Franklin Tate, of Evans & Tate, has a habit of turning ailing

We aim to be a demand driven business, not a supply driven business

HE’S BEEN described as a "rising star" of the Australian wine scene, but the truth is Franklin Tate looks more like a chemist.  Perhaps it’s the beard, perhaps it’s the spectacles, perhaps it’s the way he fiddles with the latter constantly.   But whatever it is, he definitely has that chemist-y look about him. 

What he doesn’t look like, however, is particularly hard-nosed, and yet he’s embarked upon a series of sales programmes, investments and acquisitions that has seen his family firm, Evans & Tate, go from a modest 6,000 case sales a year when he first joined in 1987 to over 2m this year – an indication perhaps that it’s the wine business rather than wine itself that motivates this rather unassuming looking Australian.

The culmination of this steady improvement in fortunes for the comapany was the merger between Evans & Tate and Cranswick Wines earlier this year.  In truth, the term merger is perhaps slightly innacurate. 

What started as a "merger" ended up being more of a takeover, as it emerged that Cranswick Wines was in fact going through something of a difficult patch in performance terms.

Indeed, what was reputed at first to be the creation of a A$150m entity has ended up being nearer the A$100- 120m mark – way off the radar in comparison to the likes of Southcorp and Rosemount, or Constellation, but not just a drop in the ocean.

Since then, Graham Cranswick, former CEO of Cranswick has essentially taken a backroom seat, and Tate has charged himself with turning around the Cranswick operation and making it a valuable and contributing side of the business.

It’s a challenge he seems to set himself regularly.  In 2001 he bought the Oakridge winery, a company that he paid A$3.6m for, despite the fact that it was producing 50,000 cases a year but had sales of just 10,000.

Now the winery is close to breaking even thanks to a slashing of production down to 25,000 cases and a gradual development of sales.  "For me the model for the new company is in many ways the same as it used to be for Rosemount before it merged with Southcorp.

We aim to be a demand driven business, not a supply driven business," explains Tate.  "The problem with Cranswick is that they bought a business a couple of years ago, Australian Premium Wines, at its height in the market. APW was unfortunately very dedicated to the bulk market which began to experience problems almost as soon as the purchase went through.

That’s why it was struggling and that’s why it ended up as an acquisition rather than a merger." According to Tate, Cranswick was left with an overcommitment on wine and was forced, short-term, to pursue pricing and sales policies that severely damaged its trading ability – "fundamentally because it had to find a home for the excess".

"It’s a shame really," says Tate, although it’s not said with any real sadness but rather simply a resignation that these things happen.  "If you asked me do I think Cranswick would have been available or would they have had to do what they did if they hadn’t bought APW, I’d have to say I think not. I think they would have been in a lot stronger position."

But despite getting Cranswick at a good deal, does Tate not worry that his timing is a little awry? After all, Australia has just given rise to the world’s biggest wine company, Constellation, via BRL Hardy. Southcorp is having a disastrous time, and the omens are not good for anyone with dreams of making it big in what is an increasingly tough market.

 "Not at all," states Tate defiantly. "If anything, the timing couldn’t be better. For a start, Southcorp are clearly in disarray, and as far as Constellation is concerned, when two such big companies merge there is always fall out.

There are always new niches that open up, and we’re of the perfect size to take advantage of those niches."  If the expectations for the newly formed company are that expansion will be exponential and further acquisitions imminent, then there will be an element of disappointment.

"We’re focused firmly on providing quality to the consumers, and crucially an above average return on investment to shareholders.  There is this expectation that we must double investment in infrastructure etc and increase our purchases and expansion.

Well that’s not going to happen. If you look at someone like BRL Hardy, in the last 10 years or so of their existence, before the merger with Constellation, they hardly spent a penny on acquisitions, but they increased profitability fantastically.

 We’d really like to do the same, but we need to make sure that we are getting the full capabilities out of the current companies and infrastructure."  With this in mind, one of Tate’s first moves has been to bargain hard on the grape supply front and cut out 6,000 tonnes from the Cranswick crush.

"We were fortunate in that we could cut two main suppliers out of the equation," he explains. "That’s given us a general crush capability that this year has left just 600 tonnes unutilised."

It’s not necessarily a move his sales force is all that enamoured with. "Sure," he admits, "they’d like be able to have an inexhaustible supply, they’d like to always have stock sitting there just in case extra sales come in, but that would lead to a really poor stock inventory control.

