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Hear from Tim Ford, CEO of Treasury Wine Estates in Australia, David Babich, Managing Director of Babich Wines in New Zealand, Patricio Arenas, CEO of Grupo Valdivieso in Chile, Pedro Herane, Director of Chile-based VSPT Wine Group and John Colley, CEO of Majestic Wine in Europe.
Tim Ford: We are focused on developing the premium and luxury wine market and have had a productive 12 months building our portfolio, adding the recent acquisition of the US luxury wine company, Daou Vineyards.
At F24, we remain well placed to achieve expansion in line with our long-term ambition and continued EBIT margin expansion.
Ford: Although acquisition prices remain high, fortunately stability is returning to the maximum of the origin chain. The reliability of global shipping schedules continues and lengthy vessel delays are becoming less frequent, creating more certainty in our overall planning. We concentrate on managing our pricing and agreements heavily with our key supplier partners to ensure smooth and uninterrupted delivery to our valued customers.
Ford: We’re still seeing the premiumisation trend playing out for the wine category online, on-premise and in bricks-and-mortar retailers – people are buying less but better.
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History tells us that the wine category is resilient in times of economic uncertainty, and one of the major trends of the pandemic has been the shift toward e-commerce and virtual engagement, driven by at-home drinking and by consumers’ prioritization over speed and convenience.
In the UK, in reaction to a challenging monetary environment, across all categories except wine, we are seeing customers opting for own-brand products as costs rise. However, in the wine category, we see customer loyalty to our iconic brands and continued purchasing of our products.
Ford: We’ve been connected to China since Penfolds started exporting wine from Barossa, South Australia, to Shanghai, and we’ve maintained our presence there, with around a hundred team members at our Shanghai workplace and ongoing involvement in relationships with local customers and industry fairs.
Penfolds has been exploring the production of quality luxury wines in China and recently introduced the first taste of winemaking in China, following the good luck of other Penfolds wines.
We welcome the agreement to drive the way forward and enable our Australian brands and wines to be sold again in the Chinese market and are positive about the long-term of our business as the wine category continues to grow and evolve in China. “
Ford: We’re excited about the prospect of alcoholic and non-alcoholic wine continuing and becoming a popular selection for consumers looking to reduce their alcohol consumption.
We’ve committed to investing around $10m in research and development in the low- and no-alcohol category including an in-house, state-of-the-art, low-alcohol production facility in the Barossa Valley, recognising the potential of the category to offer wine lovers more choice while still enjoying great flavour.
In addition to our Matua Lighter and Wolf Blass ZeroArray over the past year, we also introduced Squealing Pig Zero alongside our existing low-alcohol sparkling, pink, semi-concentrated Shiraz Pepperjack. We look forward to the opportunity to introduce more of those alcoholic and lighter non-strains to the UK, along with Wolfblass Zero, which is available now.
Ford: AI opens up a world of opportunities for us, especially in agriculture. Right now, I’m particularly excited about the prospect of AI continuing to protect our entire business through automation and advance our sustainability efforts, as well as reducing water waste.
Through our partnership with Australian startup The Yield, we use AI with over 20 years of experience in traditional crops to generate accurate long-term weather forecasts for harvest and yield. This technique allows us to respond to the effects of the climate update and implement mitigations. plans, making sure that quality is not compromised.
I have yet to see that AI effectively reflects culture – it’s an integral component of any business and team and I’m proud of our TWE DNA and the culture built. I don’t think this can be easily replaced through robots.
Ford: While the environmental and governance parts of ESG are well developed, the next frontier will be the social facet of doing business. We know from foreign reputation studies that the employer is the most trusted entity in people’s lives, more so than governments or the government. media.
Combined with the changing expectations of consumers, customers, and other stakeholders, this is a compelling argument for creating meaningful impact in spaces such as inclusion, equity and diversity, or the human rights of workers across the supply chain.
