THE BIG INTERVIEW: Dane Hudson: The Provider

In his 18 months at the helm of McGuigan Simeon Wines, chief executive officer Dane Hudson has had to face some tough decisions.

Charlotte Hey discovers how his experience in FMCG has helped him meet the challenges and make ambitious plans to take the company a stage further

DANE HUDSON could be seen by some as a brave man. Appointed to the role of CEO for McGuigan Simeon Wines in March last year, not only did he step into the shoes of the omnipresent Brian McGuigan, but he also couldn’t have picked a more difficult time, in terms of the current situation in the Australian wine industry, to take the helm of the country’s second largest producer.

Over the past 12 months the company’s share price has fallen considerably and he has had to make some tough decisions on the production side. Rather than face inevitable inventory write-downs, Hudson and his team returned its stock levels to balance last year by heavily discounting much of its product. The result was that a significant portion of inventory was sold at a loss and first-half earnings to 31 December 2006 suffered. However difficult that decision was commercially, a short sharp shock was preferable to a protracted series of inventory write-downs during this year.

Add to this the fact that this year’s harvest has fallen by 33% in comparison to the 2006 vintage and you can see that Hudson has had to employ and adapt many of the strategic and commercial skills he learnt outside the wine industry to keep his shareholders happy.

Hudson started life as a chemical engineer; his career subsequently took him to international blue chip companies and away from his Australian homeland. Eighteen months ago he and his wife decided it was time to bring the family back home, so he gave up his role as senior vice president and international chief finance, development and procurement officer for the world’s largest restaurant company, Yum Brands Inc., and plumped for plain old CEO at McGuigan Simeon Wines, leaving the US and management of such brands as KFC, Pizza Hut and Taco Bell behind. Hudson’s background is very much FMCG, but he believes there are similarities between KFC and wine.

Hudson finds the wine industry “fascinating”.  “I always thought I was quick learner but this is a complex business,” he says. “Here, it’s not just the retail and the industry side to learn about, there’s also the agricultural side thrown in for good measure. What really fascinates me is the fact that wine is a product that people have an opinion about. They want to talk about it; they want to let you know what they are experiencing when they drink it,” he says. A bit different from Kentucky Fried Chicken then? Hudson nods. “They are both tangible products,” he states. “It’s about the brand and the strength of that brand. That’s where the similarities lie, in building the brand.”

He has a point, but his challenge is to continue to build a brand that carries the name of his predecessor. I ask whether he has found this a challenging task. He replies: “I aspire to be as good as Brian, to have his passion and drive. The good news is that I am also very different to Brian. I’ve been a big corporate person, and have a totally different background to his, a different skill set. I always knew that it would be a challenge to step into a role with him still being on the board; it must be hard for Brian too. He has been excellent in terms of support.”

Hudson is open and frank: “The transition has also been a big challenge culturally. Brian was well connected to every aspect of the business, incredibly hands-on. My style is much more delegatory and my role, in preparation for taking the company to the next stage, is to create a corporate structure and systems within the business. It was time for a change for the company and the creation of new disciplines. Having spent time in the role, I firmly believe that it was time for change.”

Clear vision

For Hudson, the first challenge was to instigate the disciplines of process and consumer goods experience. He has introduced strong KPI incentives and a structure that he believes “is starting to make a difference. It will, however, take a couple of years to change the business, and that will only work if you’ve got the processes and disciplines in place.”

Hudson has a clear vision of how he sees the company growing; now it is all about getting the groundwork done. But he is ambitious in terms of where he thinks the company can be in the medium term. “We have tremendous growth aspirations and opportunities ahead of us. We are very enthusiastic about our relationship with WaverleyTBS here in the UK, and that is over and above our plans in the off-trade for our brands.

“I am looking to grow the export aspect of our business. Currently it stands at 50% of total sales; really it should be at the 80% mark for a company of our size. We are looking at the US quite keenly. Although we work with Gallo we sell very little branded product there, but there is potential to do much more. As a consequence we have appointed a new general manager in the US and we are investing for growth – as the old adage goes, ‘You have to invest money to make money’.”

