Wine, War and Mixed Meta(for)
by Dudley Brown
“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.
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.
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.
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.
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.
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.)
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.
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 those 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?