UNLEASHING MARKET POTENTIAL THROUGH INNOVATION AND DIFFERENTIATION WHAT IS WINE BUSINESS SOLUTIONS? The only business in Australia, New Zealand and South Africa whose sole focus is providing management consultancy services to Wine Business Owners 1
FOUR MYTHS ABOUT INNOVATION MYTH ONE Only creative geniuses can innovate The ideas are so often there. They re obvious. They just need someone to act. 2
MYTH TWO You have to be young to be innovative The greater diversity of people you connect with The more experiences you have The more ideas you can meaningfully integrate MYTH THREE Our customers will be a critical source of innovation insight Your customers don t know what they want But you almost certainly do 3
MYTH FOUR Innovation requires placing big risky bets Great things are done by a series of small things brought together Vincent Van Gogh CHOOSIN G YOUR CUSTOME R Beverage Wine Consumer Branded Wine Consumer 4
CHOOSIN G YOUR CUSTOME R Beverage Wine Consumer The Commodity Business Branded Wine Consumer The FMCG Business The Image and Lifestyle Business The Food, Wine and Travel Business The Luxury Brands Business 1980s 5
1990s BRIAN - 1991 By the year 2000, Australia will export $1Billion worth of wine! 6
AUSTRALIA NAILE D THAT ONE 35000 30000 25000 20000 15000 Argentinian Chilean South African Australian New Zealand US 000s of 9 litre cases exported Source IWSR 10000 5000 0 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2000s (Terlato US) (Bibendum UK) 7
TODAY (R2.5 Billion Exports) 1980s 1990s The Golden Age of Beverage Wines 2000s The Golden Age of Branded Wines 2010s The Golden Age of Aspirational Wines 2020s The Golden Age of wines of Heritage? The Golden Age of wines of Provenance 8
GROWTH AT THE RIGHT PRICE POINTS World Wine Consumption Millions 9 litre Cases 16% Source VINEXPO THE LOCAL MARKET +20% 9
DtC IN THE US 75% of Sales above R325 per Bottle Ave Price R400 per Bottle Worth R18 Billion More than US / SA / Australian exports WHY SURF? 10
WHY SURF? That is where the best prices, margins and profits are. Either making or riding market momentum is so much easier than fighting it. You might not be able to make profits in your existing channels anymore. You might get left high and dry. THREE BIG QUESTIONS What are the markets? What are we going to sell? How are we going to play? 11
ADDITIONAL CASES NEEDED 2016 vs. 2012 12 Million cases for US based on 30% imported 5 Million cases for Canada based on 72.5% vs 12 Million cases for China based on 17% 5 Million cases for Russia based on 33% 5 Million Cases for Germany based on 46% Source IWSR Estimates 2012-16 THE BEST MARKETS FOR FINE WINE? China / SE Asia US / Canada UK vs Japan Switzerland / Austria Belgium / Luxemburg Africa 12
A RED & PINK FUTURE? World Wine Consumption Millions 9 litre Cases Source VINEXPO BEVERAGE WINE SECTOR Still an opportunity in developing countries Shrinking low margin category in developed countries E.g. Australia Under $7 Category Shrunk by 3% last year. Supermarket own label 70% of category Big increases in new styles / decreases in old SA has 5% share. Grew sales over 30% in 2013 (Source: Nielsen) 13
