Liquid treasure for TWE, That Yellowtail ad

Liquid treasure

Treasury Wine Estates (TWE) has released half-year results to 31 December. They prove there is treasure to be found in vinous liquid. The basic figures:

  • Revenue: $1368 million, up 19.9 per cent
  • Earnings before interest, tax, SGARA and material items (EBITS): $226.8 million, up 58.8 per cent
  • Net profit attributable to members of TWE: $136 million, up 132.4 per cent

The figures become more interesting when viewed by region:

Region 1h 2017 Increase on 1h 2016 EBITS Increase on 1h 2016
ANZ $322.8m 1.5 per cent $53.1m 13.2 per cent
Europe $187.5m 22.4 per cent $23.1m 34.3 per cent
Asia $218.1m 38.7 per cent $79m 75.6 per cent
Americas $566.3m 25.6 per cent $90.7m 75.4 per cent

All regions increased volume, even Australia and New Zealand (ANZ), though rounding makes the 2017 and 2016 numbers the same (figures show number of nine-litre cases):

Region Volume 17 Volume 16 Per case 17 Per case 16
ANZ 4.2m 4.2m $77.25 $76.37
Europe 5m 3.4m $37.82 $45.50
Asia 1.7m 1.2m $131.77 $131.65
Americas 7.9m 7.1m $71.24 $63.87

ANZ is cruising on volume and has managed a small price increase on each nine-litre case, the star part being the 13.2 per cent increase in EBITS. TKR assumes TWE is holding firm on grape prices this year to help the margin further.

Europe has performed well, with a 22.4 per cent increase in sales, 34.3 per cent increase in EBITS and a huge volume increase of 1.6 million cases. The point to note is the average price decrease of $7.68 per nine-litre case.

The reason for this is the Diageo brands that TWE acquired towards the end of 2015. They are mainly at the lower end of the price spectrum. It shows that despite all the TWE flag waving about premium brands there is still a lot of TWE business at the bottom end.

Asia hasn’t moved a great deal on case price but has sold half a million extra cases at very good prices and very good profits, up 75.6 per cent.

CEO Mike Clarke has cast his eyes on the US, announcing he’s going to spend more time there. This is where the Diageo brands at the better end of the market do well, and Clarke will do his uppermost to capitalise on them. The average per case price in the Americas is up $7.37 and EBITS are up 75.4 per cent.

Did Yellow Tail drop the ball?

The Yellow Tail commercial shown during the Super Bowl last week has caused a lot of consternation. Private names have been withheld from the emails below, everything in italics came into my email inbox.

Starting with the positive:

“It’s the only ad about wine I remember anyone talking about in years. It’s a stone cold winner for Yellow Tail.”

This commentator added that effectively brand Australia equals Yellow Tail (presumably in the US) and the reminder of the industry would have to get its message across via “resonant regional story telling”. 

This statement has a valid point: “Guests [overseas visitors] can’t hear us talk about regions and terroir as long as they are silently wondering when they will see the kangaroos hold a koala.”

It’s easy to see how the commercial could be considered tacky, especially in the industry. Casella says it is trying to demystify wine, and make it more approachable for the consumer. One comment on the commercial was:

“People like us [industry/trade people] don’t like the Yellow Tail ad. People like us are ill placed to pass any judgement.”

This was met with:

“You wouldn’t have to be ‘like us’ to find the Yellow Tail commercial a bit clunky.

We are unlikely to be buying many Budweisers, Kias, Skittles, or Mobile Strike video games either, but we can still appreciate the quality and humour of their Super Bowl commercials.”

A twist was put on the above statement:

“For what it’s worth, I think the YT ad is awful. But I’ve thought the same about plenty of commercially successful ads. On the other hand, along with all sorts of other ‘intellectual elites’, I’ve loved some really brilliant ads that have failed miserably to sell the product.”

It appears to TKR the issue is focusing in on the oldest question in wine: is it a drink for the majority or the few? It can be equated to the white Westerner saying: “I have gay/ black/indigenous friends. I’m not bigoted, xenophobic or small minded, BUT…”

Those of us in the business or interested in wine to a higher degree then just unscrewing the cap and, if asked an opinion, looking blank and saying “yer, cool” would in the main like to get more people to understand the sacred liquid better.

