Wine and beer can mix

When Foster’s chief executive Trevor O’Hoy set out his vision for 2010 last year in The Australian newspaper and on the Eureka Report (See Foster's Big Blend) a very important part of his plan was a successful multi-beverage strategy in Australia and, longer-term, a series of global brand alliances.

When the interim report came out and Australian wine revenue was down 10%, it was clear that the multi-beverage strategy was not working in wine, although the company was also hit by the wine glut. Long-standing wine industry executives shook their heads and said: “We told Foster’s that wine and beer don’t mix.”

O’Hoy had to find out for himself what was going wrong, so he personally visited about 250 customers Australia-wide to find out what was wrong and devise a strategy to fix it.

He discovered that the system worked well in the back office, and that most people liked having only one delivery and one bill. And having a sales person selling wine and beer worked well with smaller stores and your traditional blue-collar pub. But although many of these outlets liked the wine and beer combination, they were sad that the person they had been seeing for years had moved elsewhere.

But joint selling did not work where a range of premiums wines were sold – specialty wine stores, white-tablecloth restaurants, and upmarket bottleshops. So Foster’s has changed tack and is now sending separate premium wine sales people to these outlets.

It might take three to six months to see whether this will help recover lost ground. Overall, Foster’s will be helped by the end of the wine glut. Foster’s lost wine market share because Woolworths and Coles were concerned that the company was too big and so gave business to smaller wine makers. And the surplus of grapes saw a big rise in cleanskins.

In the current six months this will not change, but in 2007-08 the big fall in grape production as a result of the drought will slash the number of cleanskins and lessen the Australian supply choices available to the big supermarkets. Currently that’s what’s happening in the US where Foster’s Beringer is having a ball. But imported wine may increase competition in Australia.

O’Hoy said last year that he did not think the private equity raiders would hit the company until they saw whether the multi-beverage strategy was working or had completely failed. He turned out to be right.

But if the raiders sense that Foster’s fortunes are reversing then they will try and grab the company before the sleepy institutions wake up to the potential of the second strategy: a network of global brand alliances where Foster’s as the world’s largest premium wine maker will play a big role.