GLASS HALF FULL

Trea­sury boss Michael Clarke pulls the wine busi­ness back from the edge

The Australian - The Deal - - Front Page - By Eli Greenblat

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

The Deal.

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.

Pho­tog­ra­phy by: James Geer

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