Ford: I am positive and excited about the year 2024. As a company, we have put a lot of effort and effort into expanding our portfolio of premium and luxury wines and are well positioned to grow it globally. Our team members feel more connected than ever thanks to the time spent in combined offices and on sites. Plus, now that travel is imaginable, we can reconnect with our consumers and partners to continue expanding those vital relationships.
Climate change remains a top fear for us, as it is for many other businesses, especially in the agricultural sector. However, I am pleased with the progress we have made and look forward to seeing how we continue to try to reach 100 percent. renewable electricity until the end of 2024 and 0 net emissions until 2030 for the rest of our Scope 1 emissions.
David Babich: I think overall, 2024 can be a challenging year, as the cost of living continues to have an effect on disposable spending. We still think we can sustain some expansion in the UK, US, and the UK. It will be challenging in the U. S. and Canada, but it will be challenging.
Babich: We’re still seeing a 5-10% cost increase in peak areas, but we’re also seeing a slowdown. We have some smart trade-offs, in particular, logistics costs (ocean freight) have gone down and New Zealand’s dollar has devalued (over the last year) unlike many of the currencies in our industry, so, so far, we have controlled our values. We are reviewing values in the first part of 2024, but we have no value increases planned lately. .
Babich: Over the years 2022 and 2023, New Zealand has generally been exposed to offshore shipping, to the point where available volume has decreased dramatically. New Zealand is an exporting country, so this is a macroeconomic fear that has actually impacted our ability to deliver wine to our consumers in a timely manner. Now that the world’s (major) ports are overcoming their congestion, we now have very similar facilities to what we had pre-Covid, but this is a wake-up call for us. and for New Zealand. We have three overseas warehouses (China, Europe and the United States), so we can use them to cover shortfalls caused by logistics, but it is not a permanent or complete solution.
Babich: As noted, I think 2024 could be fairly soft as consumer demand (and spend) decreases. I think this will occur across most, if not all markets.
It is conceivable that the price segments in which we sell our main wines will benefit from a reduction. We saw this during the global currency crisis, where buyers over $20 traded between $10 and $15 and our sales increased. I think as a general comment, consumers will be looking to shop in 2024, but that may mean they’ll be incorporated into our segment overall (or not, we’ll see). I think the net effect of this measure will be diversity, especially in the market.
Babich: Both the U. S. and Canada are smart (but challenging) expansion markets. We have the right suppliers in both markets and are therefore confident in our ability to succeed even in difficult times. The UK is under a lot of pressure, with tariff increases leading the way. to increases in value on the shelves, but, again, we have smart distribution and we work a lot with our customers, so that we can get through this.
Babich: We’re going to use it more in reporting and development. We check AI for in-market sales planning, but more for fundamental insights than for an in-depth strategy. I think AI can be useful in cutting out some of the analytical paintings that are being made. in planning, but at the end of the day, it’s a human being who has to make the key decisions. One challenge with AI is that it accepts all the data in the feed as correct, but that’s possibly not the case.
Babich: I think the big challenge relates to the economic conditions facing many key markets we trade into. These have serious headwinds and I expect they will make 2024 a difficult year. On the positive side, we are in the wine business – how bad can it be at the end of the day!
Patricio Arenas: After a very challenging 2023, next year has some signs of improvement with expected growth in the premium segments – where our Caballo Loco brand has built a high-quality reputation and a strong distribution network. We are also seeing a better outlook for our sparkling wines in international markets.
The mid-priced still wine segments will face a more challenging situation, where we expect a slight dip in the market next year.
We have focused on the purpose of being a global logo and opening new markets, which has been a point of expansion for our still wines, sparkling wines and spirits.
The renewed progression of our innovation pipeline has allowed us to reach new consumers with products tailored to their desires with state-of-the-art sustainable packaging across our portfolio.
In summary, we expect volume and price expansion next year, based on the quality of our products, our customer service, and strong teamwork with our global partners.
