Academia disgrace Treasury Wine Estates gamble

Wine Australia wobbles

Dr Liz Waters, general manager, RD&E, Wine Australia (WA), replies to TKR’s questions concerning the paper, ‘I like the sound of that!’ Wine descriptions influence consumers’ expectations, liking, emotions and willingness to pay for Australian white wines. By Lukas Danner, Trent E Johnson, Renata Ristic, Herbert L Meiselman and Susan EP Bastian.

Note: the text below is not a conversation. It’s Dr Waters’s response, interspersed with TKR’s comments.

Dr Waters: The initial project funded by Wine Australia was to develop an online co-creation platform that would allow easy testing of a large range of wine attributes with consumers. Why did we fund it? Two main reasons:

To provide evidence about what consumers pay attention to and therefore what producers should put their efforts and investment into.

To provide an easier way for producers to work with consumers to test new concepts.

The work published recently was part of this project.

TKR: This sounds like a worthwhile project. Anything that helps consumers choose wine has to be of benefit to the industry.

“Putting effort and investment into”, we can go with that, but looking at the paper…

Paper: This study investigated how information, typically presented on wine back-labels or wine company websites, influences consumers’ expected liking, informed liking, wine-evoked emotions and willingness to pay for Australian white wines.

TKR: The interesting part here is the link between a label, on a bottle on a shelf, which the consumer has to pick up, turn around and read, and a website, which is a different sphere altogether. It is the physical versus the virtual: two very different aspects that need different study. A PhD is not needed to see there is two clear lines of research here. This is the point at which the first alarm bells should have started ringing.

Dr Waters: Developing the co-creation platform was risky but if it worked, it could be rolled out for our sector to use – and would be very beneficial. We have a balanced portfolio of R&D. We don’t assume everything will work out as we expect. That’s why we actively monitor and manage progress.

TKR: This is where the wobble starts. “If it worked… would be beneficial” clearly says to TKR’s non-academic mind that it was a failure. We agree that Wine Australia, the industry and TKR should not expect all research will end in success or how the paymaster expects. But clearly Dr Waters, who has been with WA since 2011, took her eye off this piece of research. Monitoring and management was, in our opinion, somewhat lacking.

Dr Waters: This project hit some snags, like some of our projects do. There were issues with developing the co-creation platform. We worked with the research team and wound it back to what could be achieved. This is one of those pieces of work.

TKR: Snags… issues… winding back to what could be achieved. Again, TKR supports this; not all works out as one expects or hopes. But at this point we must put forward our major criticism: why did the Bastian team go ahead and publish a paper? Why did Wine Australia allow the paper to be published?

Is this the point at which academic arrogance takes over from academic research? What exactly is Ms Bastian after? Does another paper published put some tick in a box or offer a step up the ladder? We have no idea, but we do know this heap of nonsense research led to a lot of publicity and was misleading. It was fake news. For that, shame and apology should be forthcoming from all involved.

Dr Waters: This work is important because it contributes to the wine community’s understanding about what producers can do to make their products more appealing to consumers. It will help producers make evidence-based decisions about the content on wine labels, websites and other promotional material.

TKR: No, it will not. It missed so many important points, the most obvious being common sense. It takes no great intellect to know that the better a description, the more interest from the reader. In no way does a description on a sheet of paper represent the same description on a label. We know it is the label design that makes the consumer pick up the wine, and only then will the back label be read. Other research has shown…

Professor Larry Lockshin, head of the School of Marketing at the University of South Australia Business School: I will say that the “willingness to pay” measure is much like purchase intent; what is written in an experimental setting has little to do with what happens when facing hundreds or thousands of wines in a store with price information and colourful labels blaring at the consumer. We measured consumers’ time in front of shelf and in wine stores and found that almost 80 per cent of consumers are in the store and in line to check out within four minutes. Few spend more than 30-40 seconds looking at wine on the shelf. Almost no one reads back labels (as you said) in the store; perhaps while sitting on the table at home during consumption.”

