Wine + beer = wash-out? Comment
In retrospect it’s easy to say: “We have always told you so. This will not fly.” I remember that’s what people said when the spirits company Grand Metropolitan and brewer Guinness combined to form Diageo in 1997. And where is Diageo today? At the top. Did they have to sell Guinness? No. Would there have been buyers for Guinness? Definitely. Plenty. And did Diageo stay clear off wine? No. Theirs is in fact a multi-beverage strategy that did fly. Although their wine portfolio is nowhere near as large as Foster’s. That’s a fact, too.
Perhaps, one day, someone will come along and have a new go at combining different beverage categories. Actually, this is where the brewing industry is heading. Because what else can it do once consolidation has run its course? Fortunately, for the wizened pundits, that’s still some time off and no one will have the temerity to point out the error of their earlier judgement.
The trouble with Foster’s is that they were the first ones to find out that an Australian-dominated wine production platform cannot produce acceptable returns from its exports. This is for several reasons. The first one to come to mind is currency. Since Foster’s bought Southcorp in 2005 the Australian dollar has strengthened from USD 0.76 to almost parity.
While Foster’s has positioned itself as a global leader in premium wine, a lot of the wine it sells isn’t premium, which makes it vulnerable to grape production gluts and other exogenous factors that make it difficult to produce consistent returns. One option would have been to rationalise the portfolio to focus purely on the higher margin brands with some pricing power. They did not do that early enough or with the necessary brutality.
Certainly the size and complexity of the overall beverage portfolio has been a factor in the difficulty of implementing the multi-beverage distribution strategy in the domestic market, where the back office and supply chain gains were offset by the customers’ confusion and resistance to the complexity of the Foster’s offer.
When Foster’s launched its review two years ago it identified that Foster’s sales force – one that supplied wine, spirits and beer across a geographic area – had failed because it lacked the specialist knowledge required to sell wine. However, that could have been remedied with proper training.
Anyone considering a multi-beverage strategy in the future should learn from Foster’s and take home the message that grand concepts do not fail because they are too grand. More often than not they fail for want of proper execution.
