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In May 2011, the wine assets of Foster’s Group were split out into a new multimillion-dollar company, Treasury Wines. Since then, Treasury Wines’ share price has risen 47% from $3.36 on its debut to $5.03 a share last Friday, while profits have beaten analysts’ expectations. In its first year of operation as a separate company, Treasury Wines posted $135.5 million in net profit in August.
The demerger has paid off, its Australia-New Zealand chief Chris Flaherty tells LeadingCompany. "Our first year was really strong. I think it demonstrated the value of us having an independent play. And it shows the opportunity that we’ve got."
Flaherty joined Treasury, the owner of wine brands such as Penfolds, Wolf Blass and Beringer, as a sales director in November 2010, just before the company was split off from Foster’s. He was promoted in January to his current position, reporting directly to CEO David Dearie.
He says the split from Foster’s threw up a lot of questions. The management team had to figure out everything from how the Treasury Wines computers would run to how its contracts, which made provisions for both wine and beer (which it no longer supplied), would be renegotiated. Even after the split, Treasury Wines remained a huge company – it employs more than 3500 people and turned over revenue of $1.6 billion in 2011-12.
“It was daunting,” Flaherty says, “but also exciting.”
“We weren’t going to be sitting in the shadow of the big beer business, but standing on our own two legs.
“Through great planning and a lot of effort and passion, our first year was really strong. I think it demonstrated the value of us having an independent player. And it shows the opportunity that we’ve got.”
LeadingCompany met with Flaherty in Treasury Wines’ new CBD office. The company moved in last month, leaving behind the offices it previously shared with Foster’s.
The company wears its merchandise on its sleeve. Wine racks hang down from the ceiling, creating wall dividers. The ground floor of the headquarters is taken up with a courtyard resembling that of a winery. Salespeople in open-necked shirts sit with clients in alcoves along the sides. In the middle of the courtyard stands a wooden signpost pointing to the world’s cultural capitals with the distance from Melbourne displayed next to each name.
Treasury Wines’ modern genesis began when Foster’s began buying up premium wineries across Australia in 1996, but today Treasury Wines is an international company. Despite challenging market conditions in recent years, more than half of its volumes come from the United States and Canada, while sales in Asia are growing strongly. The company’s leadership is divided into its wine-growing business, which is headed by viniculture experts, and its commercial operations. Flaherty, though a keen wine enthusiast, heads the commercial side, leaving the winemaking to the “experts”.
He began his career as a part-time salesperson with British Paints while he finished his economics degree. “I was out there selling fibreglass materials and industrial coatings. I hated it at the time. I thought I was degree-qualified, and here I am carrying around a bag. But it gave me an appreciation of how things actually get done, and the importance of our customers to what we’re trying to achieve.”
Flaherty spends a lot of time talking about customers. An oversupply of grapes has plagued the industry for the past few years, sending quite a few small wineries out of business. Flaherty says this has led to customers being forgotten.
“One of the things that I think occurs when you’ve got oversupply is that people get to a stage where they’re desperate to move stock. So everyone gives a discount.”
“The issue with wine is that the consumer really loves wine, in Australia and globally. They love the status and sophistication of drinking wine; they love the occasions when you drink wine. But they hate buying it. And we’ve exacerbated that with our discount mentality, and being very confused with how we market our wine to the consumer.”
The outcome of this is that the role of brands has been dissipated over the past 10 years. As the wine glut recedes, Flaherty says the focus for Treasury Wines is to rebuild the value of its brands, which in turn makes things more comprehensible for customers (it’s easier to remember the wine you liked last week if you remember the brand).
The company is doing this through a range of initiatives, including educational initiatives – “people love learning about wine” – and sponsoring events where people drink wine, such as the horse races, with Yellowglen, or the AFL, with its Rosemount brand.
The AFL sponsorship is interesting, because it’s an area more commonly associated with beer sponsorship. Flaherty says beer, wine and cider companies are competing more directly than has ever been the case.
“We’re a bit more fortunate than beer or spirits, in that they target a younger profile than us. As people get older, the ageing population works in our favour.
“The negative of that is that beer, spirit and cider companies all want part of the action. Their consumer base is shrinking. Our challenge is to hold and grow the consumer base that we’ve got.”