TKR: Is a willingness to pay measured in this way an accurate predictor of future behaviour? There is also the issue or the physical versus the virtual.

Dr Waters: We know that the results from this research are of interest to wine companies and that it complements research that they are doing internally.

TKR: Does it? Where is the evidence?

Dr Waters: We’ve had correspondence from wine companies shared with us. It’s not ours to give to you.

TKR: No go, Dr Waters. That’s a pathetic excuse. It’s head in the sand, dodging the fact, hiding away – pick any of those that you think fits. The trouble with having head in sand is it exposes the arse to be kicked. That’s something that Dr Waters should take into account before jumping to the defence of fellow academics.

We asked her to request permission from wine companies to share their thoughts on this research. Should she find one and share with TKR, we will share with readers.

The rise of TWE

It’s mid-morning trading on the Australian Stock Exchange, 20 June. The Treasury Wine Estates share price is $13.66. The chart below shows the rise and rise of the share price over the past six months.

TWE 18 December 2016 to 19 June 2017

TWE is indeed on a roll, and getting bolder, pushed by its CEO, Michael Clarke. Without wishing to appear a doomsayer, can this upwards thrust continue? Or will it slow or grind to a halt?

TKR hopes not, but recent articles on the new venture of sourcing French wines for distribution first in Asia and later in other markets have sowed a seed of doubt.

The new brand is under the name Maison de Grand Esprit. The format involves sourcing regional wines, bundling them into a portfolio, and using the power of TWE to sell them to Asia.

The TWE media release says: “Unveiled at a VIP trade preview event in Paris on 16 June, Maison de Grand Esprit breaks the mould of traditional French houses that focus on a single sub-region and are anchored to a physical location.”

It’s stretching a point. TWE is not the first to put together a French portfolio. Without doing any great research, Louis Latour comes to mind: it’s heavy into Burgundy but also has wine from Coteaux de l’Ardèche, Coteaux du Verdon, Beaujolais and Macon.

Yvon Mau is Bordeaux-based but also has wines from Languedoc, Aude and Comté Tolosan in south-west France.

Moët Hennessy Louis Vuitton (LVMH) owns several Champagne houses, and has in recent times added Domaine des Lambrays in Burgundy, which it puts into its global portfolio of Chandon producers in California, Argentina, India and Australia, along with Cape Mentelle. There is Cloudy Bay in New Zealand, Bordega Numanhia in Spain, Boroli Borolo in Italy, Cheval des Andes in Argentina, and Chateau d’Yquem in Bordeaux, not forgetting Ao Yun in the Chinese Northern Yunnan Province.

Putting together a French portfolio is good in theory, but how sure is TWE that it is indeed the all-powerful company that can convince Asians, especially the Chinese, that there is authenticity in its range compared with other companies.

TWE’s opportunity has arisen because the two big global players, Diageo and Pernod Ricard, are focusing on spirit brands. But should they (especially Pernod Ricard) get a hint of success for TWE, they will ramp up. TKR sees LVMH as a real challenge; it is bigger than TWE and just as well, if not better positioned, to stand, meet, match, and possibly beat TWE at this game.

The proposed retail prices for the new TWE range in China, Australia and the US are:

  • Grand Esprit Saint-Estèphe (luxury tier 1): 1598 RMB / AU$308.29 / US$234.02
  • La Mystèriale (luxury tier 2): between 498 RMB / AU$96.07 / US$72.93 and 898 RMB / AU$173.24 / US$131.51. The wines are:
  • La Mystèriale Santenay Premier Cru
  • La Mystèriale Lussac Saint-Émilion
  • La Mystèriale Châteauneuf-du-Pape
  • L’être Magique (luxury tier 3): between 228-248 RMB / AU$43.99-AU$47.84 / US$33.39-US$36.32 and 338-368 RMB / AU$65.21-AU$70.99 / US$49.50-US$53.89. The wines are:
  • L’Être Magique Bordeaux
  • L’Être Magique Bourgogne
  • L’Être Magique Crémant de Bourgogne
  • L’Être Magique Côtes de Provence
  • Miraculeuse (masstige tier): 168-188RMB / AU$32.41-AU$36.27 / US$24.60-US$27.53

Its top-end pricing. The wines will need to be very good to pass muster in Australia and the US. Branding may carry them for a while in China, but Chinese wine knowledge and deeper understanding is moving at a fast pace.

