GLASS HALF FULL
Treasury boss Michael Clarke pulls the wine business back from the edge
SPEND a cursory moment with Treasury Wine Estates chief executive Michael Clarke and you get the sense of a man in a hurry. He speaks quickly, delivering thoughts at a rapid clip and shoved through a meat grinder of eclectic accents, collected like passport stamps from his 30-year global corporate tour of starting, turning around and rescuing businesses.
There is his strong South African accent, the place of his birth, where as a 30-something he was handed the keys to Reebok and told to start the sneaker business from nothing in a country emerging from decades of isolation and dislocation caused by apartheid.
“I started the business from scratch, and was working out of my salesman’s kitchen for the first two months while we built a team, recruited people put systems and an office in place,” Clarke, 51, tells
He certainly acts fast too. Within seven months Reebok was the leading sneaker brand in South Africa.
“That was an incredible experience to go through as a young person, when the company backs you for something like that ,” he says.
Turn the clock forward by more than 20 years and Clarke is at it again, running a marathon as if it were the 100 metre sprint. Early last year, just eight months into his CEO role at the very troubled TWE he began hatching the company’s biggest ever acquisition, the $754 million purchase last month of Diageo’s US and British wine operations.
Even as his seat at TWE’s head office in Melbourne had yet to reach body temperature he raced to the board with plans to change the international release date for its prestigious Penfolds range. This was a cultural U-turn, something like turning the Melbourne Cup into a night race in June. Somehow, Clarke got his way and it worked. For a veteran of the fast-moving consumer goods sector – think instant coffee, chocolate and sneakers rather than Penfolds Grange – it was a significant victory and marked the beginning of change at TWE that would leave heads spinning.
“That was probably the biggest decision to make, because if that had been a failure I would have been the scapegoat.” says Clarke. “But I had a lot of good logic behind why I should change that release date. I had to convince the management team because the management team was scared to make that change. Again no one wanted to fail, but everyone bought into the logic.”
For Clarke, who is married with two adult children, there have been stints in Switzerland where he once ran consumer food group Kraft’s European business, with operations in 58 factories spread over 16 countries with 25,000 employees; and time spent in Texas and Asia thanks to senior roles with Coca-Cola. He has packed a lot in, picking up a dual Irish citizenship, creating Coke Zero in Sydney for Coca-Cola and, more recently, salvaging from near death British consumer goods group Premier Foods, whose brands include Bistro gravy, Oxo stock cubes and Mr Kipling cakes.
“At Premier we saved a company from complete break up.” Clarke says. “The banks were prepared to take 20 pence in the pound, as part of a break-up; they got a pound out at the end.”
From his experiences at Premier Foods, and other corporate triage jobs, he realised TWE needed confidence. And that confidence would only come from big wins, not creeping along the bottom and turning minor advances into global conquests.
“Treasury wasn’t as bad as Premier, it was more like what I did at Kraft, which was to go into a business that had just been bumping along, basically not knowing how to get the best out of the people and the best out of the brands.”
Now he calls Melbourne home after taking over in February last year as chief executive of TWE, the world’s biggest listed wine company. Sporting a crisp white shirt, Clarke is tucked away in a modest office at headquarters. The company’s most important assets – its premium wine brands – sit on the shelf behind him. Penfolds stands out with its majestic red writing on a white label. Wolf Blass is there, too, along with others such as St Huberts, Devil’s Lair, Annie’s Lane, Wynns and Saltram.
TWE also has a long tail of cheap wines – what the trade diplomatically calls commercial – picked up by the company when it was part of Foster’s in those years when the brewer’s board allowed management to go on a disastrous $5 billion spending spree. These are the wines that don’t feature in Treasury’s glossy annual report, and are mostly whispered or even joked, about.
In those days they spent shareholders’ funds with abandon, paying top prices at the top of the market. It all came crashing down before Clarke arrived. TWE was in poor shape with a collapsing share price, a recently ejected CEO and an embarrassing profit downgrade that saw hundreds of thousands of unwanted and unsellable wines from its US arm destroyed because they were so bad no one would buy them.
TWE, which effectively limped out of Foster’s in 2011, needed a catalyst for change. The directors knew they would be set upon by shareholders and private equity raiders – or both – and risked seeing the company grabbed by someone else. The announcement of Clarke as CEO underwhelmed the market. Investors and analysts scanned his lengthy and impressive CV but found not a single stint at a wine business. Sure, there was plenty of fast-moving consumer goods experience – Coke, Reebok, Kraft and Premier Foods – but adding syrup and sugar to water and pouring out Coke or flicking a switch to pump out Toblerone chocolate on an assembly line is a world away from the 10 years it can take from vineyard to bottle in the wine business. Analysts were aghast, investors almost in revolt – and Clarke hadn’t even arrived from London.
Perhaps most telling was a remark, possibly unplanned, by TWE chairman Paul Rayner who, after a sustained grilling from analysts and reporters, shrugged and conceded the winemaker had tried every other type of leader and had failed.
Rayner told his audience: “Treasury Wines, going back to the Foster’s years, has been run by wine people for 12 to 15 years. You can draw your own conclusions as to how much success they’ve had – I think people would say it hasn’t been that great.”.
Clarke is not here for a hit-and-run operation. Despite his record of turning around companies, he doesn’t want to be stereotyped as a Mr Fixit. “I’m not just a turn-around guy. I hate being earmarked as just a turn-around guy,” he says. But 18 months into his five-year plan he remains in a turn-around phase. And he has time to enjoy the view from the vineyards. Just two weeks after he started as CEO renowned private equity firm Kohlberg Kravis Roberts – whose classic takedown of RJR Nabisco in the late 1980s inspired the book and film Barbarians at the Gate – threw a low-ball takeover bid at the Treasury board.
