‘Wine needs to do a better job and we’re right up for it’ – Treasury Wine Estates CEO Sam Fischer speaks to Global Drinks Intel

Treasury has been active in keeping the market updated of late, so today’s figures aren’t that much of a surprise. Was there anything from the results that came as a surprise to you?

When you come into a company, you always look at it with a fresh pair of eyes; trying to determine where the opportunities and challenges are. I’ve been in the alcohol industry for a long time, and I’ve lived in Asia, which is where a big part of Treasury exists. So, I kind of knew where to look and there were some areas that I thought needed to be addressed. That’s really what you’re reading about.

I was working in China when Penfolds was being built there. I was nothing but impressed by the brand and what it was able to do in the country, when many other brands that were entering China really weren’t able to.

While there were bits and pieces that needed to be addressed, there were also bits and pieces across the business that are what I thought they were – exciting, with huge potential and opportunity. That’s what drew me to the business in the first place.

I knew of the US’s potential through my time at Diageo, for whom the US has played a critical role. I knew then of the portfolio of brands that Treasury has. The US is a huge alcohol market and has long been the most profitable in the world. With the addition of Daou, we’ve got a wonderful portfolio there.

With some of the challenges, then, I also saw some real opportunities as well.

It feels at the moment like Treasury is a company that a lot of things seem to be happening to.

I lived in Asia for a long time; with its various policy changes and changes in routes to market, I’m used to volatility.

There’s been a confluence of events that we’ve had to deal with, for sure, and what you have to do is create a plan. In the short term, the plan is to focus on execution and try to continue to build momentum inside of our core brands while managing our costs. At the same time, we need to make sure we’ve got real clarity on what the longer term looks like.

That’s what Project Ascent is: Simplification of the portfolio, removal of duplication and cost, and simplification of the operating model. It’s about drawing up a really compelling roadmap for the future. That’s how I’ve broken it down – look at the issues, get a plan and then galvanise the organisation behind that plan.

Today’s results referenced issues for Treasury with parallel imports.

We operate in an attractive industry – luxury goods and beverage alcohol – in an attractive market: China. If there are opportunities outside of the market, then it’s quite common to see parallel imports coming in. It’s just good practice for companies to try to control it, particularly where you are creating the arbitrage opportunities.

When I visited China, I found disruption in some online pricing that was well under what we would have liked to have seen in the market to support Penfolds’ brand positioning. That’s problematic – once you’ve undermined pricing in a market like China, then you lose the confidence of your formal in-market distribution system.

The positioning of Penfolds in China is a real jewel for us. Clearly, I want to continue to elevate and develop it, not to see it undermined. We’ve looked at all the other markets to see if we can find a source, either through purchase anomalies or high-risk customers that could be undertaking that kind of a programme. Where that’s happening, we’ve got to stop doing that.

The good news is that some of the feedback we’ve got from our China distributors has been really positive. They saw those flows reduce as we came into the critical Chinese New Year period. While there has been some pricing fluctuation as channels normalise, there’s great confidence in our distributors that we’ll see not only wholesaler pricing stability, but also elevation over time, to support that luxury positioning.

I’ve lived in China, so I’m well aware of the disruption and wanted to move quickly to address it.

Staying in China, some of your peers have highlighted recent changes in consumer habits. Have you?

From what I’ve read, the changes are impacting predominantly the spirits and baijiu players, particularly at the higher-strength end. They’re seeing younger consumers in the country look for something a bit more moderate from an alcohol perspective.

This plays quite well for wine, particularly for Penfolds, which has got this status that allows it to be gifted. It’s really revered in the country. With that, it’s got lower levels of alcohol, so it’s ticking two boxes.

I certainly haven’t seen this consumer behaviour impact our China performance. That could be because Penfolds is playing a broader luxury role as a brand as opposed specifically to wine. Our job, then, is to continue to ensure that Penfolds is revered by and is aspirational to Chinese consumers. If we do that, then we’ll continue to access the luxury consumer segment that we know will continue to grow.

It’s such a huge opportunity in China; the penetration of wine is still very low and there’s an emerging middle class that will last for decades. We think that bodes well for our business in China.