Arenas: Inflation has been one of the biggest issues we have faced in the last years. Luckily, the pressure of rising costs is decreasing in the latest months and we expect to go back to years with normal inflation in the future. Delivering wines with a great quality-price ratio at every price has been part of our brand essence for more than 100 years so we have made a huge effort to try to keep our costs under control to maintain prices, and we expect to continue doing our best to support to our clients in the near future. We know that consumers will value this work and feel this attribute in our products.
Arenas: We expect the key trends for consumers around the world to be the expansion of consumption through a younger, more engaged consumer, with a more potent expansion in the market position of sparkling wines than still wine. Premium wines are expected to continue to outperform their less expensive counterparts, and we expect an even stronger trend towards sustainability. Price elasticity will be provided in market positions, but we want to be careful in our pricing methods to position our products where they perform best.
Arenas: Valdivieso’s expansion over the next year will be driven primarily through markets such as the United States, Canada, Brazil, Mexico, the Netherlands, Korea and the advancement of a broader global distribution network. Despite this year’s challenges, we have been able to locate many new partners around the world for our still and sparkling wines that will represent an important part of our expansion by 2024.
Arenas: The expansion of Licores Mitjans is expected by 2024 in Latin American countries, where the logo has been provided for many years. We plan to expand again in those markets with our long-standing partners and some new partners in Peru, Brazil. , Mexico and others.
Arenas: We conduct studies focused on the use of AI in our plan development processes, particularly in the call for plan development. Furthermore, we expect AI to be very useful in the long term for design and customer behavior, especially when it comes to inventions that would possibly be absolutely new to them and therefore unexpected.
Arenas: Next year should be very challenging, for sure, but we have good reasons to expect good growth in our current and, especially, new markets. Our proposal of quality is at its best, with outstanding recognition, the new harvest looks promising, our innovation plan to develop products for new wine consumers is in place and our planning process improves every day.
Pedro Herane: I have worked in the wine industry for almost 14 years and in this position for 11 years. This is the worst crisis ever experienced, not as a company but as a global industry, in terms of volume, costs and inflationary uncertainties. . .
VSPT once had a wonderful deal in Israel with kosher wine, and now that’s no longer the case. We had a wonderful company in Ukraine, which also disappeared. China has been very kind to us and we are now promoting less than 50% of past volumes.
Labor inflation has been very high due to inflation in our markets: inflation in Argentina, for example, is around 150% year-on-year. In Chile, our inflation is around 3 to 4%, but it has risen to around 12%. In 2024, inflation will continue to be an issue, especially in Argentina.
We have a lot of cost pressure in our vineyards; the price of the bottles is also very high because of labor and energy costs.
In my opinion, maintaining cargo stability in 2024 will be less complicated than in 2023 and 2022, but it will still be very, very complicated.
Herane: Nowadays we don’t have many problems of origin. 2022 was an incredibly challenging year, but things are back to the way they were in 2018.
The current challenge for the wine industry is higher inventories around the world. Everyone is looking to lower prices, do more promotion. The wine industry is suffering a lot in economic terms and it is not very transparent if 2024 will be the year. when everything returns to normal.
For example, in Europe, we see many Old World suppliers marketing their products in more markets, as they have noticed a significant decline in their own market. Wine consumption is decreasing, but production remains stable, so everyone has to sell their products in other markets.
This will have an effect on the economics and sourcing of each and every manufacturer around the world, especially for corporations like us that operate around the world. For table wines in particular, it becomes very, very difficult.
Herane: We’re putting all our power into our new subsidiaries [in the U. S. ]. The U. S. and China are the first to participate in the U. S. We created those subsidiaries because we saw wonderful opportunities and we hope to start seeing more wonderful effects in 2024, especially for premium wines. I’m very positive. Obviously, the market is helping, but I’m very positive about my people, but also about our brands and the process.
Herane: In my position, we should always be optimistic and I need to transmit this to myself and to my organisation. Obviously, there is a lot of uncertainty regarding cost, consumption, geopolitical situations… I was in the US last week, where wine consumption is declining.
We must focus on the fundamentals. Organisational fundamentals, like our sustainable programme, keeping people at the centre and consumer fundamentals – trying to understand what consumers want and the best way to develop our brands.
