Follow the leader

One year after the takeover of Southcorp, Penny Boothman caught up with Jamie Odell for a frank discussion about what the future holds for Foster’s and for the Australian wine industry at large

I’ve never conducted an interview with someone so candid – if there was something that needed to be said, this man would say it. And my feeling is that, by the time the rest of us realised that something needed to be done, Jamie Odell, managing director of Foster’s Wine Estates, would already have it pretty well under control. This is someone with real energy and contagious enthusiasm, but Odell’s optimistic outlook is also tempered by a healthy dose of realism. Combine this with exhaustive knowledge and experience of the global beverage market, and you have yourself a true leader.

British by birth, Odell has long since adopted the land downunder as his home. “We came over here in 1992 as a family and just fell in love with the place. The more I travel, the more I like coming back to Australia. It’s a wonderful country,” he says. However, his affection for the country extends beyond Australia itself to Australian wine, and the industry he’s in.

Joint objectives
“The wine industry here is closer than ever. The key players are very few, and they’re working together with the smaller ones. You really get a sense of ‘one industry’, and it’s a different set of loyalties. You obviously have a loyalty to your company, but there’s also a loyalty to the trade, a genuine feeling of doing what’s right for the industry. We all know that we will one day exit, and you have to take a mature approach and say, ‘What’s the industry we’re going to leave behind?’ I know we’re all competing and we’re all trying to get the Christmas promotion with Tesco or whomever, but at the end of the day we’re trying to have a sustainable industry, and it’s falling on fewer and fewer people and organisations. More than ever now I get that feeling of camaraderie.”

United as they are, Australian wine producers are facing one common problem: there’s just too much Australian wine at the moment. “No one knows when this glut is going to finish; my estimate would be two to three years before we really move out of the cycle. But, of course, it’s difficult down the whole chain. Growers get low prices, and you end up being discounted, which is bad for the industry because you really want to be developing brands and positions and price points. This is not healthy. If you train consumers to buy wine at £2.99, then they get used to that, and I think that’s dangerous.
An industry like ours needs to be able to invest in the future. This is an agricultural industry, and sustainability should be one of our inherent traits.”

The subject of industry sustainability is obviously a growing concern, and earlier this year a new development initiative for the Australian wine industry was launched. “Directions for the Australian Wine Sector”, due for release in April 2007, is being developed to replace the prematurely outdated “Strategy 2025” document. The panel will be chaired by former McWilliam’s CEO Kevin McLintock, but Odell also forms part of the task force. “It’s a whole group of people looking at where the industry is, where it needs to be, and how we get ourselves positioned so that we can have a good, honest think about some of the challenges and opportunities ahead of us. And I think part of that will be the need to shout out about how good quality our wines are.” Odell continues: “There’s a bit of momentum building behind that, and in the next 12 months or so you’ll see a more concerted and public effort behind getting a clearer message about the premium and luxury wines of Australia.

“It will take years, but I see it working like a halo effect for all Australian wine. It’s got to be inclusive, not exclusive. Within our own category, the way we use Penfolds Grange is a great example. It’s a wine that most people won’t taste in their lives, but knowing that Grange is this wonderful wine sold at auction, they can then go out and buy Koonunga Hill for A$15, and the imagery says that it’s from the same place as Grange. You’ve still got a piece of that DNA.”

Mergers and acquisitions
Foster’s acquired the flagship Grange brand with its somewhat-controversial takeover of Southcorp last year, an acquisition that has seen the group’s wine-trade earnings leap by 58.9% to A$204.4 million (Foster’s Group Limited’s half-year report to December 31 2005), including A$22.7m in Southcorp integration synergies. It seems to have been a stretch worth making, but Foster’s has by no means been the only beverage company with its wallet out in the last 12 months.
“I think Constellation is a big and important wine company,” says Odell. “I respect Constellation’s business – believe me when I say that – but it has a slightly different model to us. It has more lower-price points around the world than us and it has more mass – it’s that sort of business. As an American company, it’s also more acquisitive than we are. We bought Southcorp just under a year ago and we now need to make that work. We’ve got the best brand portfolio in the world if you just line all the brands up. Personally, I think we’re more about premium-brand building.” Does that mean that FGL is ruling out any further acquisitions in the near future? “You never say never, I’ve learned that, but our priority is to make the portfolio we’ve got work.