There are some success stories but it appears more consumers prefer the Yellow Tail, Echo Falls, Blossom Hill and Hardy’s brands to individual vineyards from respected wine-producing regions.

The emails continued to flow.

“Research shows that there is no correlation between award-winning ads and sales increase. There is a correlation between award-winning ads that focused on getting people to buy the brand (showing realistic usage etc) rather than entertainment and sales.”

But are ads for the Super Bowl different to other ads? Apparently so, according to another contributor:

“The Super Bowl annual advertising cycle has evolved into an entity of its own. Big companies use the phenomenon as a vanity vehicle to super-promote memorable background brand awareness (often with originality and humour), not to help meet this month’s sales target. 

“To Coca-Cola or Budweiser $5 or $10 million is petty cash, but to most wineries it’s a major, risky, single roll of the dice. Yikes!”

The exchanges then turned to the worth of advertising, in which category TKR includes wine shows and exhibitions such as the London Wine Fair and ProWein. Do wineries or brands see any return? Not in the short term, but maybe over a longer period. It was around this time in the exchange that TKR thought the most valid point came to light, with this comment:

“The story goes that it was the Jimmy Watson Trophy that made Wolf Blass famous. The exact opposite is true.

“He made the trophy famous. Turned it into an icon and a holy grail. Wolf single-handedly changed that. Hardy’s had won it before him, Seppelt twice, Grange once, even Berri. It was just another gong and largely unknown.”

The writer said the Jimmy Watson was again sliding in importance. TKR agrees. Winning a bronze or even silver in any competition is not worth mentioning (in TKR’s opinion). Gold maybe, but it depends on the reputation of the show. Decanter magazine has made a lot of its competition globally. Surely a gold, better still a trophy, from there has more marketing value than one from the Cowra Wine Show.

There’s no better way of bringing this article to an end than with this quote:

I’m getting tired of hearing Australian wine people treat YT as a whipping boy. Which other Australian wine brand became anything like as big a success in the US?”

Well said sir, well said.

Funk flunks Canada test

The chat moved on to this snippet of information regarding the brand Funk, which I picked up on and sent around.

From an article in the Guelph Today (Canada), 11 February by Vin Greco:

“Marcel Rheault of Distillerie Rheault explained to me that a product on the LCBO [Liquor Control Board of Ontario] shelves has only about five seconds to catch the eye of a consumer in the hopes of making a sale. 

“That obviously puts a lot of pressure on the marketing team in coming up with both names and label art when they bring a wine to market. 

“Sometimes they succeed, and sometimes they don’t. Recently, an Australian wine from the Barossa Valley, Kellermeister’s ‘The Funk Wagon’ GSM (grenache, shiraz, mataro – i.e. Mourvèdre) was dropped by the LCBO. The obvious reason would be that the sales were too low to merit keeping it. 

“Ironically, this wine was best in show for the Barossa Valley for wines of this type – so why did it fail here? 

“I think the name might have been part of it. What does ‘The Funk Wagon’ say to you? Aside from the reference to music, its other two meanings could refer to either a foul odour or a foul, depressed mood. 

“As the label art doesn’t suggest music – either ‘Downtown or Uptown Funk’ – most of us might simply raise an eyebrow and walk by. 

“The name, in fact, is a tribute to the four-wheeled wooden wagon used in settling Australia, and associated with an 1854 German immigrant, Johann Funk. Down Under, that might signify, but here… not so much.” 

Like it or not, for the majority the name and label of Yellow Tail works. The word Funk does not. It may be seen as cool by its Barossa producers and sell well at cellar door, where the story can be told and the wine hand sold. But on the shelves of an LCBO store it’s not working. According to one contributor, US warehouse retailer Costco has a 5/5 rule.  Customers have to be able to recognise the label from five yards and pick it up and put it in their basket in less than five seconds.

To end, we think the following quote from an email holds the key and provides good advice for exporters:

It’s all axiomatic of the wine industry approach: ‘You, the consumer, are interested in me. All I have to do is stand here and you’ll come over and talk to me.’ 

“It never worked for me at parties and it doesn’t for Funk Wagon. We may not like the YT ad, but at least it’s noticeable.”

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