The lion tamer

He’s taken on one of the toughest jobs in the wine industry, getting Australian brewing giant Lion Nathan’s wine house in order. Chris Orr meets Peter Cowan

PETER COWAN, managing director of wines and spirits at Lion Nathan, seems genuinely surprised at the interest shown in his division of the Australian drinks giant.  "You know basically, in the world of Lion Nathan, wines account for less than 20% of assets and cash flow, and yet I seem to get all the air time," he says in a softly spoken, but bemused voice.

"I guess perhaps it is because it’s seen as the growth engine of the business."  Well, there is that, combined with relatively static beer sales for the company, and the small detail that to date, Lion Nathan has spent more than A$400m acquiring a variety of wine portfolios, among them St Halletts, Preece, Tatachilla and Wither Hills – which presumably means that a return on investment is expected somewhere down the line? "Undoubtedly," says Cowan.

 "But you have to have a long-term game plan, particularly in the fine wine sector.  It’s absolutely critical."  Cowan is a soberly dressed South African who, in a quiet but persistent manner, is happy to call a spade a spade – something he has in common with his rather more raucous Australian counterparts.

He is also the first to admit that the strategy he and his colleagues have adopted for the wine division over the last 12 months is fairly untypical for the market.  "Our business model is different from most.  But then so is our structure and our components. 

When I first came on board a year ago, we had all these wonderful assets, all these iconic wines and wineries, but to be honest we’d operated on a very tactical basis, very opportunistically.  We needed to switch to a much more strategic solution and that’s what we’ve been working on."

The business model and strategy Cowan and the board of Lion Nathan have chosen is to group the wineries under their group into a "federation" where each still has a high degree of autonomy, but can draw on the marketing, sales and distribution resources of the group to improve their operational abilities and success.  And the marketing message this "federation" is using is regionality. 

"Our strategy is focused very much on regionality," explains Cowan in measured tones.  "We looked at ourselves long and hard and benchmarked ourselves against our competitors.  We said, well, we’re not going to beat them on a number of criteria, but there’s a real opportunity for our brands to really focus on regionality.

It’s different from other business models, but there’s room out there for all of us. What we know we won’t do is play the scale game or the margin game – that’s not for us.  "However, the regionality strategy is far from an esoteric debate.

I believe it’s a genuine, sustainable and relevant basis for differentiation which heightens consumer understanding and experience of our wines. 

In line with producing distinctive wines from distinguished vineyards, the development of our brands in the UK and associated investment will focus on educating our customers and consumers on regionality.

"Critical to our global strategy is an excellent network of fine-wine partners who share our philosophy in each of our core markets.  In the coming months we are looking to improve our UK route-to-market which is sub-optimal in comparison to what we have achieved in other markets.

We are certainly looking to build even closer relationships with our customers and invest further in our route-to-market to strengthen our brands.  To date, we have discussed a number of ideas with our distribution partners and will work through these further into the New Year.

Overall we are committed to establishing a long-term sustainable business model uniquely suited to the UK market from a specialist channel and finewine consumer perspective."  Cowan talks very openly about his disappointment with the UK market.

"It’s fair to say that out of our entire wine business, the UK is the one market that isn’t really working all that well for us – not in performance terms, at least." But he’s also realistic that it will take time to build it up to the level of sales and coverage that he’ll be satisfied with.

"We’ve got a five-year plan as to where we want to take the business in our core markets, of which the UK and Europe is certainly one," explains Cowan.  And how do those markets stack up against each other?

"Well, amongst our priority markets, Australia/New Zealand remains our strongest where we have a direct route-tomarket through our inhouse fine-wine sales team," says Cowan.  

"We are seeing strong growth in the US where we recently aligned with Paterno International as our fine wine sales and marketing partners.  "UK/Europe has grown to account for approximately a third of our sales globally; the UK is strategically important to us from both a sales and brand positioning perspective.

Our UK focus is building the understanding of Australian regionality, particularly using our brands St Hallett from the Barossa, Petaluma which has benchmark wines from the Clare Valley, Coonawarra and the Adelaide Hills, Knappstein from the Clare Valley and Stonier from the Mornington Peninsula.

"We also recently introduced a selected wine portfolio through Kirin in Japan and are looking to establish sustainable route-tomarket platforms in emerging markets in Europe and Asia.