“Constellation has had a good acquisition run, and I hope it works for them,” he continues. “Vincor is not something we would have gone for for our business because we’re not about those sorts of brands, and to be dominant in Canada doesn’t appeal to us at the moment. It fits Constellation’s strategy, not ours, and it won’t affect the way we compete in other markets.”

Does size matter?
What this all comes down to is the ever- spiralling trend towards consolidation. Constellation Brands and Foster’s may have taken the lead, but Pernod Ricard is not too far behind, and with other corporations (including Jim Beam Brands) moving in on wine, the circle is getting smaller.

“You can see us shuffling out into a league table of big and small players, and I think distribution is getting harder and harder to get. Therefore one of the things about having a powerful portfolio is that you have the right to distribution. You have to be competitive and have a reason to be in their range, and that’s much tougher now than it used to be, even two or three years ago. Unless you’re differentiated, I think it’s going to become tougher and tougher to get distribution. Anywhere – hotels, restaurants, retailers. You need to have a point of difference.

“I’m a big fan of the small end of the tail. There are several reasons for that – one is that I think we need those people to be individual and to do things that only small entrepreneurs can do; they need to be passionate about it or do something that we wouldn’t even think of. But they have to be differentiated. There’s no point just being a small guy who’s trying to sell the same wine as the big guy, because you don’t have the efficiencies or distribution.

“It used to be perceived that the small guys had the quality that the big guys couldn’t have, but now – and I’m talking about the top-end wines – we have the best winemaking equipment. And wine is made in a winery, it’s not made with a magic wand. It has to be made with good equipment and great fermentation techniques and stored in good-quality oak barrels and all that sort of thing. Well, the big guys do that now because we have great systems and capital-investment management that allow us to do it. Unless you’re a seriously differentiated small player, it’s difficult. With consolidation, you need to be either big or unique in some way.”

Brand cannibalisation
But being big and having a sizeable portfolio brings with it other dangers. The larger the range offered, the more real the threat of brand cannibalisation, as consumers drop one of your labels in favour of another. “It’s a very interesting subject, because the wine category is just so fragmented, you need to have a portfolio,” says Odell. “Even the best brands in the world don’t have dominant shares. Something like Lindemans or Jacob’s Creek get to about 4% or 5% of the market but no more, therefore the consumer is trained to shop across the brands. Consumers have a basket of brands that they’re happy with, and we own some of them – not all of them – but if you have two out of five of the basket, you’re doing pretty well. It’s pretty obvious what brands compete with what brands, and some of our labels do overlap, and one of the debates we have is: is that a bad thing? Does it matter if brands overlap if people are buying from a portfolio? In other words, would you rather have two out of five or one out of five?”

However many of your products consumers are putting into their baskets, the immediate goal is obviously to get them on to the shelves in the first place, and Odell is upbeat about future export growth for Australian wine. “There are lots of new opportunities. If you think about how big the industry really is, there are lots of markets we haven’t really got into, and there’s lots of space in those markets we are in that we can still take. That’s why we need to work together.”

This desire to see the rest of the industry grow alongside them is perhaps unusual from such a large multinational corporation, but with Odell’s blend of motivation and common sense driving one of the foremost companies in the global wine industry, it’s safe to say we have a lot more to see yet from Australia. db May 2006

Curriculum Vitae

MBA, University of Sussex

WSET Diploma (Honours)

Previous roles include:
Regional vice-president (Asia Pacific), Allied Domecq Duty Free
Managing director, URM Brands, Allied Domecq (UK)
Managing director, Tetley Australia

• Joined Beringer Blass Wine Estates (BBWE) April 2000 as managing director (Asia Pacific)
• Promoted to chief operating officer in 2004, he led Foster’s Wine Trade Operational Review
• Later became managing director, BBWE, in January 2005
• Appointed managing director, Foster’s Wine Estates (FWE) combined international wine business following Southcorp acquisition in mid-2005