a schooling. This is industry leadership.

This “schooling” in bottom up leadership is what the WFA didn’t want reported by Madigan. They knew that a booster like him would be taken very seriously if he reported the degree of criticism reportedly to have been on offer from no less than a federal Senator.

SeanEdwards

The beauty of 2013 is all that seemed like barking mad opinion in the TheWineRules just six or twelve months ago has been revealed as not only real, but even a tad average. There really are conspiracies! Who knew? It is all more fantastic than even I supposed. Be they malevolent conspiracies of intent or a passive ones of silence is no matter. What a hoot! But I digress from the narrative.

The blood stirring, nay, thrilling bit in this drama is that with a gentleman and scholar of Croser’s standing, it can be no coincidence his public call to arms occurred within a month of TWR’s favorite day – St. Crispin’s Day (that’s pretty close isn’t it?). For any one who slept through English class, Shakespeare supplied the following lines to Henry V:

This story shall the good man teach his son;
And Crispin Crispian shall ne’er go by,
From this day to the ending of the world,
But we in it shall be remember’d;
We few, we happy few, we band of brothers;
For he to-day that sheds his blood with me
Shall be my brother; be he ne’er so vile,
This day shall gentle his condition:
And gentlemen in England now a-bed
Shall think themselves accursed they were not here,
And hold their manhoods cheap whiles any speaks
That fought with us upon Saint Crispin’s day.

Henry V

I can’t help but regard the timing of Croser’s recent pronouncements as a coded invitation to link arms with the TheWineRules. I get goose bumps just thinking about the possibilities.

Second, (and only second because they just aren’t quality click bait), TheWineRules would like to publicly thank the leaders of the Australian wine industry for providing so much fodder for a blog like this. Without being overly modest, we don’t have the gifts of imagination required to think this stuff up ourselves.

To paraphrase one well placed wag talking about WFA leadership “One’s a compliance guy and the others a lawyer. I’m sure they think they’ve done everything right!” To belabor their threats, misfires and the glorious artlessness of it all would just seem like churlish gloating at this joyous time of year.

I’m reminded of an avant-garde public sculpture exhibit in Toronto in the early 1980’s. One sculpture was a series of pranged and mis-matched car doors welded together in a haphazard line about 20 metres long. After a week or two some genius spray-painted “Car Culture Kills” along the length of doors. The media that previously hated the sculpture leapt to the defense decrying the vandalism of art no matter how unpleasant. The artist was assured it would be restored to its prior glory and interviewed by the newspaper. She simply said something to the effect of “Leave it. At least he gets it.”

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So it is with recent events. TheWineRules is about the intersection of the written and unwritten rules of the industry. Sometimes events are just better than words at describing this. With any luck at all, WFA will be now just be seen for what its strongest members wished it to be – theirs.

But what of the rest of us? Who will represent us?

Happy Festivus.

Wine, War and Mixed Meta(for)

“Don’t follow leaders, watch the parking meters” – Dylan

“I read the news today oh, boy” – Lennon / McCartney

Wine industry hit by high $A

JULIE-ANNE SPRAGUE, AFR 15 Jan, 2013 07:09 AM

THE federal government’s statutory wine agency has warned Australia is not close to reaching sustainable wine production and urged producers to focus on selling and marketing more expensive wines to help combat the impact of the high currency.

This article ((and the pronouncement by Andrew Cheesman (I don’t make these names up) of Wine Australia)) were prompted by news that Casella Wines, makers of $7 per bottle Yellow Tail, had reported a $30m loss and were in breach of bank covenants primarily due to the strength of the Australian dollar. Casella was the news lead but the real story is that most everyone in the Australian wine industry is in a struggle for survival.

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Andrew Cheesman and some, ummm, “product”

What did not rate a headline was a meeting held for over 100 grape growers held in McLaren Vale in 2006 where Warren Randall, owner of (then) Tinlin’s Wines (but now owner of Tinlin’s, Seppeltsfield and Boar’s Rock) bluntly and emphatically told growers “grow A or B grade or get out.”

In 2006, the big buyers of fruit were pulling back on their purchases of all fruit, particularly A and B grade. C grade (for $10-$15 per bottle wine) was the rage because the “high” Aussie dollar (then around $.75 USD, now $1.05 USD) was making lower priced wines unprofitable and higher priced Australian wines were in a slump. The bottom was falling out of the grape market at almost every level and here was Warren Randall telling us we should be doing the opposite of what wineries were asking (and, more importantly, willing to pay) for.

What Randall knew then was that the oversupply and the Aussie dollar would lead to a long drawn out war in the industry. Regardless of what the market wanted, the high cost of doing business in McLaren Vale dictated that we had to differentiate and sell smaller crops at higher value.

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Warren Randall of Tinlin’s and Seppeltsfield

Warren’s warning was the distilled essence of leadership akin to that given at Omaha Beach; “take that cliff and you might die. Stay on this beach and you will die.” It’s not what you want to hear but is something you need to act on. Was that the sort of thing Cheesman meant to say the other day? Or, not? It wasn’t clear or, in bureaucrat-ease, what they call “actionable”.

Seven years later, growers in the Vale find themselves in the most advantageous position in the wine grape industry (aside from TasMania). Shiraz fruit was pre-sold by November this year. Prices are well up for the third year in a row. Wine makers have followed suit with dozens of McLaren Vale wineries with $50+ offerings now. No one is in the clover, but not many are in deep shit with the bank anymore either. Regardless, the strong Australian dollar is hurting even diversified and successful wineries.

Since there is no “new news” in any of this, why does it rankle to read Cheesman’s comments seven years on?

War is so frequently used as a metaphor for business and business strategy it is odd to note that while they share so many features, notably purpose, they are the opposites in one significant respect – means.

In war, you fight and win knowing that both sides will suffer horribly. In business, if you cannot trade in a mutually profitable way, you lose.

For years, the large wine companies ran the industry like it was in a war. They engaged in an arms race buying and building refinery-sized wineries with capacity to buy, grow and make wine far beyond their collective talent for selling it. Unfortunately for the big wine companies, those were the good ol’ days. The first to suffer this awareness were the growers when their long-term contracts were up for renewal beginning in about 2004.

The wine companies then acted as though the growers were not long-term suppliers but the enemy who had misled them into their mess. They turned their might on growers cancelling tens of thousands of hectares under contract, restricting terms, reducing prices, etc.

Meanwhile the big public wine companies collectively wrote off over $7 billion dollars in losses and every public wine company but Treasury has since gone bust, sold up or been taken private. Interestingly, write-offs are usually and largely a function of the eventual recognition that management wildly overpaid for assets, not so much trading losses. (It seems write-offs also played a big role in Casella’s current loss as well.) Unfortunately for growers and shareholders of the big companies, they got the sting.

And, because these companies operated under the wrong metaphor, having never figured out how to trade in a mutually profitable way, most big winemakers finally admitted they lost that war and moved on. The ones that have changed their relationships with growers, notably Treasury, have seen their fortunes rise again recently. Conversely, those that haven’t didn’t. In any case, many growers refuse to sign contracts for more than one year now.

While the big boys stumbled through 2000’s, Casella swooped in like Mr. Wolf in Pulp Fiction and cleaned up the bloody mess created by the not so bright. They snapped up enormous amounts of low priced fruit and contracts and built an enviable, well-managed privately owned empire with one huge advantage / weakness – exposure to the US dollar.

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Casella Winery and Vines

Casella made money where Treasury, Accolade, Pernod Ricard / Orlando, Lion Nathan (owners of Brian Croser’s Petaluma where both Cheesman and CEO of Winemakers Federation of Australia CEO Paul Evan’s hail from), Australian Vintage, etc. saw only problems. And, crucially, Casella kept hundreds of inland grape growers’ backs from the wall after the big guys had walked away from them. There is much to admire about Casella despite their wine. Unfortunately, as a tall poppy growing in Australia, they and their growers may be much more vulnerable than good experience should dictate.

Anyhow, here we are in 2013 being told by Wine Australia to “move up market.” Perhaps we should welcome their horribly belated recognition of what was so bleedingly obvious to the acquisitive Warren Randall that he had no problem sharing it with the world in 2006. Or, instead, we can look at some of the rest of what Cheesman said:

“Australian wine exports delivered a solid performance in some of our key markets last year and, as global supply is tightening, we believe there are signals for cautious optimism….”

But, this really isn’t the case. As detailed by Wine Hero, the latest export figures are frankly depressing. The only big export market where there is any significant good news is China while the US, UK and Canada are all “bad” by any profitable definition. As my older former business partner used to tell me, “any fool can sell dollars for 99 cents.”

In the U.S. Civil War, Lincoln fired seven generals over three years before he found one “who will fight;” the outsider Ulysses Grant. Almost no war ends with the same general in charge as at the beginning because while they are experienced enough to get the job, their experience is rooted in another era. In short, they always try to fight the last war.

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Honest Abe

Leadership is the core problem for the Australian wine industry, not vines or currency. As history shows, most of the revered leaders that grew the wine industry in the    1990’s were not much smarter than a cheap Australian dollar and cheap equity underpinned by tax breaks. Most of the grape growers were not much smarter than cheap land, under-priced or nearly free water to irrigate with, tax breaks for planting and generous contracts written by the wine companies. I have no quarrel with every dog having his day in the sun but the lessons that these groups learned in the 1990’s haven’t applied in the real world since at least 2005 when all of these premises suddenly inverted.