Treasury Wines isn’t being defensive, instead taking the fight to its competitors. “For example, in beer, you’ve seen the explosion of mid-strength and low-alcohol beers,” Flaherty says. “Wine has never really entered that space. But we’ve started focusing on a lighter range of wines, which are going fabulously. They’re appealing to a broad cross-section of people who appreciate the ability to moderate, to have that extra glass with a clearer conscious. It’s more in tune with the lifestyles of many people, and what they want to get out of their experience. So we’re tapping into occasions normally reserved for beer with that.
“But on the other hand, you’ve got beers doing things like going fruit-flavoured, which is tapping into our business.”
Helping Treasury Wines compete is its diversification. Unlike most beer or spirits, wine takes years to mature, giving its rivals an advantage. “We can’t just flick a switch and produce more Penfolds Grange Hermitage or Pepperjack [which take 10 and five years to mature respectively],” Flaherty says. “That’s one of the challenges of our business – its fundamentally agricultural nature. We’re subject to the whims of Mother Nature.”
Size makes dealing with such vagaries easier. For example, Flaherty describes last year’s vintage as “terrible” in Australia and the United States, but stellar in New Zealand. This year, Australia and the United States have posted bumper crops, but New Zealand’s vintage, while high-quality, has been low volume, as have the vintages of Treasury’s European wineries.
“We’ve got to work with our business model to mitigate the peaks and troughs. So our size absolutely helps mitigate risk. With a lot of individual brands or businesses with only one winery, they could be wiped out with one hit. We’d be pretty unlucky if all of our regions got hit at the same time.”
On Treasury’s other challenge, oversupply forcing down prices, Flaherty expects to see improvement.
“We’re seeing balance come back into the category, and with it an opportunity for a bit more profitability for the retailers, the brands, the growers and the producers.
“We’re standing on the precipice of a nice situation, and hopefully that’ll continue for the next four or five years.”
A toast to leaders: How Chris Flaherty does it
Q: What should a leader never say or do?
Flaherty says the worst thing a leader can do is be inauthentic.
“We work in a service industry,” he says. “People are smart at all levels across the business and the industry. They work things out. So you’ve got to be true to yourself and the people around you, and to work through the solutions.
“Sometimes you won’t have the answers. I think the worst thing you can do is say ‘this is the answer’ when you haven’t got it yet. It’s much better to say, ‘this is the issue and I’m not sure what to do about it but we’ll figure it out’. Generally, thanks to our people, we do figure it out eventually.”
Q: What makes a workforce more productive?
“People should know exactly what their role is, and how it impacts on outcomes. They should be accountable for that delivery.
“That’s the downside to a lot of big business. People get lost, and they aren’t exactly sure how they actually influence an outcome. Most people come to work wanting to have a positive impact, so that’s really unfortunate.”
Q: What qualities do you look for in your direct reports?
Flaherty says he sees leadership roles as being half about functional expertise, and half about leadership. He expects his direct reports to be proficient in both.
“[With leadership], I ask how they’re going to influence those around them, how they’re going to communicate the messages of the company, and how they’ll live the behaviours that we want to operate with.”
“It’s a few different things but they’re all important.”
Q: How do you get inspired?
Flaherty says he’s always talked through his problems, both with business associates outside the company and his colleagues.
Q: What’s been the biggest challenge of your career?
Flaherty says business challenges come and go, and he’s always expected to have to deal with them.
What he hasn’t always expected have been the personal challenges at work.
“The most challenging things in my career have been the people, and the things that hurt them. You want your people to be OK – you want them to prosper and develop.
“I remember one situation where a colleague committed suicide many years ago. That crushed me personally. Within the organisation it was a testing time – we had lots of questions. It was upsetting.
“I wasn’t prepared for it. And you don’t associate that with work – you associate such challenges with your family and friends. Fortunately, I haven’t been involved in many suicides, but that one was terrible.
“I’ve faced sales crises, financial crisis – but all these things create the challenges to reinvent how you do things, and how you approach things to extract value. I wouldn’t single any of them out.
“Oh, apart from the 2000 Y2K bug. That was the biggest flop ever. A lot of IT people got very rich. In my case, it consumed a lot of my life for 12, 18 months. And then, nothing."