If the top wine fails, we think it will affect those lower down the price scale, no matter where they are from. A $100 Châteauneuf-du-Pape will take some promoting and selling; not only has it to be good, it has to be double good to best established brands.

One only has to visit Dan Murphy’s to see the competition that the Grand Esprit Saint-Estèphe faces at about $308. It will have to be damn good to meet and beat several of those listed. As well as taste there is the reputation; it will be an unusual consumer who has the bravery to serve up a bottle of $300 Grand Esprit Saint-Estèphe over a bottle of Château Cos d’Estournel Saint-Estèphe 2006 at $345 or Château Montrose Saint-Estèphe 2005 at $300.

This is not the first time TWE has played around with French wines. The table below was supplied by Mike Coomer of www.pricetrack.com.au (a subscriber website covering all retail advertised alcoholic beverage promotion in Australia).

PRODUCER BRAND TYPE
MAISON DE GRAND ESPRIT LA BELLE VOISINE CHARMES-CHAMBERTIN
MAISON DE GRAND ESPRIT LA BELLE VOISINE CHASSAGNE MONTRACHET
MAISON DE GRAND ESPRIT LA BELLE VOISINE CLOS DE VOUGEOT
MAISON DE GRAND ESPRIT LA BELLE VOISINE CÔTE DE NUITS-VILLAGES
MAISON DE GRAND ESPRIT LA BELLE VOISINE CRIOTS-BÂTARD-MONTRACHET
MAISON DE GRAND ESPRIT LA BELLE VOISINE ECHEZEAUX
MAISON DE GRAND ESPRIT LA BELLE VOISINE GEVREY CHAMBERTIN
MAISON DE GRAND ESPRIT LA BELLE VOISINE MONTRACHET
MAISON DE GRAND ESPRIT LA BELLE VOISINE NUITS ST GEORGES
MAISON DE GRAND ESPRIT LA BELLE VOISINE POUILLY FUISSE
MAISON DE GRAND ESPRIT LES PETITES VIGNETTES LATE HARVEST PINOT GRIS
MAISON DE GRAND ESPRIT LES PETITES VIGNETTES PINOT BLANC
MAISON DE GRAND ESPRIT LES PETITES VIGNETTES PINOT GRIS
MAISON DE GRAND ESPRIT LES PETITES VIGNETTES PINOT NOIR
MAISON DE GRAND ESPRIT LES PETITES VIGNETTES SAUVIGNON BLANC
MAISON DE GRAND ESPRIT LES SEIZE GALETS CHATEAUNEUF DU PAPE
MAISON DE GRAND ESPRIT LES SEIZE GALETS CROZES HERMITAGE
MAISON DE GRAND ESPRIT LES SEIZE GALETS HERMITAGE
MAISON DE GRAND ESPRIT LES SEIZE GALETS VIOGNIER
MAISON DE GRAND ESPRIT LES SEIZE GALETS RED

These wines were launched in 2009. What happened to them? There was a lot of publicity at the time, but they died. The reviews were OK to good, but the prices were very high. At the time, Foster’s wasn’t involved in China in the depth that TWE is today, but is that difference enough for Clarke to think now is the right time for an Australian-American wine company to create and launch a range of French wines under screwcap (mostly) in Asia?

 

 

Penfolds may be the flaming torch that Mr Clarke holds aloft, but it could be burning down. He needs to beware of scorched fingers.

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