In a cruel twist of fate, these folks have gone on to dominate almost every Board and position of leadership in every company and peak body at every level since that time. Those employees that didn’t hew to the belief that the good times would return for “cheap and cheerful” Aussie wine delivered by the traditional big companies have been systematically muffled or moved on by these same people. Meanwhile, the outsider, Casella was actually doing “cheap and cheerful” bigger and better than anyone ever before them and made money doing so. This situation reminds me that when the discouraged fox says in Aesop’s fable “those grapes were probably sour anyhow” we see how little has changed in 2500 years!

Those rare folks who actually tried to fight / change the paradigm and were moved on have then had insidious whisper campaigns about their skills and personal lives spread about them following their departure. Those who say nothing of this out of fear of similar treatment or being out of the “in crowd” thus become conspirators in this awfulness. It is too sad and pathetic to just say nothing of it. Professional lives get wrecked while the no longer fighting just paddle on to the next meeting or tasting.

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Brian Croser

The ones who stay on are tradesmen like Cheesman – former Wine Australia Chairman Brian Croser’s former accountant or the nearly mute “Board Sitters” who seem to just collect fees for their attendance. There’s hardly a great winemaker, great wine grower, great marketer or great salesperson under 60 years of age in sight governing any of these bodies. Nearly everyone at this level is over 60 years old and had their glory days in the last war. It’s not that they’re not smart. It’s that they’re Dad’s Army.

The under 60’s who seem to rule the industry roosts today tend to be lawyers, HR folk, accountants, other back office box checkers, journos, PR hacks and people with no prior relevant industry experience. It’s like a Labor party candidate pre-selection convention. Despite these other skills, most are simply not equipped with the experience to lead in a worldwide struggle for Australian grape grower and winery survival. There are some that I would be reluctant to hire to be V.P. of No Smoking in the Lobby. (By contrast, Ulysses Grant had  personal experience of combat in the Mexican – American War. Some experience matters more than other in certain jobs.)

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General Ulysses Grant

How many of these have successfully owned and operated a vineyard or a winery? How many have pruned, pumped over or fix leaks at 3am? (Before you go barking mad at my simplifications, there are always exceptions – a notable one being the formidable Kate Harvey at GWRDC). We need more like her but they don’t fall off trees.

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Kate Harvey, GWRDC

Cheesman’s analysis and summation was soothingly written to not startle the horses probably because he believes the rest of the industry to have equine numeracy skills. The substance of the export data leads only to the conclusion that Cheesman is, at best, a soothsayer and, at worst, intellectually contemptuous of members / levy payers and / or bereft of analytical skills. As he is a CEO who always mentions his CPA (most try to just forget that part of their career), we can hope to rule out the latter.

Wine Australia’s (and all of the other industry bodies) levy payers and members deserve leadership comfortable communicating the unvarnished truth in plain language in real-time, not seven years after it was obvious to the merely sentient. Rather, we get weasel words from those more interested in their own survival than the levy payer’s with the vain hope folks don’t notice their thinly veiled contempt for everyone else’s intelligence.

Like Lincoln’s first seven generals, the rent seekers who hold these positions by creating and attending each others meetings while achieving startlingly little at great expense need to be quickly and continuously culled until this industry finds one(s) “who will fight” for the folks whose levies and fees pay their wages. But they won’t do it to each other. And the big companies who ensure these mild folk get these positions won’t do it. And, even if the positions were open most of the ones who would fight wouldn’t even apply to work for these people and these people would never even grant an interview to those who could save them from themselves. Its like some kind of  time warped self replicating reality distortion field for mediocrity where it’s always 1999. Something has to give.

What‘s it going to be?

The Wolf at the Door

“Were it not for mendacity and hypocrisy, there would be no discourse at all” – Ambrose Bierce

“The zeal which begins with hypocrisy must conclude in treachery; at first it deceives, at last it betrays.” – Francis Bacon Sr.

“Do not ask for whom the bell tolls, it tolls for thee.” – John Donne

In Bulgakov’s 1930’s masterpiece “The Master and Margarita,” the devil comes to Moscow disguised as a nattily dressed German who delights, outrages and deceives simultaneously. In little old Adelaide, we have to settle for Wolf Blass in a bow tie to provoke simultaneous astonishment and rage.

Mr Blass was not showing his age but his hand when he recently told the American Chamber of Commerce in Adelaide “In this country at the moment we’ve got no finance to promote ourselves overseas in the right direction generically. Hopefully we can enforce a levy on all registered wine companies. They must start contributing. In most instances – I should be careful – there are a lot of parasites in this industry that do not put their hands in their pockets and they try to rely on the major companies to help them get their products on the market internationally.” (reported by Madigan, Anthony TWTW / WBM 24 August 2013)

Oddly, I feel it is important to defend Blass’s intemperate remarks and show respect for him for bringing this situation to light. There are those who don’t pull their weight in the same way as others in our industry and it is appalling. These are the same businesses that skulk under the radar hoping no one notices and / or blame others for their problems. Blass only gets his target wrong.

When Blass says “we’ve got no finance to promote ourselves overseas in the right direction generically” he is plainly incorrect. All wine and grape businesses pay levies to the federal departments who in turn fund Wine Australia and the Grape Wine and Research Development Corporation. The former is responsible for various functions including the promotion of Australian wine overseas and the latter primarily for grape and wine research.

Wine Australia has a statutory responsibility to represent all producers. However, it also has additional funding streams received from export licenses and fees as well as user pays based “Market Programs” where levy payers and regions can pay extra to get Wine Australia’s attention.

Crucially Blass said two things that got little attention. The first was his use of the word “generically.” Simply put, he is saying we need more generic branding of wines from Australia. In this, there is a broad consensus outside of the “major” companies that this is simply wrong. In an online poll conducted earlier this year by The Wine Rules, 96% supported making regions the brand and Australia a sub-brand. Even given the response pool of about 100 people, this is a pretty freaky consensus given the number of major company readers this blog has.

Second, Blass said, “I should be careful.” This is not mistaken. When one is calling people and firms “parasites,” one should be careful if one also wishes to be correct. That he believes non-major wine companies to be parasites isn’t new or a slip of the tongue. As far back as 2008, Blass was quoted saying, “parasitic and idiotic funding systems for overseas promotion mean that overproduced wine from Australian irrigated fruit will hit rock bottom….” (reported by Woods, Catherine, Decanter.com (15 December 2008)).

The other thing that did not get much coverage was that Blass announced that a major review of the Australian wine industry undertaken by an investment bank, to which the Wolf Blass Foundation made a major financial contribution, would be released 27 August 2013. His awareness of its release date and the obvious reputational downside of not being in step with its findings give lie to the observation that this is not likely to be an arm’s length or independent review of the industry. That its release is timed to the federal election cycle should not be considered coincidental either. The part I find most interesting in this was the decision to employ an investment bank and not a marketing firm to figure out how to escape our oversupply driven problems.

Treasury Wine Estates is Australia’s largest wine producer. Think Penfolds, Rosemount, Wolf Blass, Beringer, Lindemans, etc. It is famously disciplined in managing its public image as well as it’s messaging. It is also a public company, responsive to the short-term orientation of the public markets. This isn’t a criticism, merely an observation.

Given this, it was of note that Treasury announced that it was opposed to the current method of alcohol taxation (ad valorem, or, “by value”) in the industry and instead supported volumetric taxation of alcohol last year. Pernod Ricard owned Orlando (Jacob’s Creek, Wyndham Estate, Morris, etc.) quickly followed suit.

Some time after this, Treasury CEO David Dearie announced that he also thought that the WET rebate (a scheme that rebates all wine equalization taxes for small producers) should be abolished and the funds ploughed back into marketing the Australian brand abroad. His rationale was essentially that small producers were getting a free ride and that the system was also getting rorted. He also said that small producers should focus on exporting and “restoring” the Australian wine brand overseas.

For those with corporate amnesia, Treasury (formerly Fosters wine division) has written off billions of dollars of shareholder wealth over the last fifteen years as a result of repeatedly overpaying for assets (e.g. buying other wine companies) when it acquired them (these transactions were undertaken with the encouragement and support of investment bankers like those employed to write Blass’ impending review) and poor management. One of these acquisitions was Beringer Blass.

After a lost decade of strategy du jour (would you like Grange or a VB with your burger?), Mr Dearie seemed to recently right the Treasury ship by getting the business focused on making and selling good wine, re-establishing the importance of the Penfolds and Rosemount brands and getting deadly serious about exporting to China. TWE also started to treat grape growers with more respect and paying them better than they had for most of a decade. These are all very welcome developments for TWE and the industry as a whole.

Then, last month, it came to light that the TWE CFO had left unannounced and TWE made a subsequent announcement of still another $160 million or so in write-offs. It was widely reported that this time it was because TWE appears to have “stuffed the channel” in the USA with inventory to “make the numbers” in prior financial years. The headline was about paying to destroy $30+ million in unloved bottled wine stocks in the USA. In fairness to good folk who work there, it is no middle management error when a half million cases of wine – that’s 8000 or 9000 pallets of wine worth about $5 per bottle – pile up.

None of these decisions occur in vacuums – they are decided at the top.

What was less discussed from this news was that about half of the write-off was to be directed to buying out grower contracts.

Having seen dozens of friends lose Treasury contracts as they expired over the past ten years, I’m surprised Treasury still has big ones to get out of. On the face of it, these must relate to large-scale, long-term supply arrangements at the low-end of the market and TWE chose to use the headline grabber to bury hard news it didn’t know how to tell the market any other way. On Wall Street they call this the “kitchen sink” announcement because management throws in every bit of bad news they can think of in at once. Then, the theory goes, when they later “surprise” to the upside, the stock will outperform.

