The life of Brian

Brian McGuigan talks to Chris Orr about how to stand out on the supermarket shelf, the impact of currency fluctuations on Aussie wine, and what might happen if there was a £7 note

BRIAN MCGUIGAN is not a quiet man.  That doesn’t mean to say he’s loud and obnoxious.  Far from it.  But there is a natural enthusiasm that leaps out of the man and borders between beguiling and intimidating.

 After a few minutes in his presence, however, you realise that there is very little of the latter, and a lot more of the former.  "When people talk about their relationship with the multiples in the UKy," he says, "a lot of them talk about them making life difficult for people.

They talk about them in a denigrating fashion.  But I have to tell you that’s not the way we see it.  Not the way we see it at all.  "And shall I tell you why?" he asks, clearly in a rhetorical manner because there is barely a breath between the question and his answer.

"Because we don’t take anything to them that isn’t a different or more interesting proposition from what’s already on their shelf.

I mean all you are doing as a supplier is hiring shelf space and you need to damn well make sure that when you stick something on the multiple’s shelf – or the independent’s for that matter – it flamin’ well shoots off, because it is of interest to the consumer.

I truly believe that once you start thinking in those terms, and thinking about the consumer it becomes easier to innovate and create interest."  But is it not getting increasingly difficult to combine making money with being interesting and innovative in the case of the multiples? "No, no, no.

I don’t believe that. You know when people complain about not being able to make money out of the big retailers it usually comes down to several different things, the biggest of which is getting the proposition right.

They haven’t come to the table with a proposition that works.  They haven’t come to the table with a proposition that makes sense to them, the retailer and to the customer.  Or they’ve come along with the same proposition that they had six months ago, which means essentially they are offering the same product.

They haven’t tweaked it, they haven’t changed the content of the bottle. In that case, you can expect to be screwed on price quite frankly.  And that’s because what else have you offered the retailer to play with – other than price? "I mean picture it.

You and the buyer are sitting at the table with the same old product between you.  You have nothing else to talk about other than price.  You have nothing to offer him or the consumer except price and price hits your bottom line, which means it hits margins.

Which means you become less profitable if you’ve got your sums wrong, more profitable if you’ve got your sums right.  But personally, in that situation, I think it’s pretty bad manners to blame the multiples for something that’s your fault."  He pauses for breath. 

"I mean if it’s too hot in the kitchen then get out of it.  Wine is not the gentlemen’s business that it used to be. It’s not relaxed and it’s not about protected margins.  The wine supplier is like any other supplier that goes into the supermarket these days.

In order to compete they have to look at every facet of their operations and make them as watertight in terms of costs as possible.  Wine is a consumer product like any other consumer product.

Which means the supplier is under a certain amount of pressure.  And that means we need to know what we are playing at.  And we better be efficient at what we do, and offer great value in the marketplace, and – this is going to get boring the more I say it – but you need a genuinely compelling proposition for the retailer.

Otherwise the retailer has 100 or so other suppliers sitting outside his or her door and again they will be asking one simple question.  What are you going to do for me that’s different? And if you do nothing different then you have only one thing left: price.

And in that case, if that’s all you’ve got, you’re going to get screwed."  McGuigan claims that the multiples market is too dominated by me-too wines, that suppliers and producers have taken the easy way out.

"You know with people like Tesco and other major retailers across the globe, we’ve set up think tanks.  We go in and meet up and spend the day talking about the opportunities, new ideas, etc and work out innovative marketing programmes for the year ahead.

I think that is a good example of modern supplier/retailer relationships – both working hand in hand to provide a great business proposition that serves us well into the future."  So is McGuigan-Simeon devoted to the multiple? "Not at all.

The independents made us, especially in the UK.  That’s why we launched the McGuigan Gold, because when we started with the McGuigan Black Label and in the Red label in the independents I promised that I would not sell it out to the multiples.

Gold is a different product and is so specifically because we owe the independents for helping build us up." 

Mature players

Does McGuigan think that the merger with Simeon and the success they’ve had over the past five years is as much a part of luck and circumstance as acute strategic thinking, i.e. the downturn in fortunes of other well known Australian producers?

"Look, we are a young, emerging contender and relatively speaking we are quite new to market.  Other people are in a mature phase of their business and it’s much more difficult to defend your patch from that perspective, especially when things were going wrong with the whole industry.

And I think the problem with bigger, more mature companies is that there’s often a temptation to have a layer of management that isn’t always necessary.  That often prevents ideas and actions being progressed or taken as quickly as the market moves – and that can cause problems.

As a young company we don’t have those issues."  So when he talks of challenges does he mean the issues of overproduction and the strength of the Australian dollar? And what damage, if any, does he think it’s done to the industry as a whole, as opposed to just one or two individuals?

"Well, there’s no doubt that the Australian wine industry has had a wake up call.  And we needed a wake up call frankly.  We were too overconfident about the future.  We were too sure of ourselves.

