September 23, 2013 / 4:32 AM / 6 years ago

UPDATE 1-Treasury Wine CEO's exit shows challenge for Australian industry

* Treasury CEO departs after U.S. inventory writedown

* Australian wine industry facing shift to quality

* French leading the way in China

By Jane Wardell

SYDNEY, Sept 23 (Reuters) - The ousting of the chief executive of Treasury Wine Estates Ltd, the world’s second-largest wine maker, on Monday underscored the need for a fundamental shift in the way Australia markets its wines to the world as its exports fall.

Once hailed around the world for its so-called “critter labels” - cheap but decent quality wines featuring colourful kangaroo and koala adorned labels - Australia has been slow to grasp a move by consumers toward higher-end tipples.

The global trend is most noticeable in the United States, the world’s largest wine consumer where Treasury competes against world No.1 by sales Constellation Brands Inc, and in the rapidly growing Chinese market.

That leaves Australia with the tough task of cutting oversupply, increasing prices and - perhaps most importantly - rebranding its wines to the quality end of the market.

“People are trading up,” said Mark Parer, a Beijing-based importer of Australian wines with Plantagenet Wines. “The French are way ahead on marketing and branding.”

Australia exported A$1.8 billion of wine worldwide last year, down from a peak of $3 billion in 2007, according to the Winemakers’ Federation of Australia.

In the United States, consumers bought just 16 million litres (3.5 million British gallons, 4.2 million gallons) of Australian wines priced around A$3.75 ($3.52), down from 77 million litres in 2007.

Treasury’s misjudgment of the move upward in the United States proved very costly for the company and Chief Executive David Dearie, who presided over a A$160 million charge due to the destruction of thousands of gallons of cheap wine.

Treasury, whose brands include mass-produced Berringer, Wolf Blass, Rosemount and high-end Penfolds, was also forced to offer major discounts on “excess, aged and deteriorating inventory” after significantly over estimating U.S. demand.

Treasury Chairman Paul Rayner said on Monday the board decided the company needed “a leader with a stronger operational focus to deliver the company’s growth ambitions.”

Rayner said the U.S. market was an integral part of the business, although he noted a new CEO would have leeway to alter the company’s strategy there.

Warwick Every-Burns, a non-executive member of the board, will take over the reins temporarily while the company searches for a permanent replacement.

Treasury isn’t alone in its troubles.

Privately-held Casella Wines, the maker of the ubiquitous Yellow Tail “critter” label, earlier this year posted its first financial loss. Casella’s net loss of A$30 million for 2011/12 was a sharp turnaround from the A$45 million profit it made in 2010/11 and 20 years of profits on the back of more than 8 million cases of Yellow Tail shipped each year to North America.

Casella, which was forced to negotiate a debt restructure with lender National Australia Bank Ltd, blamed the high Australian dollar for crimping export margins and allowing lower-cost countries like Chile and Argentina to gain market share in the United States.

But analysts say the lower Australian dollar masked the wider problem for Australian wine exports and the recent rise in the currency will not be enough to revive its fortunes.


The bright spot for Australia is that while volumes are down across the board globally, it sold 14 million more litres in the $7.50 to $9.99 segment and 16 million more litres in the over $10 segment last year.

Parer said Australia needs to take a leaf out of the French wine book, in China at least.

Paris-based maker Pernod Ricard last month reported a 12 percent increase in sales of its Australian label Jacob’s Creek to Asia. The label is now the second-largest brand in China in terms of sales revenue.

A “cheap and cheerful” staple on wine shelves around the world, Pernod took Jacob’s Creek into premium territory with a Reserve range. It has also rolled out new variations of the label tailored to foreign palates, including a heavy red in China, the 1837 Solway.

Treasury has made some steps toward increasing awareness of its higher-end brands in China, announcing plans to open a series of wine bars to encourage drinking of luxury wines as well as gift-giving.

It currently sells in China only through distributors, a channel that Parer said can make it difficult to control the message.

Only time will tell how successful Treasury is at repositioning itself.

“I think a willing new CEO ... can build this business going forward,” Rayner told reporters. “I’m confident about the future.”

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