With the USA in long-term grape under supply, it is unlikely TWE is reducing its contracts there despite its surprising oversupply of wine there. In Australia, where there is still an oversupply of grapes and wine, TWE’s announcement makes more sense. As TWE has been a big buyer of high-end Australian fruit in recent seasons, this leaves low-end Australian contracts as the most likely to be bought out. This also means that there will be a lot of fruit looking for a home in coming seasons.

$80 million dollars is a lot of money when it comes to fruit. It is equal to 150,000 to 200,000 tonnes of $400 to $500 inland fruit. Australia’s oversupply is in the neighbourhood of 400,000 tonnes per year. That in turn is equal to 110 to 140 million litres of wine per year. Those are big numbers even in TWE’s world.

Is this the same “overproduced wine from Australian irrigated fruit” that Blass warned would hit “rock bottom” back in 2008? If so, why didn’t TWE take this charge years ago? Maybe because they were trying to fight wars on two fronts – one at the icon and super premium end and the other to prevent Yellow Tail (or others) from exploiting the oversupply the majors did so much to create in the 1990’s?

You can see how management could be paralysed in such a scenario for years. To his credit, maybe Dearie has just bitten the bullet that should have been bitten years ago. And, Dearie has figured out that volumetric taxation is the only way to dry up the low-end fruit glut and mitigate TWE’s risk in loosing all that unloved fruit on the market at once. (Parenthetically, Yellow Tail was created when TWE consolidated its distribution in the USA leaving a giant hole in the market for distributor Deutsch and winemaker Casella to exploit. Interestingly, Casella and Deutsch have gone from strength to strength while TWE still struggles in the USA.) In any case, the timing and strategy of TWE’s current approach to cleaning up its contracts and the industry as whole do not appear coincidental.

One example of how large wine companies operate in the public sphere to deny competitors oxygen was when the Australian government changed the employment “awards” for vineyard workers, operators and contractors “in consultation with industry” a few years ago. No longer would agriculture workers be treated as such but, rather, they would be treated the same as winery workers. There is no parallel for this in other linked agricultural industries – think wheat farmers and bakers, apple growers and makers of frozen apple pies, beef farmers and butchers, hops and barley farmers with brewers, etc. The extra wages the big wine companies incurred with the award change were more than offset by administrative savings from having just one award system.

Today, if you want to harvest your grapes in the cool and safety of the night when all parties agree it is preferable and safer to work, growers have to pay industrial type penalty awards. No longer can you pay bucket rates or per vine pruning rates to encourage productivity. Unsurprisingly, the productive vineyard labour supply is rapidly drying up. That growers are headed for an unsustainable labour shortage is without question. It is often almost impossible to pick fruit on Sundays now regardless of the urgency or ripeness because the cost is just too high.

In short, the biggest companies saved themselves a bit but made everyone else in the entire industry less productive and less profitable thereby increasing their own comparative operating advantage of capital-intensive machine processes over qualitatively superior people driven processes. (For instance, every block of grape vines in the high value area where we grow is hand pruned except for TWE’s 200+ acre block across the road. There, tractors with cutting bars do most of the work regardless of the conditions or their impact on the wet soil.)

This approach is the most cynical sort of incrementally regressive strategic thinking while the government is only too happy to have another regulated workplace. Small, high value producers and providers never even had serious input in this step change, just the big companies and the industry bodies they dominate.

On still another track, Treasury and other large wine companies have long advocated “consolidating” and “rationalizing” regional and state industry bodies supported by levy schemes as well as the national bodies such as Wine Australia, GWRDC, AWRI, Winemakers Federation (WFA) and Wine Grape Growers of Australia (WGGA). With the impending merger of the GWRDC and Wine Australia, this process is well underway with the government’s blessing.

Perhaps TWE’s recent write-off was the last spasm of a dying monster –Treasury’s low end wine business – or, quite plausibly, it was just more bad news from the gang that still don’t “get it.” Or, it was part of a still bigger game to further dominate the Australian wine market at the expense of everyone else. Each single factor theory has its merits but there is a real possibility that all are equally true.

For the sake of inquiry, let us follow the trail of breadcrumbs TWE and now Wolf Blass have been dropping for those who recognise their influence on public policy in Australia. Mr Dearie has said TWE wants the ad valorem WET tax changed. (I happen to agree but for entirely different reasons.) Treasury also wants to get rid of the WET rebate because a) it is being rorted (sometimes true) b) because New Zealand producers are taking $30 million per year from it under the law and spanking the other big companies silly with their Sauvignon Blanc exports (mostly true) c) because the WET rebate is the only thing keeping many smaller producers in business (also sometimes true). I part with Mr. Dearie and the majors here and will take this up in another blog.

At one regulatory swipe, TWE could see off a) the cheaters, b) more competitive and successful overseas producers and c) quite a bit of the domestic competition (the “parasites”) all while increasing margins on their own high-end wines by tens and sometimes even hundreds of dollars per bottle. If you are Treasury, what’s not to like?

The WET tax is a devils bargain created in the early 1990’s that a) raised tax revenues for the government while b) largely exempting small producers (e.g. voters as well as those most likely to be friendly with the politicians) from the tax while c) simultaneously introducing the disastrous accelerated depreciation scheme for vineyard development. Something for everyone. This depreciation scheme was a handout to the big wineries so they could continue to rapidly grow their businesses while containing prices paid for fruit.

In a reply to a prior The Wine Rules blog, then WFA Chairman Brian Croser laid responsibility for this bargain at the largest wine companies’ feet. While we may never know, his assertion has the ring of truth. Unfortunately for him, it leaves him looking like the big boys’ pawn in this landmark negotiation. The good part for the Croser legend was that he brought home the exemption for small wineries. This contribution is not to be underestimated given the power of the major wine companies.

The vineyard depreciation scheme finally got spiked in the early 2000’s after the damage was well and truly done to the national industry. The WET rebate got badly rorted in the ensuing oversupply and the current government finally closed many, but not all, loopholes to the original intent of the rebate. In any case, the bargain that was is no more.

What is left is a mess where low-end wine producers have a monopoly on the lowest cost production of ethanol for human consumption in Australia. Just witness the destruction in Aboriginal communities where cask wine is the preferred drink on a buzz per dollar scale. That the wine industry fights to protect this “social license” is both hypocritical and indefensible.

The benefits to the majors for the changes floated are pretty obvious – collect millions in taxes from regionally based small producers and spend it on marketing Australian wine “generically” to the world. With “generic” (e.g. superregional, multi-regional or non regional wine which makes up probably 70-80% of a market which is virtually owned by Australia’s top 20 wine companies) wine receiving the benefit of a massive “generic” Australian marketing campaign, you can pretty much kiss goodbye to the high value, high quality and regionally differentiated producers of Australian wine.

This new marketing budget would presumably be governed and spent by Wine Australia. Given that Wine Australia has never managed a marketing budget of more than about $5 million dollars per year and have spent three or four million dollars more than they’ve brought in under the current management team, one can only imagine what would happen if their budget increased six fold.

What is still unclear to me is this – if Treasury and Orlando want to get rid of ad valorem WET tax, do they also wish to get rid of ad valorem levies paid to support the GWRDC, Wine Australia and the regional marketing organisations? Consider me interested in finding out. Maybe Blass and Co. will spill the beans.

While WET taxes and rebates do not apply to exports, Treasury wishes that the small producers would focus on exporting to re-establish Brand Australia. This is fascinating. Dearie and Blass propose to a) financially gut small producers with tax “reform”, then b) to tell these folks to go do the slow, hard and expensive work of exporting in a high dollar environment while c) the money raised from taxing them is used to deliver a “generic” overseas marketing budget to “support” these highly specialized, differentiated regional producers. Really?

“People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices.”

– Adam Smith, The Wealth of Nations, 1776

 Dearie’s investors don’t employ him to think up ways to help the competition. They employ him to find ways to increase TWE’s comparative advantage in the market place. Why do we expect them to offer anything but what is good for them? It is naive to think otherwise.

The unasked questions in this so far one-sided discussion are revealing – who screwed up the Australian wine brand overseas in the first place? (Can I interest you in some Little Penguin or Yellow Tail, Mr. Robert Parker?) Who has perpetuated the oversupply and is now using shareholders money to tear up contracts on possibly hundreds of thousands of tonnes of fruit hoping that a changed tax regimen won’t expose them to disastrous discounting? Who continues to overwhelmingly flog wines whose only claim to geographic provenance is Southeastern Australia, South Australia and Australia?

In Australia, wineries and grape growers pay a bewildering number of levies to support research, marketing, regional promotion and political representation for industry bodies. At the state and regional level these tend to be voluntary. “Voluntary” means that you have to pay but that you can ask for your money back.

The regional associations are the (so far) publicly unmentioned bulwarks in this debate. These widely supported associations were created largely to brand and promote Australia’s wine regions. Given the largest companies’ preference for multi, super and non-regional branding (Jacobs Creek, Grange, Yellow Tail etc.), the regions organised themselves to give their wine and grape producers additional brand equity and awareness in world markets.

The Barossa and McLaren Vale have  headed the list of Australian exports by value for this reason for yonks despite the presence of major winemakers making non or multi-regional products in these regions. A recent study undertaken by the South Australian government discovered that every levy dollar paid into the regional association in question paid back eight or nine dollars in value. This must be the best ROI in the entire Australian wine industry bar none. This study was undertaken because an un-named “major” wine company doubted the value of these schemes. Oddly, you don’t hear much about this report from the major wine companies. “Why” you ask, “why”?