So given that these markets exist, and regionality is the platform and marketing strategy that he’s chosen to use, does he believe there’s enough diversity in the geographical base of the Lion Nathan portfolio to achieve success.  "Oh I think so," he states firmly and confidently.

"From the regionality point of view, we feel we’re pretty well represented.  We cover 85-90% of the regions in Australia.  We feel we’ve got New Zealand pretty well covered. We’re in Oregon currently, but we have aspirations to enter California, and then after that we’ll be looking at other quintessential wine regions, both New and Old World.

We believe we’re covering 60% of the regions we’d like to cover.  We’ve got a broad portfolio and we’ll continue to fill it out.  The key for us, though, is the channel focus. We’ll always have different wines for different channels and we aim to accommodate most of those channels."

So there are potential acquisitions in the pipeline, then? "Well it’s always possible," he teases. 

"But acquisition isn’t the only way.  We’re looking to build partnerships with wineries that can also benefit from being part of Lion Nathan."  In hindsight, anyone taking on the Lion Nathan portfolio was going to have a struggle on their hands.

Not only is its breadth and diversity of size and quality a challenge, but it’s populated by some of the biggest names in the wine industry Down Under; Brian Croser, Brent Marris, Bob McClean to name but a few.

And unlike competitors Southcorp or Constellation, there was no "core" wine philosophy or company that could claim to be the heart of the division.  What Cowan inherited was a group of disparate wineries that needed uniting in some tangible way – and the federation and regionality concepts, on paper, look like one of the best ways of doing it.

What Cowan appears to have, however, despite his background in businesses as diverse as dairy products and GM, is an appreciation of winemakers, for all their foibles. An appreciation he may have picked up during his relatively brief tenure at Southcorp.

"We’ve got a very committed, supportive and talented bunch of winemakers in the group, and you have to respect that," explains Cowan.  "I mean, many of our winemakers have spent years bringing up their brands, creating something out of nothing.

Why should a brewer think they can start interfering with them? It doesn’t make sense and it would have been extremely arrogant.  "But what Lion Nathan as a brewery can offer is the systems and processes, synergies and supply-chain solutions that can help them reach a global market.

"I mean, fundamentally the federation concept is based on the interdependency of our wineries, whereby each winery operates individually yet is able to leverage some mutual opportunities to achieve best practice standards and to gain economies of scale without losing any of their individuality and agility.

"We’ve highlighted five areas in which we believe synergies can add greater value to each individual winery; viticulture, winemaking, supply-chain management, fine-wine route-to-market and specialist marketing and PR.

Some clear examples of synergies which have positively impacted on our bottom line over the past year have been procurement of bottles, corks and winemaking technology and leveraging channel specialisation through our portfolio of wines.

Some longer-term objectives are further leveraging regional understanding and best practice across our entire viticulture and winemaking teams and setting in place optimal distribution of our wines through our fine-wine sales teams and partners around the world."

So the concepts are working already then? "Well, I have to admit the jury’s still out on that one," says Cowan allowing a smile to crack across his face.  "But you know these things take time. It’ll be about a year and a half to two years more before we really see the fruition of all this work.

"The thing about the regionality concept," enthuses Cowan, somewhat getting into his stride, "is that it allows you to deliver an authentic story for consumers.  You can offer retailers an educational programme for your customers and begin to build something in the market.

The Australian regional story isn’t really that strong yet, especially in the UK, and yet I think it’s going to become more and more important and I think we, Lion Nathan, can play a real category role in this sense, along with the likes of St Hallets and Preece.

"We need, as an industry, and ourselves as a business, to give customers another reason other than price to buy wine, and it has to be authentic – and regionality does that perfectly. So we’ve embarked upon that route as our way forward."

Cowan looks for a moment as if there is little else to add, then says simply, "Mind you, it’s a pretty long journey."

Peter Cowan CV

1954 – Born

1975 – Began career in marketing for Gilbeys

1980 – 16 years in various sales, marketing, GM and international management roles with Johnson & Johnson in UK, US, South Africa and Asia/Pacific

1996 – Group MD of global consumer business, New Zealand Dairy Board 2000 – Managing director of Southcorp’s Australasia/Asian Wine Business

Sept 2002 – Joined Lion Nathan as group managing director, Wines and Spirits