We’ve had overproduction and still do have in some areas – and that has been a major challenge for the industry and I think it has been a real shake up.  We needed someone to slap us across the face and say, ‘wake up!’  Because the world is not the place it used to be, where everyone was falling over themselves to buy Australian wines. 

There’s a lot more competition than ever and whilst Australia is still doing fantastically well there are issues. I think the catalyst for a lot of the challenges we’ve faced recently was the turn around of the Australian dollar. 

I think that forced us to look at what issues we had with our businesses – to assess all of those areas of costs and production that we perhaps had ignored up till that point."

McGuigan himself thought the wake up call for the industry was not going to come in the guise of over-production and a problematically strong Australian dollar, but rather a simple "plateauing" of sales as the market reached maturity.

"But remarkably that’s not occurred. Thank God, sales have been sustained, be it at a lesser price.  But that lower price has been insulation for the customer against the strength of the Australian dollar.

And that has had a massive effect on the Australian wine industry.  We’ve been forced to look at ourselves and look for greater efficiencies.  The result is that we have removed some of the fat that amassed in the industry during the time of an ailing Australian dollar."

So does he think these issues have actually been a benefit to the wine industry in Australia? "I think you have to look at it this way.  During the time when the dollar was weak, we enjoyed Christmas all year round for some eight or nine years.

And we never thought it was going to go away.  But boy, did we get a big surprise. But what it’s done is force Australian wine makers to look at streamlining their businesses and going back to the lean, mean hungry corporations they once were.

And I think that’s great, really. It will keep Australian wineries on their toes and work much harder to achieve their goals."  So from a global perspective, where does McGuigan think is hot for Australia?

"Well there’s lots of different markets that are doing well, but I think the US is the most obvious one in terms of immediate and sizeable potential.  I think when you look at something like Yellow Tail, that brand has single-handedly shown that Australia can do a fantastic job in the US.

There was a time when I think we thought to ourselves, will there ever be an Australian wine capable of selling more than two-million cases in the US? Then along comes Yellow Tail and blows everyone out of the water.

"Do you know that Yellow Tail has been the single most successful launch of a new product in the grocery and liquor business in the entire history of US supermarkets?  How sensational is that?  The recall and support that Yellow Tail has achieved has been just phenomenal."

"Is that why McGuigan has put so much effort behind its joint venture with Gallo, Black Swan? "Well, it’s certainly been a big investment for us and it’s paying dividends now.  We’re very pleased with how it’s performed.

And you have to think to yourself, if Yellow Tail hadn’t got there before us, we’d be cock-a-hoop." 

English psychology

 Does he think the success of Australian wines in the US will continue?  "Frankly, who knows? But it will only continue if we get off our backsides and make it happen – if we keep pushing it and keep driving it.  That’s for sure."

Is there a likelihood that, thanks to the higher value the US market produces, the UK could get left behind when it comes to where Aussie wine businesses decide to focus?

"I don’t think so, but I think last year when the Chancellor put duty up by 4p it looked likely to be the straw that breaks the camel’s back.  "I think with the English consumer there’s a psychological point about the £5 mark.

Personally I think it has to do with the currency.  The £5 note is a cut off point for many consumers.  But then it’s the same in many of the liquor and wine retail ops in Australia. A$9.99 is a key price point. A$10.29 just doesn’t make it.

I am pretty sure if we had a £7 note and a A$14 note, the price cut off point would be 6.99 and 13.99 respectively."

Size irrelevant

Sensing the conversation has taken a bit of negative turn, McGuigan rouses himself quickly. "That said – we sold A$2.5bn worth of exports across the globe last year – which is pretty damn good don’t you think?  That’s an impressive amount of wine.  And we’re proud to have been a part of that."

With Southcorp still on the road to recovery and Constellation buying an evergreater presence in the global wine market, where, then, does McGuigan see his company’s position as being?

"Well, you know we’re about a quarter to a third of the size of Southcorp in volume terms.  But our aim is not to be seen in terms of size. Our aim is to be the number one company in terms of net profit for our shareholders and that doesn’t mean we need to be number one in terms of turnover or volume.

We want our shareholders to support us and the industry knows we are doing the right thing and progressing well, and bringing something positive to the party."  But surely that means volume and more importantly value, will have to be taken from his compatriot wine companies?

"Well, remember we’re continuing to increase the size of the Australian pie globally, and we’d like to focus on helping the Australian share of the market continue to grow and make sure we take a proportion of that growth," he says rather seriously.

 "But I suppose there will be some fighting internally for market share.  We’d rather not steal from others, but as I say, increase the global presence and share of Australia."  "That said," he booms, with a mischievous smile spreading across his face, "I’d be lying if I said we didn’t indulge in a bit of the other every so often."

For a few moments, nothing but McGuigan’s laughter fills the room.  And it’s a big room.