When I was the Chairman of the McLaren Vale Wine Grape and Tourism Association a few years ago, we restructured our funding model with the consent of the entire local wine and grape community. Basically, if you make wine in McLaren Vale, you now pay a levy of about $10.50 per tonne. If you grow and sell grapes here, you now pay a levy of about $7.90 per tonne. (This evens up in the end because about 30% of winery production is from their own fruit on which they pay no levy.)

Finally, we put a cap on the total amount any one company would pay of $30,000 per year because Treasury and Constellation refused to pay more. For example, without the cap, TWE would have been assessed at about $70,000 per year at the time. It was made clear to me that the government would not introduce the enabling legislation unless Treasury was on board despite it being the nearly unanimous will of the rest of the community. It’s a funny kind of democracy we live in folks where one company has a veto over an entire region. This “veto” is apparently in place at every level of the national industry – regional, state and federal. As a result, while a major wine company can block progress outside the scope of its business that it believes inimical to its own interest, it is free to pursue any interest it likes on its own without molestation.

To get this new levy implemented required extensive community consultation, numerous letters, mail-outs, emails, open town hall type meetings, one on one meetings, lunches, PowerPoint presentations, etc. When we had all that was required by the government, I wrote to the Minister with evidence of all of our consultation efforts to request that the enabling legislation be introduced.

Then the call came.

One levy payer had requested that we discuss some of their “concerns” before the Minister would consider our request. The levy payer was Fosters’ wine division (now called TWE).

In a one-hour phone call with a still employed TWE senior executive, I suggested that the $40,000 discount they were receiving as a result of having “veto power” was pretty rich but, if they supported the levy, I would consider their concerns. Their first concern was why there wasn’t a (then) Fosters employee on our Board. I explained that we have a democratic system of representation to our Board and that Fosters needed to have a candidate popular enough to get elected. Their other idea was about “rationalising” overheads across regional associations. After listening to their concerns, I asked that if consolidating overheads was such a good idea, how come Fosters / TWE had lost 4+ billion dollars employing exactly that strategy in their own business?

The net of this tale is that every grower and producer in McLaren Vale agreed to pay the same levy rate to market the McLaren Vale brand worldwide bar one – Fosters/Treasury. In a country that worships the “fair go” and hates tall poppies, this is disappointing stuff.

Who is the “parasite” in this collective marketing effort Wolf?

The “non-majors”?

As my much more intimidating mother would say to you, “you should be ashamed of yourself.” And, you would cringe, old boy.

This is also the case in Wolf’s beloved Barossa. There the gap between total theoretical financial obligations and the “cap” is enormous for a number of companies including Treasury and Orlando. I don’t know if the big companies have “caps” with any of the other levy funded bodies but nearly every levy, export charge and rule etc. is somehow tilted against the little guy or tilted in favour of the “majors” that Wolf Blass seems to think provide so much unrequited generosity.

But, for Wolf, the “non-majors” are the parasites.

Given his cavalier disregard for these facts, will the results of Wolf’s “gift” to fund an investment bank run review of the national industry be any surprise? It will be used to give air support to the softening up barrage that Dearie and now Blass have already delivered. Expect the recommendations to be almost exactly what Dearie and Blass have been saying for some time now.

Expect WET tax “reform” to benefit large wineries with high value products while simultaneously hurting small wineries with high value products, demolishing those with only low value fruit and wine, encouragement to consolidate multiple “brands” into fewer companies, “rationalizing” whatever levy and body they feel like rationalising, more Wine Australia funding support for the “generic” brands at the big end of the town, etc.

One final coincidence – the South Australian Wine Industry Association is currently asking for submissions regarding the WET tax closing 30 August 2013. According to Wine Australia, Stuart McNab, Chief Supply Officer of Global Wine Production at TWE has been the President of SAWIA since 2009.

Best of all, there will be lots of “transactions” for investment bankers (such as those who wrote the report) between newly impoverished small producers with high value brands and you know who. Given Treasury’s cash heavy and debt free balance sheet, the only way they can improve their key operating ratios for investors will be to employ debt to leverage their balance sheet. While this is just the nature of markets, is it any wonder TWE has held off splurging so far when the pickings are about to get so much better? And, just as good, if they don’t get better soon, TWE will be none the worse off. It’s a “heads I win, tails you lose” bet against the rest of us. You can expect this.

I, on the other hand, can expect a call (or two) from Treasury. And, there will likely be calls for me to step down from the Board of the MVGWTA and all manner of things. But there will be no libel charges. I’m just connecting existing dots and past behaviour and guessing at the future. The majors have worked for years to deliver the hammer blow they seem to hope for from this report during this federal election. They will not back off sheepishly.

Most wine growers, wine writers and, even, relevant government departments live in abject terror of the major wine companies.  Most winemakers just try to stay out of their way while the “major” print media firms would find scratching by that much harder than it already is if they come out against these big advertisers. In fact, it’s nearly a perfect storm – virtually everyone with interests different to the major wine companies are nearly out of business, about to get tossed out of office or hurting badly.

The Blass report will only be about obtaining comparative advantage for large incumbents who believe the pie to be shrinking. It will not be about baking a bigger pie for the Australian wine industry through better thinking, better positioning, better grapes, better wine, telling better stories about ourselves or leveraging Australia’s regional brands requisite to marketplace success worldwide. It will be about shifting the remaining resources they don’t already control into their control. It will be for all the marbles they want in their bag.

While it is obviously a lot more fun for “major” wine company executives to work on takeover deals with investment bankers buying weak competitors than it is to figure out how to tell the world hundreds of interesting new stories about Australia’s great wine regions, amazing personalities and interesting differences, a few executives’ “need for speed” is no way to run an industry.

It bears repeating that the wine consumers that Australia needs to connect with worldwide are highly educated people who presently don’t think much of the generic wine brand Australia. “Generic” campaigns will do nothing to draw them in to a brand they think poorly of. But they will buy quality products with authentic and engaging stories from “somewhere” (not just a country) readily. This means investing in many differentiated regional stories and bodies to promote them, not rationalised top down corporate strategies led by investment bankers and accountants. We’ve already tried that once before. It led us to where we are today.

Treasury’s great Australian stories are Max Schubert and Ray Beckwith. Some considered Wolf Blass one before he revealed himself to be so much less last week.

Stay tuned and get involved. Or, if you are a wine or grape producer with quality assets, start counting how many sleeps are left before the wolf comes to your door.

The Wine Rules – The Degree of Difficulty

In my pre-teen years it seemed that if it wasn’t the about the fastest, highest, strongest, furthest, it just wasn’t sport. I think it was Olga Korbut that first caused me to have some doubt about this and perhaps Dorothy Hamill that crushed the thought forever.

Simply put, there are sports and events that require judging to establish the “best.” The most common method they have for doing this involves requiring a compulsory set of things the athlete must do – the minimum standard for that level of competition  – as well as a scoring system for the stuff that exceeds that standard.

olgakorbut

In diving, there is a calculus for each dive called the “degree of difficulty” whereby a very good but very difficult dive can trump an excellent but technically easier dive. The converse is also true which makes an athlete gamble with self-knowledge rather than with the judges. Moreover there are some statistical “fail safes” put in place where there are frequently five to seven judges scoring and the highest and lowest scores get thrown out and that sort of thing.

It’s a process that has been debated, refined, studied and statistically analyzed for favoritism and accuracy over thousand of events over many decades. No one seriously objects to this state of affairs. It doesn’t make everyone happy every day but it makes sense and largely works.

Louganis

Now imagine a slightly different state of affairs where a few judges passed in scores on each contestant based on just three physical qualities or properties. And, that there was no weight given to the difficulty of the performance.  What about an event where a single judge just writes a few sentences describing the dive or performance and hands out a score out of 10?

To me, the former scenario sounds more like Australian Idol or MasterChef, and the latter more like a film review rather than a properly judged event. Dare we suggest that the former is also a bit like a wine show and the latter a bit like a wine critic?

My point is not to cane wine shows or critics. There are very good reasons for both to exist, continue and improve. There are also very good reasons to scrutinize both – and for both to welcome the same scrutiny they offer to wine – without fear or favor in either direction.

Without debating the merits of each (for the record – between the two I tend to prefer better critics mostly because they advance a wider discussion about particular wines of merit than shows), I think we can all accept that they are often mutually reinforcing institutions for both good and bad principally due to the overlap of those performing the judging.

Operating from the following premises, we can conclude certain things:

Premise #1 – Variability of prices and qualities of wine are high as well as a large number of brands, varieties, etc. In short, there is too much information for the consumer to process objectively in order to definitively avoid bad or potentially embarrassing purchases. Conversely, they are not always able to make good choices with assurance.

Premise #2 – Most wine buyers like to find high quality wines at various price points. Wine show winners and high scores provide some assurance to do so. As a result, there is a significant premium (either in assurance or price) for producers obtained by wine show trophies and high scores.

Premise #3 Judges and critics can only be expected to judge entrants or submissions, not non-entrants or non-submitters. Many wineries choose not to submit / enter. As a result, incomplete data sets and imperfect benchmarks for judges / critics are the norm.

Premise #4 Due to seeming or actual randomness of results inherent in shows and reviews, certain unintended behavior is consequential for entrants.

Premise #5 Most wine critics are (were) paid by media companies. Most wine judges are not paid despite often being the same people.

judges

Conclusion #1 The potential reward for a wine of lower quality or of relatively lesser expense getting lucky at a wine show far exceeds the entry fee and / or the risk of not getting lucky because the producer already knows (or should know) the unhappy truth about the wine’s merits.

