Ric Einstein reports

Brian Finn

In this exclusive story, Ric Einstein interviews Brian Finn, Chairman of Southcorp and acting Managing Director. In a frank and forthright interview Brian sets the record straight and provides the real inside story of the company's much publicized problems following Southcorp's $1.5 billion merger with Rosemount in 2001 and the February firing of its CEO, the deputy chairman's son-in-law, Keith Lambert. Brian is serving as Managing Director until the newly hired CEO, one-time potato-chip magnate John Ballard, takes over.

This is a summary of many of the interview's high points. For the full text of the taped interview, see Ric's new Website, http://www.torbwine.com.

TORB: You have been a director of Southcorp for eight years and Chairman for five months, how do you feel sitting in the hot seat until John Ballard starts?

Brian Finn: Well, in the first place I wish the circumstances hadn't been necessary or appropriate for me to do that, but given that they are I feel very comfortable. ... Southcorp's problems, in my view, are not to do with wine, winemaking or our basic technologies; they are to do with the way we have been running our business ... Whilst I am not planning to be a long-term executive of the company I think I can adequately hold the fort and help the business along in the intervening period.

TORB: OK, if we forget about the problems of the past and look towards the future, although I would like to come back to the running of the business problems that you mentioned a bit later on, firstly do you feel that the company is vulnerable for takeover at the moment?

Brian Finn: ... Any company that is a listed company is vulnerable to takeover but in fact the depressed share price is a reason why we are not vulnerable to takeover. ...

Of course we are vulnerable. Every one is vulnerable and we are particularly so in theory but in practice I doubt it. Nobody has knocked on my door; they have had five weeks to do it; that tells you something!

TORB: I would like to come back to the point that you made about the biggest reason for the past problems you are facing now is because of the way the business was running. Can you expand on that please because that is a very interesting and telling comment?

Brian Finn: ... The integration of the two companies was completed very quickly and in fine style. ... but having said that we took our eye off the main game. Volume became the overriding consideration and in our quest to drive volume we overlooked the need to focus on profitability. That is item number one.

Item number two ... this was quite a big merger of two companies and the organisation did not have a good system of checks and balances in place. If you have a strong leader taking an aggressive view of the market without checks and balances the forecasting can go awry. Quite simply that's what's happened because there were not enough checks and balances in the organisation to be able to say hold on, are these targets really achievable.

A couple of other things were also important. Discounting was not well managed and controlling the level of discounting was a big problem for us. Finally, in some cases management of our relationships with distributors was not strong enough to withstand the pressures of a rapidly changing market. ...

So, in the main, those were the issues the business was facing, none of them have anything to do with wine or winemaking technology. That's why I say the issues are business management issues not fundamental to raise on debts with a company like Southcorp which is making top quality wines at all price points. ...

... We don't have any significant plans to trim costs, not in a dramatic way. A company is yet to be found that that can save its way to prosperity. The way we are going to be prosperous and to succeed is to make the revenue go up and to eliminate uncontrolled and inappropriately applied discounting. What will improve the profitability of our company is to improve the profitability of the products we sell. It's also a function of selling the right kinds of products. Obviously some are more profitable than others and it's a question of having better brand recognition and more demand by the buying public. ...

TORB: If we can come back to the US market, according to your last set of published figures the US market is more than twice as profitable per bottle as the Australian market. And even the UK is more profitable than the Australian market, so does this mean in the future you are going to rely more on the US market than Australia? Does that mean in the future the limited icon type brands like Grange, 707, and even down to Bin 389 and 128 will be increasingly exported and as a result there will be less available for domestic consumption?

Brian Finn: By definition yes it does and it's a difficult equation. First of all let's pick the US market. The US market has some very important characteristics. It's very large, it's very sophisticated, it's got a high disposable income, the penetration of wine is very low relative to the population, there are a lot of pluses, why wouldn't you take advantage of the market opportunity. Our brands are recognised there, they are established so it is not as though we are going knocking on doors anymore. We have two brands in the top twenty, Rosemount and Lindemans. Penfolds is now forty seventh having come up from a hundred and some and that's through the introduction of products like Hyland and Rawsons. That's very attractive and we are in business to generate profits for our shareholders and although we haven't done too good a job in recent times we are still acutely conscious of that, so this is an important market opportunity.