Building value
Hudson believes that despite the challenges the industry is facing, as a company, McGuigan Simeon Wines is in the fortunate position of being able to gain access to more supply and look after key customers when it comes to specific demands. He intends to retain that flexibility and ability to react quickly to market demands. “What we are now looking towards,” he continues, “is volume growth, but with the right revenue, the right margin while providing the right volumes.” That’s the theory at least, but the reality of the market and current industry dynamics, especially for Australian brands, means that the opposite is often the case. Hudson is well aware of the market and determined that his company will lead the way and build value into its brands.

“It is an interesting time for the Australian wine industry. If you’re small then you’ll be fine, if you have the size, scale and the brands then you’re also in a pretty strong position, it’s those in the middle position that will have the challenges.

“In terms of production we have gone, and to some extent are still going, through one or two cathartic years and the current shortage means that people have had to concentrate on quality.

“Hitting the price points at the level we were was not sustainable. As a consequence, prices have come up for bulk wines. Prices are also going to have to come up in the UK, and as a result we will start to see a lot fewer BOGOFs and half-price promotions,” he predicts.

His opinion of the Australian category is quite clear: “We have been seen as a great-value producer, with a propensity for producing low-priced wines. As an industry we now have to convince the consumer to pay more. Australian brand owners need to train consumers to move away from the BOGOF end of the market, even if we have thus far trained them into that. To me that’s the only way the industry is going to remain sustainable in the long run.”

Finding a balance
He is aware that the task is not an easy one. “It’s hard when you have been successful at a certain price point and with a certain range of products,” he says. “In many ways it’s a double-edged sword because we have enforced our own situation of being associated with lower prices. As a category we need to keep pushing at the higher-quality end of the market. If we have a long-term approach to this aspect of our business then we might have a viable chance of challenging the French at that level. It’s not easy, but you don’t have to sell vast amounts to make a difference to the P&L.” For Hudson, the key to future success will lie in “finding the right balance between price and volume”. “One thing we cannot afford to do,” he asserts, “is lose shelf space as a category.”

And this is where his previous FMCG experience comes into play. For him, FMCG only works if you’ve created some sort of premium for your product. Hudson believes it is no longer tenable for brand owners to rely on being a solely low-cost producer. “Part of building brands is the personality and story associated with the product,” he explains. “This was one of the key factors in our purchase of Nepenthe. People love a good story and if we are to make our brand strong and viable we have to promote and maintain those stories. Tempus Two is another example of a product that has the kind of point of difference I’m talking about – it’s got great shelf stand-out. That’s what McGuigan needs for its brands – more points of difference.

“Once you have got the initial building blocks of distribution in place the next step is to build brand strength. We have a great advantage in that we able to differentiate our products.” And here he returns to an example from his previous job: “KFC is so successful because it is very different in comparison to brands like McDonalds, Wendy’s or Burger King – when you really examine it they are all products that are hard to differentiate.”

The right buttons
In his opinion, “Wine is an extreme example of that fact. Which other category has 30 different alternatives at the same price point?” he asks. “While you have the value of differentiation the market is cluttered, which means you have to make your particular point of differentiation really count. The amazing thing to me is that, in wine, if you manage to get 3-4% market share you’re a star. There are not too many consumer product categories where that is the case these days.”

Hudson turns his attention once more to the plans for McGuigan Simeon within this context. “We don’t want to be precious about the own-label aspect of our business. It is an intrinsic part of the business and one that, of course, is very valuable to us, but we have to realise that it is not a point of differentiation in terms of pure brand building.

“If we are to build real value into our portfolio then we have to build brands, and the private label business helps us when it comes to leveraging our brands. It has to be a good thing for retailers that we are not just putting good product in our own brands.”

What Hudson sees the gatekeepers looking for is brands that help to make them successful and suppliers who really appreciate the quality-price ratio and the level of service that they require. He adds, “In effect, suppliers that press all the right buttons. Yes, there are a lot of strong Australian brands out there, but I do think that the retailers still need companies like ours. They need a viable alternative to our competitors. What they want is for us to help them create the consumer pull, it’s our role to create awareness and drive brands from where we are.”

Hudson might be a relative newcomer to wine, but when it comes to the brands he wants to build he has got his sights firmly set on providing the market with what it wants. The circumstances into which he has entered might be challenging, but there is no doubt in his mind that he and McGuigan Simeon will continue to grow and succeed. db

To hear more from Dane Hudson log on to www.drinksbusinesstv.com