Conclusion #2 The risk of economic or brand damage to a very good or very expensive wine getting poor marks at a wine show  far exceeds the entry fee.

Conclusion #3 Because the number of undistinguished entrants naturally far exceed the distinguished, and wine shows charge fairly hefty entrance fees, most wine shows are unlikely to go out of business for any reason unless a significant portion of entrants believe that shows offer them no potential credibility. In short, the wine show game will keep spinning pretty much without respect to  its relative rigor, credibility or transparency.

Conclusion #4 Professional wine journalists / critics, on the other hand, have a problem. Media companies are shedding every cost they can at the same time that free wine blogs erode the market for paid wine journalism. In the parlance, critics have a “business model problem” if they do not have a subscription revenue stream to underpin their independence.

Conclusion #5 While wine shows are big (and still growing) money makers for many organisers, most are steadily losing the credibility sweepstakes for reasons such published research suggesting they are little more than guessing games.

glasses and classes

The capital city wine shows are big money spinners typically owned by the royal societies or fairgrounds. While this is the same for regional shows, the regional shows tend to plow the money back into regional wine promotion, education and the like. How the substantial profits of the capital city shows are used to benefit the wine industry is less clear. This near total lack of financial transparency does little to add to the optics.

The solution of employing newly starving critics as professional wine show judges has merit but there are cultural issues to manage such as the “getting eagles to fly in formation” problem. Traditional critics are not necessarily attuned to consensus decisions or acceding to senior judges. The bigger problem seems to currently be that paying judges could raise show costs and thereby fees which could decrease revenues through lower participation.

So how else could we resolve the tensions in these unintended consequences? On one hand, the wine shows could find a way to make shows more appealing to their current high-end non-entrants to raise revenues. On the other hand, a too rigorous show might discourage entrants who are only “hoping to get lucky.” Given trade-off effects like this, it is understandable how shows got in the pickle they are in.

wine show bottlesMy modest proposal is that if wine shows wish to be taken as seriously as it seems they wish to be as well as maintaining the serious cash streams that pour through them, they should incorporate systems similar to those employed in athletics to provide additional rigor and logic to what is ultimately a subjective and contextual process.

In tennis – even at the major championship level – the umpires and line judges were amateurs up until maybe thirty years ago. That head umpire that McEnroe was screaming at the US Open was likely to be a stockbroker or doctor he knew from the Forest Hill Tennis Club.

McEnroe

Once tennis professionalized officiating, quality improved dramatically. Once professionals started getting judged against videotape of matches, quality improved again. With the Hawkeye system, it has improved still more. Is more rigor what wine evaluation needs? Despite the “in or out?” binary / digital nature of line calls not being akin to the multifactor / analog nature of wine evaluation, the professional standards that tennis officials are held to offer much to learn from. Moreover, the streams of data that emerge have created instant feedback loops that change how the game is played in realtime.

tennis

From the “scored” sports, what if we borrowed something similar to the “degree of difficulty” concept? For example, wines from difficult vintages / regions that stand out could be recognized as such. Similarly, single variety and / or single vineyard wines are much less forgiving to make than blends of either and should be acknowledged for same.  Ditto for wines certified organic or biodynamic.

scoresheet

Another proposal would be to include a few controlled groups of samples in each show with all results sent to one statistician or economist for analysis. Enough data from enough shows would provide a great area of study for a statistician or wine economist to study over long periods of time and could be relatively inexpensive as a result. In fact, it could be an entire career in a much more interesting field than the ones many statisticians toil in.

That some judges view the multi-year statistical work done at wine shows in California as a “gotcha” bit of tricky business rather than an embedded step of a long-term quality improvement process seems out of step with embracing the bits that science does well. Were a tested data driven approach systematically embraced, the effects could be profoundly positive for the industry as a whole.

For instance, judges could have a career “report card” that assesses their scoring both in relation to the other judges from each show as well their consistency against the control group wines both on the day and over time.  The data would change over time offering insights into the judges’ capabilities and professional development. It could throw out the high and low scores to get better long-term readings, etc.

This approach would allow individual judges’ variances to be assessed at multiple shows with an annual assessment or rating as with sports officials. It would provide a platform for assuring entrants of the relative merits of each show, individual judges’ development, a rated field to work with in assembling the best judges for shows, the basis for a pricing system for shows and judges, etc. While it could be as revolutionary for wine shows as “Moneyball” was for baseball, who  is prepared to be the wine industry’s Billy Beane? (If it is any encouragement to the timid, Brad Pitt played Beane in the movie…)

BillyBeane

Pitt

With transparent and higher quality assessment comes the opportunity for value creation at shows currently unimagined. For instance, specialization around quality, region, variety etc. could all be big (think global) revenue opportunities for judges and shows that create more value for brands and consumers with higher levels of assurance and interest.

My question is whether judges are willing to receive the level of assessment and scrutiny they regularly apply to wine to get to a brave new world where the show system can afford for them to be professionals? To do so, they would have to let the wine (and the data) rule.

My opinion is that we are currently only scratching the surface of industry value creation and are letting tradition function as an imperfect proxy for excellence. Media, critics and wine shows still have a lot of competing and collaborating to do to transcend the current approaches and create the value and interest that the consumer craves.

Let the innovation begin.

What do you think?

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Australia’s Best Independent Wine Stores Competition

1 July 2013

Winners Announced

TheWineRules wine industry blog announced the results of the inaugural “Australia’s Best Independent Wine Stores 2013” on-line competition today.

By category, the winners are as follows:

Large / Diversified:

- Nick’s Wine Merchants Melbourne, VIC

Specialty (three winners):

- Bond’s Cnr Fine Wines – Sydney NSW

- Victorian Wine Center – Melbourne VIC

- Fine Wine Merchant – Mt. Eliza VIC

Boutique:

-121BC Cantina and Enoteca – Sydney NSW

Online:

- United Cellars – UnitedCellars.com.au – Sydney NSW

The winners will receive a two-day stay in the McLaren Vale wine region sponsored by The Retreat at Chapel Hill Winery.

In announcing the results, Dudley Brown said “we were so pleased that nearly 1400 people took part in our online poll held during June to recognize Australia’s best wine merchants. Would like to thank WBM Magazine and all of TheWineRules followers on Twitter and WordPress who helped publicize this completely unique digital / social media wine event. Given the terrific response, we intend to expand the competition in 2014.”

John Cox of Bond’s Cnr Fine Wines said that he was hugely excited to be recognized in his first year in business. “We’d like to thank our winemaker suppliers and our customers for allowing us to offer something special.”

“Whether by having a strong fine food component in their offering, unique or rare wines, a massive selection or personalized service, all the winners share a commitment to wine knowledge, consumer education and service that sets them apart. The real winners are the consumers who frequent these stores,” Brown added.

Alex Chlebnikowski of Nick’s thanked “all of our customers for their ongoing support and patronage and our hard-working staff that has resulted in Nicks Wine Merchants winning this award.”

The fact that a number of the winning stores are relative newcomers “belies the notion that there is a lack of vitality in the sector. Given the pedigree of the 80+ nominees, it is obvious that social media savvy retailers are finding new ways to connect with customers” Brown noted.

Stewart Plant from Fine Wine Merchant in Mt. Eliza near the Mornington Peninsula commented, “It’s an honour for a young business such as ours to have the extensive range and expertise that we work so hard on building and maintaining to be recognised amongst such illustrious company.”

In the online category, United Cellars Director David Singer said that “we are ecstatic to recognized as Australia’s best online retailer.”

About:

TheWineRules (www.thewinerules.wordpress.com,  @thewinerules1 on Twitter) is a wine industry blog written by winegrower / vinocateur Dudley Brown of Inkwell Wines in McLaren Vale. All opinions, mistakes, etc. and are solely his.

WBM is the premier wine industry magazine in Australia. (www.wbmonline.com.au).

The Retreat at Chapel Hill Wines is the finest culinary and wine destination accommodation in McLaren Vale www.chapelhillwine.com.au/the-retreat/.

The Polls are Open – Australia’s Best Independent Wine Store Competition

To vote in Australia’s Best Independent Wine Store Competition, please visit: .  Support great wine stores and jobs throughout the economy dedicated to making great wines and providing you with great wine choices!

Winners will receive a two day stay at Chapel Hill winery’s luxurious retreat in McLaren Vale.

TheWineRulesChapelHillRetreat

So, show some love for your favorite wine shop – they’ll be grateful….

Cheers,

Dudley

The poll closes on 28 June 2013 with winners to be announced 30 June 2013.

Australia’s Best Independant Wine Shops 2013

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TheWineRules

Call for Nominations

Australia’s Best Wine Stores Competition 2013

Goal:

To recognize and promote wine retailers who ensure that “the wine rules.”

Requirements for nomination:

- Independent ownership and wine retail must be primary business (e.g. no supermarket owned chains)

- Provision of a unique selection of wines

- Committed to great, friendly service and consumer education

- Ongoing commitment to introducing new Australian wine producers to market

The shop must have a passionate proprietor with knowledgeable and engaging staff. No ‘tude accepted.

The shop must deliver a selection of regions and price points with unusual selections distinct from the duopoly’s standard fare.

The wine shop must be education oriented whether through classes, tastings, informative newsletters / websites / social media. 

Categories:

1) Large / Diversified (Wine, and probably Liquor and Beer, you probably don’t know the owner)

2) Specialty (principally Wine and maybe Beer, the owner probably works there daily)

3) Boutique (specializing in one country, region or theme of wine, the owner might sleep in the back room)

4) Regional (outside capital cities – e.g. Woolongong, Cairns, Mt. Gambier, Geelong, etc.)