“Then the buggers came back with a higher offer,” jokes Clarke who rallied the board to reject the bid, encouraging directors, management and staff to back themselves.
Clarke sets a cracking pace, both in the operational and cultural change he has driven as well as with his own workload. “The intensity of a turn around means that you have to be on top of everything. You don’t take holidays, just work your arse off and, personally, you stay on top of everything and stretch yourself incredibly,” he says. “You actually get all of the boats to sail on a high tide at the same time. So whether it’s finance, sales, marketing, if you are trying to do a turn around quickly, you literally have to roll up your sleeves, personally. My wife didn’t come here for the first seven months. I was a bachelor for seven months and my work was my life.”
After changing the release date for Penfolds, Clarke pounced on his next deal with a big bold marketing strategy: clients who spent a few hundred dollars on Penfolds wines were able to buy a large, steeply discounted Vintec wine refrigerator that normally sells for thousands of dollars. As always, Clarke was after big victories, not small steps forward.
His goal was to build confidence, not just in the company but in key retail customers – the bottle shops and wine shops that stocked and sold TWE brands and had become accustomed to the winemaker’s mishaps and miscalculations.
“The big reason for the Vintec offer was to actually teach the organisation to go large on something, to stop going small,” says Clarke. “I wanted everyone to go for something big, to stop being scared, have the confidence. Let’s throw everything at it and go for it. Everyone is trying to do small things and expecting a turn around and you can’t turn around on small stuff. Now if we did Vintec and it proved to be a failure obviously that would have been a pretty big hiccup for myself. Thank God, it wasn’t. I wasn’t going to let it fail.”
Twelve thousand Vintec wine cabinets were reportedly sent to customers in the first few months of the advertising blitz. “It worked, and therefore got people here to raise their head up and be more confident – an early win – and go after bigger things.”
Clarke’s roadmap for improving a business, whether it is a mature company or one struggling to fend off the receivers, can be summarised as one of changing culture, focus, collaboration, trust and backing yourself by investing in your ideas. And that begins at the top. Chopping away at stuffy corporate bureaucracy does wonders for morale and the bottom line.
“Trust is about being accountable, stop shadowing each other, remove inefficiencies. If you are accountable you get rid of that crap, you actually rely on each other.”
The sharemarket is often the final arbiter of CEO success. It is an immediate and sometimes cruel judge. So far, market opinion has come down on Clarke’s side with the share price more than doubling during his tenure. Investors and analysts have also switched from ferocious critics to cheerleaders.
One of the earliest, very public and scathing views of his appointment came from Merrill Lynch analyst David Errington who, in conference calls and research notes, tore shreds off the board. “It really does concern me that there is a lack of retailer relationship at that top end of TWE,” Errington told chairman Rayner in a prickly two-hour teleconference with investors. For good measure he “ripped to shreds” (Errington’s own words) interim TWE CEO Warwick Every-Burns, who stepped into the role after the booting of the winemaker’s first CEO, David Dearie. Dearie was blamed by some for presiding over a series of mishaps that all but ruined key Christmas sales.
Punching TWE was nothing new for Errington. When it was part of Foster’s the analyst laid into then boss Trevor O’Hoy during a famous teleconference in 2006. O’Hoy returned the attack, suggesting to all on the call that Errington needed to see a therapist and should take two years off. Now Errington is one of Treasury’s biggest backers. At the October teleconference call to detail Treasury’s purchase of Diageo’s wine assets, Errington labelled the acquisition a “compelling deal”. He even took one step further, telling Clarke: “We trust you.”
Ellerston Capital, an institutional investor that for years was known as the Packer family’s investment and funds management group, is also a believer and a few years ago emerged on the winemaker’s register with a 5 per cent stake. By 2015 it was sitting on just over 7 per cent.
“I don’t normally talk to the press, but as a large shareholder I thought Mike should get some kudos, and I wanted to give credit where credit is due,” Ellerston director and former Portfolio Partners director Chris Kourtis tells The Deal. “Under the leadership of Mike Clarke and his new management team, we believe TWE’ stellar 2015 result, which absolutely smashed analyst expectations, marked the beginning of its long-term turn around.”
Clarke’s recent gamble, or what he often refers to as “being ballsy”, was the creation of a new label under the 172-year old Lindeman’s stable. The Lindeman’s Gentleman's Collection is designed to attract more millennial male drinkers to the business, and wine in general.
Exhibiting his classic contempt for bureaucracy, Clarke simply sat down in a room with his chief marketing officer Simon Marton and Stu Downs, manager of global consumer insights, and in a few hours they created the Gentleman’s Collection. No project team, no six-month consultative timetable and not a PowerPoint presentation in sight.
“How do we get Lindeman’s to change, what can we do different, that is ballsy?” Clarke says. “So instead of being in a big project group that is six months working on it, the three of us just worked on it, came up with an idea and said, ‘Right we are going to back ourselves and go for it’. The wine was sourced from two regions, the US and Australia. It had never been done before in the company – to launch a brand, a big initiative like that.”
Lindeman’s Gentleman's Selection has already sold out. But Clarke is eager to share the spoils of victory.
“I have great people. This company has got some fantastic people across the organisation and so when you have got great people and you are putting a lot of pressure on them you can turn things around quicker as a result of that ,” he says.
No rest for Clarke, no time to waste. Watch in hand, down the rabbit hole, the next deal awaits.