drinking wine

TWE’s strategy to beat the US distribution nightmare

February 8, 2018
By Alana House

After conquering wine distribution in China, Treasury Wine Estates’ Robert Foye has relocated to the US to do battle with its notoriously complex model.

Many states in the US operate under a three-tier system of alcohol distribution set up after the repeal of Prohibition. The basic structure of the system means producers can sell their products only to wholesale distributors who then sell to retailers, and only retailers may sell to consumers.

It was designed to regulate and control the alcohol industry, but is becoming increasingly regarded as outdated and cumbersome.There are also claims it leads to corruption.

As President of the Americas, Foye will lead TWE’s efforts to bypass the distributor model and sell directly to retailers in states where it is allowed, giving more control and a wider sales net.

TWE is making the following changes by state:

>> In California and Washington, states that allow producers to distribute directly, TWE is implementing a direct sales and distribution model to manage customer engagement and planning, merchandising, supply chain, invoicing and other back office activities for its largest key retail partners (national and regional). To service the remainder of the market, including the on premise channel, and independent and small chain retailers, TWE has appointed new full service distributor partners, Classic Wines of California and Vehrs Distributing, in California and Washington, respectively.

>> In Florida, TWE is implementing a new hybrid distribution model where the Company will directly manage relationships with its largest key retail partners (national and regional), collaborating with newly appointed distributor partner, Breakthru Beverage Group, to manage sales execution for these customers. Breakthru Beverage Group will operate a full service distribution model for the remainder of the market, including the on premise channel, and independent and small chain retailers.

>> In a number of other states, TWE has appointed new full service distributor partners that it considers best placed to grow its brand portfolio. These include Breakthru Beverage Group in Illinois, Colorado, South Carolina and Minnesota, Johnson Brothers in Indiana, Hawaii, Iowa, West Virginia, North Dakota and South Dakota, Vehrs Distributing in Oregon and Specialty Imports in Alaska.

While implementing the system will cost around $20million in the first year, the company is confident it will be a winner long-term.

On the route-to-market transformation, CEO Michael Clarke, commented: “Similar to business model changes we implemented in China, Canada and New Zealand, as well as the change in global Penfolds release date – route-to-market transformation in the US demonstrates the relentless focus we have at TWE to continue improving our regional business models. These important changes will also strengthen our ability to deliver value from any future acquisitions in the region.”

How TWE conquered China

As President and Managing Director of Asia, Foye achieved significant annual sales growth for TWE in Greater China by selling wines directly to retailers via the company’s distribution network.

In June 2015, as part of the strategy, TWE sealed a direct distribution deal with one of China’s biggest online retailer, JD.com, as part of the e-commerce giant’s ‘Australian Mall’ Platform.

The deal was followed by another direct distribution deal with supermarket chain Yonghui.

“The partnership with Yonghui supermarket chain enables a greater penetration of TWE wines across China,” Foye told Decanterchina.com, “particularly into second and third tier cities, which are important markets with strong growth potential.”

Last year, TWE announced it would boost its French footprint in China after becoming the exclusive importer and distributor of Baron Philippe de Rothschild’s portfolio of wines from January 2018.

The company established warehouse facilities in Shanghai to stock Australian, US and French brands as demand increases. TWE said the route-to-market improvement would reduce lead times for orders and allow customers to stock a broader range of brands.

In its most recent results announcement, Asia reported EBITS growth of 48% to $117million and an EBITS margin of 39.3% (up 3.1ppts), as TWE continued to leverage its route-to-market to drive growth across key brands, particularly in the Masstige segment, as well as US sourced Luxury, which increased volume by 60%. All country of origin portfolios delivered volume growth during the period, with Australian (including Penfolds) up 48%, US increasing by 25% and French growing by 105%.

That makes Foye the perfect man for the US job. To support him, Clarke will extend his temporary co-location arrangement between Melbourne and California until the end of calendar year 2018. 

Marketing also key in US

TWE believes its augmented reality strategy will also be a key player as it looks to boost US profit.

Following the success of its 19 Crimes wine app, which first brought augmented reality to wine labels, Treasury Wine Estates released a The Walking Dead app-linked wine range in the US last month.

The 19 Crimes app saw Aussie criminals on the wine label come to life to tell their own story when users pointed their phone at the label. It has been downloaded more than 500,000 times to date. 

In the case of The Walking Dead wine – a Blood Red Blend and a Cabernet Sauvignon – zombies break out of the label onto phone screens when the app is pointed at the bottle.

The app is the creation of The Last Wine Company, a partnership between Skybound Entertainment and TWE. 

Called “Living Wine Labels” its available from the Apple App Store or Google Play Store. Additional apps are also planned for labels from Chateau St. Jean, Beringer Brothers and Gentleman’s Collection this month.

TWE CMO, Simon Marton, told CMO the decision to invest in AR was about adding an experiential element to the wine buying and consumption experience.

“This about giving the shopper the ability to experience our brands in news ways that are entertaining, educational and experiential,” he said. “The old ways of connecting with consumers don’t work well all the time anymore. Something like this, that uses new technology that is more scalable, accessible and easy to use, looked like a great idea and we ran with it.”  

Marton said AR particularly appeals to three target customer segments. The first is millennials, while the second is technology enthusiasts. The third is consumers “who like new things”, he said, such as influencers and the trade.

To gauge the success of the app investment, Marton told CMO he’s tracking downloads, average use time per use – which is now sitting at about three minutes – frequency of use, and distribution gains from brands via its partners.

He noted one US retailer’s post about the AR app had already generated 19 million views.

And there are more plans for the brand in the pipeline.

“We’ll be supporting this activation in big way in the US in second half of the year to drive in-store excitement, portfolio distribution and consumer engagement,” Marton said. “And we’ll be launching the Living Wine Label app in Australia, the US, European and Asia as it has big great potential in all our markets, particularly with millennial consumers.”

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