5) Wine Region (e.g. Hunter, Barossa, Orange, Yarra, etc)

6) Online – needs to have educational commitment / component

FAQ’s:

Who can nominate?

Anyone can nominate as many shops as they like.

How do I nominate?

By replying to this post with the name, location and category of your nominee

How do I know my nomination was counted?

We will update nominee lists as often as possible (hopefully daily) in a separate post on TheWineRules.

Who wins?

Everyone who loves diversity in wine wins. 40 wine shops in Australia will be recognized with category winners to be announced 30 June 2013

How do wine retailers get recognized?

Peoples Choice format – top 40 vote getting stores will be recognized. So, nominate on or before 9 June and vote after 10 June.

Nominees (so far) by category:

Diversified:

Jim Murphy Canberra ACT

Kemeny’s Sydney NSW

Parafield Airport Liquor Store SA

Lakes Resort / My Cellars West Lakes SA

Nick’s Wine Merchants Melbourne VIC

Specialty (by state):

Plonk Fyshwick ACT

George’s Liquor Stable Phillip ACT

 

Annandale Sydney NSW

Best Cellars Sydney NSW

Bonds Corner Sydney NSW

Camperdown Cellars Paramatta Road Sydney NSW

Chambers Randwick NSW

Corkscrew Cellars Sydney NSW

Five Way Cellars Sydney NSW

North Sydney Cellars North Sydney NSW

Porters Liquor McMahons Point NSW

Red Bottle Sydney NSW

Summerhill NSW

The Oak Barrel Sydney NSW

 

Craft – Brisbane QLD

Cru Cellar Fortitude Valley QLD

Grand Central Cellars Brisbane QLD

 

Belair Cellars Adelaide SA

East End Cellars Adelaide SA

Edinburgh Cellars Adelaide SA

Goodwood Cellars Adelaide SA

Melbourne Street Cellars Adelaide SA

 

Cool Wine Hobart TAS

Grape TAS

Pinot Shop Launceston TAS

 

Armadale Cellars Melbourne VIC

Blackhearts and Sparrows Melbourne VIC

Boccaccio Cellars Balwyn VIC

Burwood Cellars Melbourne VIC

City Wine Shop Melbourne VIC

Cloudwine Melbourne VIC

Eaglemont Cellars Eaglemont VIC

Europa Cellars E. Melbourne VIC

First Drop Hampton VIC

Gertrude Street Enoteca Melbourne VIC

Grape and Grain Moorabbin VIC

Harvest Wine and Liquor Northcote VIC

Prince Wine Store Melbourne VIC

Purvis Cellars Melbourne VIC

Randall’s Melbourne VIC

Rathdowne Cellars Carton N VIC

Seddon Wine Store Seddon VIC

Templestowe Cellars Melbourne VIC

Victorian Wine Center Melbourne VIC

Wine and the Country Daylesford VIC

 

Lamont’s Cottesloe WA

La-Vigna Liquor Perth WA

Re Store Leederville WA

Regional:

Leura Cellars Blue Mountains NSW

Banks Fine Wine Kyneton VIC

Colliban Foodstore Trentham VIC

Olinda Cellars Olinda VIC

Pandolowie Wine and Cellar Bendigo VIC

Wine Bank on view Bendigo VIC

Woodend Wine Store Woodend VIC

Wine Region:

Casacarboni Barossa SA

Fall From Grace SA

Taste of Eden Barossa / Eden SA

Barrique Healesville VIC

Cellar Door Wine Store Beechworth VIC

Fine Wine Merchant Mt. Eliza VIC

Boutique:

121BC Sydney NSW

Thirroul Cellars NSW

Incider Trading QLD

Online:

Auswine

Cracka Wines

Eurocentric Wines

Glug.com.au

JD Cellars.com.au

MyCellars.com.au

Onepallet.com.au

Taste McLaren Vale

United Cellars

Wickman’s Fine Wine Auctions

WineStar.com.au

WineDirect.com.au

Nominations close 9 June 2013 1145pm CST. Voting will open on 10 June 2013 and close on 28 June 2013. Winners will be announced on 30 June 2013. Primary communications will be through @thewinerules1 on twitter.

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The Wine Rules according to Warren Randall

I had the great fortune to attend an event in McLaren Vale yesterday (16 May), which featured Warren Randall – The Titan of Tinlin’s (full disclosure – Warren also owns a pile he salvaged in the Barossa and Boar’s Rock in the Vale) – presented his “Five Year Outlook for the Australian Wine Industry”. The event was a sold out fundraising breakfast held at Serafino’s organized by Jock Harvey (assisted by John Harvey, Tom Harvey and the formidable Kate Harvey of the GWRDC) with one just email sent one week ago. It was a remarkable family’s effort.

Jock Harvey. Take three.

Jock Harvey. Take three.

Warren is a bit of a legend because he not only built a stable of 1100 acres of prime McLaren Vale vineyards in the 1990’s and rode the currency and volume driven grape growing boom, he completely switched gears before the wheels fell off the Australian wine industry and re-tooled his vineyards to produce A and B grade fruit while most growers hunkered down waiting for the good days to return. In the process he built a dirty big shed and turned those vineyards into the largest supplier of high-end bulk wine in Australia. This in turn funded his barony in Barossa and his more recent purchase of Boar’s Rock in McLaren Vale. While Wazzer is as efficient and cheap as the best businessmen usually are, he has built a very loyal team and is generous with time and advice to those who ask for it. Just don’t waste his time.

Back in 2005 or 2006, Warren famously stood up at the Bocce Club in McLaren Vale and told 120 grape growers “grow A or B grades or get out. If you don’t, you will go broke.” Those that heeded his advice are still growing grapes and were in attendance yesterday. And, McLaren Vale quality has never been better, while export prices for McLaren Vale wine are nearly level with Barossa for tops in Australia. As I have noted before, this is the type of unambiguous advice the industry needs to hear and why.

Anyhow, Jock reckoned it was time for Warren to give us an update. Warren started with his usual litany of well researched data points about the industry, grape prices, export prices, competitor countries and the like before diving into what it all means for us. In short, The Wine Rules according to Warren Randall are paraphrased below. For fear of misquoting him, I ran this summary by him and he reckoned it “good.”

WarrenRandall

The Wine Rules according to Warren Randall

1) Don’t try to sell wine through distribution in Australia. The supermarket duopoly will control the market within five years and 50% of sales will be private / own label. Nothing will stop them. Traditional distributors will get killed.

2) Value-add or die. Growing and selling grapes alone is a “mugs’ game.” You have to make and sell bulk wine or grow and sell branded wine if you grow grapes.

3) Icon, A and B grade fruit is in short supply. C grade is in massive oversupply and can be grown anywhere. D and E grades are flooded by the oversupply of C grade.

4) In named / noted regions, grow Icon, A or B grade or get out. Don’t grow C grade unless you are in an undifferentiated region and can produce at profitable volumes.

5) Get to China (particularly) and figure it out. It is slow and will take a lot of work but the opportunity is huge and can take all of Australia’s output in 10-20 years.

6) Until we are selling everything we can make overseas at high prices, the domestic supermarket duopoly will have (and keep) us over a barrel. Once we are “sold out,” then we can talk terms with the duopoly.

7) Know your market(s) and brand. Be that and nothing else.

Bracing stuff to hear that you will soon be out of business if you try to sell to the Coles and Woolies duopoly or try to sell through traditional distributors like Negociants and Red and White. Then, when you have to “sell the farm”, Woolies will be trying to buy it from your bank as they tried with Barossa Valley Estate. Or, that grape growing is a “mugs’ game.” (This from a guy with more vineyards than nearly anyone). Or, that you are from one of a half-dozen “named” regions in Australia or you are “not” despite there being 60+ wine regions. Or, that if you don’t improve your vineyard radically, you are finished. He also made the point that in 19 out of 20 years, the best Australian Shiraz hails from McLaren Vale or Barossa or both. Add these inputs together in a Bayesian sorting algorithm and see how you come out viability-wise. I grow and make wine in McLaren Vale and find this sobering on a Friday afternoon.

This is all provocative stuff that will likely raise howls of dispute from all corners of the industry. Of course, it will not turn out to be uniformly true in terms of outcomes in Warren’s stated time-frame of five years. However, directionally, I believe that his themes are probabilistically beyond dispute. The crowd was not thrilled with this news but left nodding their heads.

Before you think too much of Warren,  I should mention that Warren did tell one inadmissible porkie pie – he said that he “doesn’t understand the sales end of the game, isn’t interested in it and isn’t good at it.” Br’er Rabbit would love this guy.

I am sharing Warren’s sporadic community service prognostication for two reasons.

The first is that the faster, broader and deeper these observations sink in, the better.

The second is that I cannot think of anyone from any wine industry body in Australia that could sell out a 150-seat breakfast at $50 per head in one day in a small town on the basis of one short email to prognosticate about the wine industry. In fact, I can’t think of anyone that could do it save David Dearie with a $4.99 all you can eat breakfast buffet.

This dearth of talent belies the crisis of leadership, courage and insight that are endemic in our industry bodies. To reflect that most of our industry appears to be living Marx’s dictum that “history repeats itself, first as tragedy, then as farce” may seem churlish. But, any analysis of the present is that no one is saying anything publicly while they make big changes behind the scenes and ensuring industry figures say as little as possible.  Without deifying him, at least Warren is saying what he sees happening. Who else of consequence is willing to do this much?

You may or may not like Warren or what he said. But, he is one of the only serious industry thought leaders of his generation with any sort of public courage and should be taken very seriously. We need more folks who make bold pronouncements and put large sums of their own money behind them. If this observation grates, please name a few who share these traits – they need recognition.