By definition there is a finite quality for products like Grange, 707 and the Rosemount special labels that you can produce and our attitude has always been one of fair share. So if you look at Australia, the way we divided up those products was based upon the way other people did business with us, modified slightly by the need to give the specialists, in a sense more than their fair share. That's what we will go on doing in the future and we don't know any other way to do it. I think it would be iniquitous to say while we are Australian we are going to keep seventy five percent of all Grange here because we choose to. I don't think that's a reasonable way to conduct the business relationship with people in other countries. So by definition more will go but not on the basis of saying, look the US is a great market we can get three times for Grange what we can get here so the heck with Australia, we'll send it all to the US; that's not what we're about. ...

TORB: Total change of topic, what do you think are the major challenges that face the Australian wine industry in general, in today's environment?

Brian Finn: I think that we have to be careful that we are not the victims of our own success. Southcorp was tinged with a little bit of that. We thought we were invincible and we weren't and at the end of the day superior quality and value for money are what people are interested in and I think that's what you got to be all about, all of the time, you can't let up. ...

We and the industry have to remember there are a lot of smart people out there, we have got to consistently deliver on quality and value for money, that's all we have got to do and I think it's as simple as that.

There is a bit of scamming going on in the industry and there are some incredibly high expectations of being able to get premium prices for wines that are, in my view, not worth the premium prices being asked. We should look to model off the Californians who are in deep trouble for the same reason. What they did was get lots of fancy names, lots of fancy labels, the stuff in the bottle was not all that good and they were asking US$20 and the punters figured that out and say forget it, I am not playing that and come to Australian wine. If we repeat that performance they will go to Chile or they will go to wherever people are making nice product at reasonable value, so I think it's just about quality and value. ...

TORB: ... Do you think that Chile and South Africa as well as the other New World countries pose a threat to the Australian wine industry over the next ten years?

Brian Finn: I honestly don't know enough is the truthful answer but I don't think so, I don't think they pose a particular threat for us. We have got established brand names internationally.

People do know Lindemans, Penfolds and Rosemount and if we continue to build on that, it's hard to get knocked off. It's very difficult to get a brand-name established, especially in this industry, which as I said before, is not a cost based industry. It's not a case of somebody coming along with a bigger faster widget cheaper, it's the consumers' perception of value and quality; when you are established it's very hard to knock you off. So unless we are stupid and mortgage the brand name or allow the quality to drop in a ridiculous manner then we will be OK. I think the South African and Chilean segment have a long way go to achieve what Australia has achieved.

How long has Jacobs Creek been going? It's over 20 years with the same consistent hammering away at quality and the advertising has been consistent, they have done a terrific job. We should be conscious of competition, look at what Yellow Tail did, it's a remarkable story, so it can happen, but on the other hand our business has grown successfully in spite of Yellow Tail. There is room for us all if we do good things. ...

TORB: You mentioned the consumers moving up the chain from the bottom end wines towards the icon wines as the taste of the consumer matures. What do you think the role is for major companies in Australia in increasing customer wine education?

Brian Finn: I think it is important for our well-being; it's just not that easy to do. We invest quite heavily in cellar door activities; I think we do a tolerably decent job but there is room for improvements. I don't know how to do it well and I don't know anybody who does in any area of consumer goods.

In part, one of the reasons I don't know is because we don't know enough about consumer attitudes and that's where we have got to get smarter; the more you understand the end consumer the more you understand how to deal with that kind of problem.

TORB: Based on those comments do you see the advertising and marketing of wine changing over time?

Brian Finn: Yes I think it will. I am uncomfortable about some of our advertising and we will have a look at that later this year. About two years ago we did a major piece of work which we didn't really deploy properly. It was all about consumer attitudes and we are now spending between one and two million to update that work. You have to start with the end consumer and find out what they are thinking. Then you have to move back to say how will our advertising and promotion fit into that knowledge.

I would like to thank Brian Finn for his time and honest and forthright answers, and hope that you the reader have gained some useful knowledge about the real situation at Southcorp today and where it is going in the future.

April 9, 2003

All contents © copyright 1981-2009 by Robin Garr, www.WineLoversPage.com

Cliffwood Organic Works