If we continue to make the right choices possible in terms of pillars and fundamentals, our business will gain advantages in 2024 and in the long term. That’s what I’m looking to do: in the people, the brand and access to the market.
Colley: For us, it’s about focusing on the same channels that have driven our expansion since we returned to consistent ownership in 2019: attracting new customers, opening new stores, and developing our B2B arm, Majestic Commercial. Our goal is to open an average of one store monthly over the next few years, with a strong pipeline of projects lined up by 2024.
On site, we now supply over 2,300 pubs, bars, restaurants and hotels across the UK and can see plenty of room to continue our expansion into 2024 and beyond. Our ultimate goal is to be one of the largest suppliers to the retail and hospitality sector. sectors in the UK and we expect 2024 to be another strong year for Majestic Commercial.
Colley: Inflation eased towards the end of 2023, but input costs remain the highest across the supply chain. We have been in business for over 40 years and have developed very strong relationships with our suppliers, which means we can adopt a fair and collaborative strategy. with winemakers to the pressures of charges that we all face. This puts us in a strong position to mitigate those issues and keep charges as low as possible for our customers.
The alcohol tax that accrued in August was the largest in just 50 years, creating unnecessary new inflationary pressures and forcing us and many others to pass on some of the charge increases to customers.
Colley: Despite a lot of economic and political uncertainty, British consumers have once again proven to be pretty resilient. As you’d probably expect, we have seen some of our customers trading down or putting one less bottle than usual in their baskets but, for us, it’s not been a case of reacting to that trading landscape – we were already well set up to adapt and thrive within it.
A key component of our strategy since our acquisition through Fortress in 2019 has been to re-establish a de facto market-leading range, both in terms of quality and breadth. Part of that has been a focus on innovation and uniqueness, toasting wines from “off-the-beaten-path” regions like Greece, Hungary and Austria, where you can find incredible prices for cash.
Colley: We are committed to transforming our fleet of more than two hundred diesel vans into fully electric cars by 2030, so this will be a key area of investment in 2024. We brought the first tranche of electric cars before Christmas and five of them. It will be in service before the end of our current fiscal year. Since our retail outlets have their own dedicated van that delivers to local retail and advertising consumers on a daily basis, this will be a step forward for the business. Completing the transfer to an all-electric fleet will eliminate a whopping five million kilometres of diesel-powered roads and 1. 2 million kg of CO2 emissions annually.
We’ll also be increasing our Diversity in Wine Scholarship, a program we’re incredibly proud of at Majestic. This gives people from Black, Asian, ethnic minority or other varied backgrounds the opportunity to earn a WSET Level 2 qualification for free, with no responsibility to work for Majestic at the end of the course. We have helped more than 50 people achieve WSET qualifications since the program was launched two years ago, and we are committed to making an additional investment in this initiative in 2024.
Colley: We like to use a saying internally at Majestic about “controlling the controllables”; However, the biggest challenge for us and many other corporations right now is the sheer number of things happening outside of our control.
We don’t know what the Treasury will do next on alcohol duty come the Spring Budget; we don’t know how energy prices are going to change; we don’t know how the weather will impact wine production; we don’t know how the wars in Ukraine and Gaza are going to develop. These are all things that we can prepare for, to a degree, but cannot directly influence.
All we can do as a company is make sure we’re at the top level of our game and in a position to take on whatever comes next, and I think we are. I have been back at Majestic for 4 years and thank you. Thanks to the investment of Fortress owners and the hard work of our 1,600 colleagues, we’re in the best shape the company has ever seen, and there’s every reason to be optimistic. by 2024.
We have an award-winning range; All of our retail outlets are successful and we are opening more; our Majestic Commercial business is developing rapidly; We have more consumers than ever; and we have the UK’s most dedicated, hard-working and retail-savvy team at the heart of all the brilliant things we do. I’m sure the business environment will continue to be challenging, but having all of those elements in our arsenal puts us in a strong position to drive long-term growth.
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