What do you think?

Talking about a Devolution

 

“Jane Crofut; The Crofut Farm, Grovers’ Corners; Sutton County; New Hampshire; The United States; Continent of North America; Western Hemisphere; The Earth; The Solar System; The Universe; The Mind of God.” – Thornton Wilder, “Our Town.”

A subject that I spend a lot of time thinking about is the notion of “place” in wine.

The one rule that seems to be true for almost all labeled wine is that it must say where the wine is “from.” At a minimum, what country it is from. Then there is the (usually) familiar hierarchical litany of state, province, department, zone, region, sub-region, town, village, etc.

There are examples of this that are particularly frustrating and confusing such as the place of origin named “Southeastern Australia.” I can’t say with certainty how many folks from abroad have asked me if Adelaide or McLaren Vale (where I live) is in South Eastern Australia, but it is a dispiritingly large number.

For those unaware, South Eastern Australia is a “place” enshrined by Wine Australia and international treaty that embraces  Victoria, New South Wales and Tasmania and most of the grape producing parts of Queensland and South Australia and is an acceptable “place” for wine to be from. It is also the single biggest “place” that Australian wine is from in numbers of bottles using it a descriptor of place. Given the similarity of actual  state names like New South Wales, South Australia and Western Australia, South Eastern Australia sounds like somewhere.

Eyeballing it on a map, it looks to be about half the size of Europe. That this non-place confuses people with little familiarity of Australia (eg most of the rest of the world) is unfortunate for Australia and New Zealand (“do you think it’s these little islands down below Australia honey?”) as a whole. How can wine be “from” a place that doesn’t actually exist on a common map?

Map of South Eastern Australia wine region

Map of South Eastern Australia wine region

Has anyone ever bought a wine labeled Wine of USA thinking it would be good because it was from somewhere in the USA? Would the unarticulated possibility of some Missouri grown Norton mixed with some Virginian Merlot and New York Cabernet get you over the line?

But what of wine from known wine places like South Australia or California or Burgundy? They sound better. But still, absent any other information about their place of origin, would you buy them? Now, if they were from McLaren Vale, Napa Valley or Cote D’Or, would your confidence improve in what you were buying?

You get my drift. Regional brands inordinately matter at the margins of decision-making because the margins of our awareness are where all new experiences originate. As such, to get a consumer to do something different (like buy a product that is new to them), you have to create confidence for them at the margin with information that is somehow reassuring. With wine, familiar names and places provide this.

Napa Valley Welcome sgn

Napa Valley Welcome sign

Wine is either of one place or blended from many places. While Australia is at least an actual place, it’s a big one. Australia is about 4300km wide and has 60+ designated wine regions of immense diversity of which each is at least one or more smaller “place.”

Less than 150 kilometers away from McLaren Vale, Napa or Cote D’Or, you will find regions with much lesser reputations for wine quality but still in the same state or department. As a national wine industry we continue to think and speak as one Australia when viticulturally and oenologically, there are many Australia’s. McLaren Vale, Margaret River, Mornington Peninsula, Hunter Valley and Orange bear less resemblance to each other than they do to similar regions in other parts of the world.

When selling Australian wine overseas in the last eight years, the most common feedback is that “the Australian category / brand isn’t moving.” In response, Wine Australia developed the Regional Heroes program to talk about Australian wine regions a few years ago. Prior to this there was little talk of regions. The problem with building a sub-brand called “insert region’s name here” is that the brand Australia has effectively no value above about $7 per bottle retail overseas.

It seems obvious that a sub-set contains some attributes of a set but no different ones from the set. In this case, how a can a regional sub-brand be marketed or perceived as better or more valuable than a brand with little value? If you are Australian this observation may grate – particularly if you’ve devoted your life to make fine wine here – but I could make the same case, country by country worldwide for all wine-producing countries. In short, nations don’t matter very much to consumers as brands but regions matter a great deal.

What semi-knowledgeable consumer buys a wine designated as French, American, Italian or Spanish because it is so designated?  Does anyone talk about a French wine they had last night or rather a Bordeaux, Champagne, Rhone, Burgundy, Chablis, etc.? Consumers of better wine want to know more than “Australia” before they hand over more than $10. And, if they don’t want to hand over more than $10, we’re targeting the wrong new customer.

Wine stores in other countries are usually divided into regions and varieties – Cabs and cab blends from Napa in this corner, Bordeaux over there, Italy upfront, Burgundy on the wall. And, sometimes, there’s the often-dusty corner (when it gets its own place anyhow) called Australia. In very good large wine shops there might be 30 Australian offerings out of the sometimes 1000’s offered. It’s usually void of life and stocked with wines I have often never even heard of with various vintages and regions. It’s a strange experience as you gaze across at the well stocked and busy Tuscany, Rioja, and Burgundy sections.winestore

Wine Australia is trying to change this, and, good for them. Unfortunately, they also have serious historical, structural and governance hurdles to jump in doing so.

Wine Australia cannot credibly tell knowledgeable critics and buyers worldwide that all Australian regions are above average (or better) with credibility. And, it can not let down its famous non-regional or South Eastern Australia brands. It also cannot credibly tell its levy payers that it does not “pick winners” in what stories it markets. Of course it does. It has to. Action of any sort would be impossible without doing so. It is permanently stuck in this quandary of half truths; another non-place. And, the problem grows worse each year because the industry is increasingly a different industry from the one it initially organized itself to support.

The story goes that it was the French who were merciless in their negotiations between the EU and Australia regarding rules called Geographic Indications (think Reggiano Parmesano or Bordeaux). For example, no longer could Hunter Burgundy be called Hunter (if the fruit came from McLaren Vale as it often did) or Burgundy. Worse if they wanted to call that wine something from somewhere it would have to be called McLaren Vale Shiraz to comply with the EU rules. Lucky for the EU, McLaren Vale was just a place in another state where people grew grapes and had just started calling its wine McLaren Vale (some called it Southern Vales and other things). It was a brilliant strategy to see off these mad Australians who had not followed Europe’s old rules but made pretty tidy wines.

Not just a Wine Region

Not just a Wine Region

In the wash up, Australia had to declare Geographic Indicators for its regions that conformed to the EU treaty. McLaren Vale suddenly needed boundaries and a name. Although it is the oldest wine region in South Australia and second in Australia, it had never had a proper regional name. Prior to this treaty, there might have been a dozen recognizable “wine regions” in Australia. I’m sure the story has been embellished over time but the facts are roughly correct.

25 years ago Wine Australia had these dozen or so regions and three Vitis varieties (Cabernet, Shiraz and Chardonnay) to talk about to maybe three or four principal overseas markets (but really just the UK and the USA). Now they have 60+ declared regions of vastly different characteristics and qualities with dozens of emerging Vitis varieties and styles expecting them to tell their stories in at least a dozen key countries worldwide. The former scenario had about 100 permutations or possible outcomes, the latter north of 10,000. It is a logarithmically different, and more difficult, challenge today.

By any measure bar “holding the line” and talk of “green shoots” (there are always green shoots in any market), Wine Australia is failing its mission in export markets. Not failing because they aren’t trying or capable but failing because it is a fool’s errand to expect one body to market 60+ different regional stories successfully or for 60+ different regional stories to fit into one silver bullet market strategy. It simply isn’t reasonable to expect success. If you accept that one definition of insanity is doing the same thing over and over expecting different results, we need to consider that Wine Australia may have to do things differently to get different results if we care about results.

One obvious problem with all of this is that the three largest producers – Treasury, Orlando and Casella – largely do not sell regionally branded products (of course there are exceptions). Jacobs Creek may meander through Barossa but it isn’t where they source most of their fruit.  All of the big wine companies have some regional products but the big bucks are in multi-regional (e.g. South Eastern Australia) blends.

To the extent that these businesses do not have to sell regional messages is a credit to them and their marketing investments. It is also a disincentive to care much for the Australia brand at the expense of their own. Penfolds Grange’s extraordinary success was the template for marketing multi-regional Australian blends at all price points worldwide. Casella’s Yellow Tail is basically the same product strategy at a (very) different price point. And, it worked as long as the perfect storm of a cheap Aussie dollar, nearly free water and favorable tax policies held sway.

One of the laws of business is that the strategy that successfully supported one stage of growth often needs to be inverted to support the next stage. This is why so many market-leading companies fall by the wayside so quickly – they miss the switch either through direction or timing. In this case, a lot of these wines got on the stage quickly but lost appeal at an equal pace because consumers of better wines don’t want the Coca Cola promise of an identical taste each time – they value wine as a continuous process of discovery. This has been much discussed and publicly understood since at least 2005.

While it seemed odd for CEO of Treasury Wine Estates David Dearie to publicly encourage small brands to “re-build” Australia’s image overseas, (exactly which companies screwed it up Dave?), he makes a crucial and valid point. It would be good for him and for Treasury for small brands to do that on Treasury’s behalf. Nobody has accused Dearie of not being clever.David Dearie

Rather than rebuild the “Australia” brand that has connoted uninteresting sameness to consumers worldwide for nigh on 10 years and which largely benefits big companies (Dearie’s comments implicitly acknowledge the Australia brand is nearly worthless and at least undifferentiated in New World terms) with lots of multi-regional blends and lower price points, we need to continue to double down on our differences and educate the world about our regional brands of wine from Australia and recognize that Australia is, in fact, the sub-brand. This should not be a controversial proposition.