We need to be tight, our supply chain needs to be tight. If that means that sometimes we could have sold more wine than we had, well that’s the price we have to pay. But I think it’s worth it for a lean, effective and profitable company."

That profitability, claims Tate, will come from sales of around 2m cases this year. Around 1.6m of those case sales will be in bottle, the rest will either be bulk or, alternatively, special projects for private clients.

"With AWP, there were three main elements that were part of the company when Cranswick took it over.  The first was that they made a lot of wine in bulk, the second was the Salusbury wine brand and the third was lucrative wine production arrangements with third parties.

The latter two we are keeping and developing.  The Salusbury range has had a major revamp and is getting significant investment to maximize its potential.  And we’re obviously keen to keep the third party production arrangements.

Frankly, if someone wants to ask me to make a wine for them lock, stock and label, that’s fine.  But the bulk side is something that we are not concentrating on."  Even with regard to private clients, he is cautious in the long term. 

"I don’t want us turning into the oenological equivalent of a one night stand," he says grimly. "I don’t want to build a business based on clients coming along and using our resources and our manpower just for one-off projects.

But it can be a good sideline if the deal is right," says Tate. It’s a long way from when Tate joined the family firm as a salesman in 1987 when the company was producing and selling a maximum of just 6,000 cases a year.   "Well, we’ve improved I guess," he says.

Tate’s modesty is surprising, given that he is also what most people would expect from a typical Australian in wine – namely frank and to the point.

He’s not prone to messing around. When asked whether Graham Cranswick had taken more of a back seat than he may have liked, he simply points out that "for both of us to run a company just wouldn’t have been practical.

 It wouldn’t have worked for us. It’s really as simple as that. And besides, Graham was always going to step down as CEO of Cranswick when the deal was done. He’s still on the board in a nonexecutive capacity and he provides a very valuable contribution to the company."

He looks irritated at the question, wondering why on earth it should seem so strange that the chairman of the company doing the buying, should also end up as chairman of the company doing the selling, but it soon gives way to a torrent of enthusiasm for the potential that he believes the company has.

"Naturally we’re looking at the US," he explains, citing the purchase of a distribution company there over a year ago as proof that he at least has a foothold in that market.  "But there’s also terrific consolidation and opportunity open to us in Europe, particuarly in the UK market.

While Cranswick may have suffered at the hands of the bulk market with AWP, where it did do well was in sales and marketing within the UK.  We have a very strong team here, who are very capable of increasing our listings and coverage in the UK and, in particular, I feel there’s a lot to do in terms of the on-trade where we have yet to really make our mark.

Plus, we’re at a pretty important point with Barramundi.  It’s done incredibly well for Cranswick over the last decade, providing sales, profit and exposure. But it needs a bit of investment and revitalisation.

 We’ve launched the Barramundi Reserve range which, while not big in volume, should help reflect the approach to quality across the brand," Tate explains.  Does he not worry that the market in the UK for Aussie wines is slowing down? "I think it’s rubbish quite frankly.

Look at Chile and Argentina, both their sales are either static or declining.  South Africa has done well, but from a tiny base. France is naturally the big target, but we’re almost overtaking them in volume as well as value.

They tend to sell liquid culture, with 500 years of wine history behind them whereas we tend to sell liquid food.   They have EU grants and subsidies, we have none.  "But even if the UK is slowing down, look at the potential elsewhere, other than the US.  There’s China, Germany, Japan.

All these markets are relatively untouched by Australian producers so there’s enormous potential for us to succeed there.  "Our biggest problem as Australians is that we don’t know how to sell to cultures that are different from us.  If you take Volvo as an example, it’s a fundamentally Swedish product, but it’s sold the world over.  

Australian wine is mainly restricted to English speaking countries. We need to tackle this, and tackle these markets, but when we do, when we finally crack it, the possibilities will be fantastic. If we succeed then you’ll see the next big boom for the Aussie wine industry."  It doesn’t take much to work out who’s planning to be around when that boom finally hits.

History

1961 – Franklin Tate born, Western Australia

1984-1987 – appointed wine buyer for major Australian chain Myers and subsequently Hearnes

1987 – joins family business, Evans & Tate, and forms sales team of one

1992 – appointed chief executive

1999 – appointed chairman and sees company through to successful listing on the stock exchange (Tate retains 35%shareholding)

2003 – sees through successful acquisition of Cranswick Wines