Dearie was only ousted as CEO of Treasury Wine Estates – top brands include Penfolds, Beringer Vineyards, Lindeman’s, Penfolds, Rosemout Estate and Wolf Blass – in September, and during a panel discussion at Wine Vision 2013 he insisted, more generally, that the world’s top wine brands are too weak.
“I’m a brand junkie – and if you look at wine industry, I would say that brands are not as strong as they are in many other parts of the world,” Dearie – whose departure from Treasury surprised industry onlookers, and whose distinguished career also includes stints at Foster’s and Brown-Forman – told delegates at the inaugural blue-chip London conference.
Looking at the US market, he said, the top 25 beer brands have a 60% market share, the top 25 spirits brands have a circa. 52% share, while the top 25 wine brands have a mere 6% share.
Wine brands are too weak, Dearie added. “Therefore, when you start to look at M&A – the purpose of M&A is to generate cash to reinvest in brands.
“It’s not about big companies buying small companies. It’s about the wine industry asking: ‘How do we get more efficient so that we can compete to become the consumer’s beverage of choice?’”
Australian retail duopoly dominates
There are 2,500 wineries in Australia, Dearie said, each with multiple brands, which meant that tens of thousands of brands all competed for shelf space – shelf space dominated by duopoly Coles and Woolworths, which together hold a 60%+ share of the wine category at retail level.
“Recently one of them came out and said – we want 15% margin from beer brands, 20% from spirits brands and 35% from wine brands,” Dearie said, warning that a fragmented wine industry meant the retail giants could demand higher margins from a non-competitive industry.
“So my view, in terms of M&A, is that we should all look at efficiencies through the business – whether in managing vineyards, wineries, packaging or logistics,” he said.
“Let’s implement efficiencies so we can generate fantastic brands that consumers will pay a premium for, to give us a sustainable long-term industry.”
Speaking with BeverageDaily.com later, Dearie said that Treasury fell out with a major UK retailer two years ago, but despite high levels of retail consolidation in that market could rely on listings elsewhere.
Beyond the ‘Big Four’ UK retailers, Tesco, Sainsbury’s, Asda and Morrisons, Marks & Spencer, The Co-operative Group and Waitrose are all major food and beverage players.
World-beating spirits brands
Contrast this with the Australian situation, where 2012 USDA Foreign Agriculture Service data shows that Woolworths held a 33% value share of the grocery retail market in 2011, Coles 29%, Metcash (IGA, FoodWorks, etc.) 14% and discounter Aldi only 2.6%.
Dearie said he doubted that the Australian retailer in question would get its 15% margin from beer producers, since the brewers in question are too powerful.
But while the Australian retailers cannot live without major spirits brands such as Jim Beam and Jack Daniel’s, he warned, the profusion of wine suppliers means they are seen by Cole and Woolworths as interchangeable.
Therefore, Dearie believes that some level of consolidation among Australian wineries is inevitable, and it is vital that they at least form alliances to boost their bargaining power.
Dearie left Treasury in September, apparently paying the price for a write-down of poor quality wine in the US that cost the firm $160m.
But speaking to the Sydney Morning Herald in late October, he blamed previous management’s undue focus on cheap commercial wine for this step.