I recently read about an initiative by the California wine industry body to improve exports. They’ve found in the UK that if they can get an independent retailer to buy multiple “linked” products (5-6 different California Chardonnays at different price points instead of one Chardonnay, one Cabernet, one Merlot, etc.), that sales skyrocketed on a semi-permanent basis because the consumer could “explore” the differences of one segment of California wine. Once this succeeded, the retailer was then keen to repeat the exercise with California Cabernet thereby taking his customers on a permanent journey through Californian wine. This is the sort of insight and action we need more of, particularly in the fast growing “above $20” segments. And, it is an opportunity ideally suited to collective action.

As Dearie’s statement presupposes, brave and spirited competition amongst regions and smaller brands would create excitement for all Australian wine businesses by increasing interest in our category and hence demand. In my experience, the inevitable counter argument of “its too confusing, people don’t even know Australia makes wine, let alone where Yarra is” is generally put by beneficiaries of the status quo with safe jobs and self-motivation issues. (Can there be a better example of region trumping country than Marlborough? The rest of New Zealand has done a great job of recognizing the primacy of this asset as it builds other brand and varietal stories.)

The wine public we need to attract worldwide is perfectly aware that Australia makes wine; they just don’t like the offering they have experienced from Australia. They are, by and large, intelligent and discerning buyers who choose to purchase wines from many countries regularly with an eye to value at all price points below say, $75 per bottle, when brand attributes like prestige begin to eclipse all other purchasing decisions.

There is one very simple insight that we seem to miss – these very desirable consumers perceive that the Australia brand is not as good as others because we are competing on the wrong playing field. We market a national brand or category they don’t like or have no interest in to consumers who deeply understand and regularly buy regional stories such as Bordeaux, Maipo Valley, Barolo, Stellenbosch, Napa, Marlborough and Champagne.

The net is that we have a national marketing body that cannot credibly tell the regional stories that the market wishes to buy. This is not to blame anyone for this situation but simply to suggest we are using an out of date metaphor to organize our offering and the wrong structure to implement a solution for seemingly no other reason than it is the way we’ve always done it.

Hazel Murphy

Hazel Murphy

The structure we have was built for a different world – the Hazel Murphy era of 1980’s to the early 2000’s. It was wildly successful (250x export growth anyone?) in that world but all of the key ingredients of standardized high volume quality and variety at a low price into a few key markets have changed for many reasons internal and external to Australia. The only blame being cast here is for “missing the switch” a la Nokia, Blackberry, etc. nearly 10 years ago.

Hazel Murphy and friends in McLaren Vale

Hazel Murphy and friends in McLaren Vale

The adaptations of Murphy’s brilliant and pioneering work used by Wine Australia today, including group road trips to many regions for foreign trade, sommeliers, journalists, etc., reflect the understanding of the need to show diversity. Private comments from participants are always on the whole positive but the negatives follow a few revealing lines.

One is the un-tailored approach where fine wine cognoscenti visit industrial wine-making facilities. Similarly, the “one day here, next day there” itinerary fails to immerse the guest in one of Australia’s greatest wine assets – its utterly uniquely casual vibe and culture. Another is the predictability of venues and featured wineries due to the conflicted nature of the Wine Australia’s premium “user pays” programs where members pay extra for visibility to certain markets and visitors.

The Internet exposes all of this to our guests – they’re not going to turn down an all expenses paid trip to drink their way across Australia without even taking a holiday from work. Nor are they going to appear ungrateful because it is a pretty cool deal in any case. But, they are usually as aware (or more) of smaller high quality regions and producers as anyone domestically and wonder why Wine Australia isn’t pushing these new and different stories with the same enthusiasm as the other stories. As such, the implicit tensions are unfortunately exposed at the margins of our most valuable guests’ consciousness of the brand Australia.

Just as Tourism Australia is constantly trying to find the new advertisement that will equal Paul Hogan’s landmark “put another shrimp on the barbie” TV ad, (think “Where the bloody hell are you? and Baz Luhrman’s “Australia” advertising fiascos) we are trapped in the myth that we can repeat our one great success that has long faded. That Wine Australia and Tourism Australia are now strategic partners is superficially a good idea. It may also be akin to two rocks lashing themselves together expecting to float this time. Being lucky isn’t a business plan.

Happier days

Happier days

We're all scratching our heads Lara

We’re all scratching our heads Lara

There is another analog that comes to mind in thinking about this subject – there is a vegan ice cream store in New York City that is so good that it doesn’t advertise or mention anywhere that it is vegan because they correctly reason that they don’t have to. Vegans will find the store through word of mouth and non-vegans aren’t intimidated. We could do the same – the Australian wine brand promise could be the nice surprise after the rewarding experience and not the un-discovered, un-tried and un-sold due to invalid or out of date consumer impressions that we are unable to change.

My modest proposal for Wine Australia is to recognize the brand “Australia” as a national sub-brand and to get behind individual regions or clusters of similar regions that are also willing to back themselves financially as the primary brands. It is a recipe for both cooperation and competition – small regions may find they can work together with other like regions while big ones may find they really need to differentiate their offering better once they’ve been shooed away from behind Wine Australia’s apron. From a governance point of view it is honest and transparent – help those prepared to help themselves. The “Australia as sub-brand” approach also supports multi-regional blends in a way that “South Eastern Australia” never will. Can’t these wines just be proud to be “Wine of Australia?” Or do our least expensive wines also find the brand Australia unmarketable and or cringe worthy?

Wine Australia could also act like a venture capitalist (not to be confused with investment bankers) fostering regional “start-up” brands by providing capital along with a regional partner. Provide initial seed funding to develop a good plan. More funding for travel to investigate / interrogate plans. Bigger funding for tangible results. Rinse. Repeat.

We need to encourage creative chaos and lots of different messages. The market will learn our real story from the ensuing dissonance – that the regions of Australia are among the most diverse in the world with outstanding producers in nearly every segment and variety. This is our story.

Wine Australia could then continue to act as a data gatherer, data disseminator and act as a consultative and investment partner to regions wishing to develop markets rather than continuing to exist as a monopoly provider of one size / one brand fits all. The beauty in this approach is that Wine Australia already does many of these things:

“As the Australian Government agency responsible for providing strategic support to the wine industry, Wine Australia offers a range of services and insights to help the wine industry make informed business decisions, protect the reputation of Australian wine, remove market access barriers and grow demand for Australian wine globally.”

Regions and groups of regions with shared interests have enormous opportunities to build new categories and open new spaces in markets worldwide by surprising and delighting customers and showing them new ways to understand, categorize and sell their wines.

“Alpine” might focus on certain overseas markets or segments where those styles are preferred while inland regions might team up to make new or emerging “warm” varieties fashionable at far better prices than they can obtain for less differentiated varieties and wines.

The magic in this formula is perhaps the least appreciated element – Australian ingenuity and a story telling culture. Who better to tell regional stories than the real regional heroes – the winemakers and growers who are pushing the boundaries of expectation and experience? A few corner offices might be lost in the short run but in the long run, we will need a lot more of them.

The lazy counter argument to this superficially chaotic and devolutionary proposal is that money would not be efficiently allocated or spent and / or that there would be needless duplication of overheads in doing so. Bottom up / competitive is always short-term inefficient and long-term efficient while top down / centralized approaches are the opposite and have along track record of failure. Witness the multi-billion dollar losses in the Australian wine industry of the last decade resulting from the top down myths of consolidation, centralization and long-term strategic planning in a dynamic worldwide environment.

We need to recognize that the odds of any top down worldwide marketing strategy with broad support from 60+ different wine regions and major wine companies actually working are effectively nil for the following reasons: any consensus marketing strategy is, by definition, out of date before it begins. Add in the fact that our peak bodies lack the moral authority and funding to do something truly radical. Most importantly, information technology, rapidly changing consumer preferences, emerging markets and horizontal fragmentation of the supply chain are so dynamic in practice that only bottom up solutions can possibly be responsive and resilient enough over time to work.

We need to invert the current model of national leadership if we wish to thrive once again rather than continue down a gradually declining road to serfdom. We need to appreciate our homegrown regional difference makers as well as the discerning and informed intelligence of the consumer we wish to target. We’ll stumble often enough on our new path but the costs will be small for the education acquired for the next effort.

A great place to start would be to do a “do over” on the upcoming Savour Australia  event .

This event, billed as the first global wine forum in Australia, starts with a keynote speech on “Power of Country and Branding”  followed by the syntactically and grammatically mangled “Premiumisation of branding and application to Australian wine and how it can impact your market” followed by “Myth Busters: Destroying the top 10 myths about Australian wine.” (All this before lunch on Monday). Really? That’s our best shot? Fighting the national stereotype after reinforcing the importance of national branding? How about “being the change” instead? It’s like they just can not see beyond the square to pay anything but lip service to the unique components of a unique national offering. Listen to the pitch video – does the word region ever arise? Fresh produce gets at least one mention. What are we selling? Bok Choy or Barossa? Oranges or Orange?

Oddly, Wine Australia expects the regions to fund a significant portion of the event.

How about something like Savour the Great Wine Regions of Australia? Make the entire event about all things regional – regionality (Alpine vs. Coastal vs. Inland distinctiveness), sacred (wine) sites, innovation, personality(s), food culture(s) and storytelling. The event is to be held in Adelaide; the guests will be able able to grasp the geographic and national subtext without the assistance of myth busters..

Positive change only occurs when the fear of not changing exceeds the fear of change. For me, that line got crossed a fair ways back.

What do you think?

Should brand Australia put regional brands first or brand Australia first?

BTW – my annual $700 invoice from Wine Australia for the right to export wine arrived today. Coincidence?

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