BEVERAGE WINE SECTOR INNOVATION Our Earth Our Vines Our Land BRANDED WINE SECTOR EVOLUTION No place in UK (or Australian) On-Premise. North America a different story but changing. Therefore more supermarket power Brands aggressively targeted with Own Label Low cost manufacture and supply chain critical FMCG skills such as customer planning vital Smaller suppliers getting squeezed harder 14
BRANDED WINE SECTOR REVOLUTION Packaging Innovation is one way in. Merrill Fernando WHAT IF WE HAD THEIR DECANTERS? 15
AND THEIR GIFT BOXES? AND RAW MATERIAL S PRESENTATION? 16
RANDOM GOOGLE IMAGE SEARCH FOR TEA RANDOM GOOGLE IMAGE SEARCH FOR WINE 17
BRANDED WINE SECTOR REVOLUTION FOR THE ASPIRATIONAL CONSUMER PACKAGING IS KEY 18
CHAMPAGNE UNLE ASHE D PROSECCO WINS 19
THE BIGGEST OPPORTUNITY WINE PLUS 20
WINE PLUS Plus Honey Plus Botanicals Plus Healthy Ingredients Plus African Ingredients Plus Grown Up Flavour NOW LET S PUT IN INTO 4 th GEAR 21
PREMIUM WINE CHANGE DRIVERS Change One - The Arrival of Food Change Two People Power and the Globalisation of Tastes Change Three Experiences driving Customer Acquisition Change Four - The split between the Artisanal and the Industrial PEOPLE POWER AND TASTE GLOBALISATION BIG 5 Share of Listings US Canada Aus UK * 86% 80% 75% 70% *Plus Chenin in UK = 76% Style Market 2013 2012 Change UK 20.1% 21.5% -7% Chardonanay Australia 23.7% 23.4% 1% Canada 24.8% 26.2% -5% US 39.4% 39.0% 1% UK 22.6% 22.4% 1% Sauvignon Blanc Australia 22.3% 21.8% 2% Canada 15.6% 16.3% -4% US 13.5% 14.3% -6% UK 11.2% 10.3% 10% Pinot Gris / Grigio Australia 13.0% 12.6% 3% Canada 14.5% 12.9% 12% US 17.9% 15.7% 12% UK 12.6% 11.3% 11% White Blends Australia 2.0% 1.7% 19% Canada 16.2% 12.0% 35% US 4.4% 4.5% -2% UK 3.0% 3.8% -22% Riesling Australia 14.4% 13.9% 4% Canada 8.9% 8.3% 7% US 11.2% 9.5% 15% 22
CHENIN IN THE UK THE EXCEPTION Varietal 2013 2012 Change Sauvignon Blanc 22.6% 22.4% 1% Chardonnay 20.1% 21.5% -7% White Blends 12.6% 11.3% 11% Pinot Gris/Grigio 11.2% 10.3% 10% Chenin Blanc 5.7% 5.7% 1% Viognier 3.1% 3.3% -7% Riesling 3.0% 3.8% -22% Picpoul de Pinet 2.3% 2.0% 15% Gavi 2.1% 1.8% 12% Source WBS Wine On-Premise Research But at a lower average price than Italian Pinot Grigio i.e. < 20 cf 28 for Marlborough SB and Total White Wine THE POWER OF PRICE - UK ON-PREMISE Number of cases needed to make R1,000,000 17,778 8 2,122 EBITDA 15% R 56.25 R 471.25 Op EX 30% R 112.50 R 112.50 COGS 55% R 206.25 R 206.25 Ex cellar price - $A R 375.00 R 790.00 Exchange rate 18.18 20.63 18.18 43.45 Freight 1.80 22.43 1.80 45.25 Warehousing 2.40 24.83 2.40 47.65 Freight out 3.00 27.83 3.00 50.65 Duty 24.00 51.83 24.00 74.65 Agent Margin @ 20% 20% 65.00 20% 93.00 Wholesaler Margin @ 20% 20% 80.94 20% 116.00 Price per bottle 6.75 9.67 Restaurant Margin @ 60% 16.86 24.17 Value added tax @ 17.5% 0.175 2.95 0.175 4.23 List price 19.81 28.40 23
THE REAL LEVER OF CASHFLOW PEOPLE POWER AND TASTE GLOBALISATION Style Market 2013 2012 Change UK 7.2% 10.2% -29.4% Bordeaux Blends Australia 4.1% 4.7% -12.1% Canada 4.6% 5.6% -18.2% US 4.4% 5.5% -15.0% UK 6.8% 5.1% 34.7% Malbec Australia 1.0% 0.8% 26.9% Canada 4.7% 3.4% 37.7% US 2.7% 2.0% 32.0% UK 10.1% 11.3% -10.0% Pinot Noir Australia 18.4% 16.9% 9.1% Canada 10.5% 9.2% 14.5% US 9.6% 8.3% 15.0% Source WBS Wine On-Premise Research US Data Wine Metrics 2011 vs 2013 24
PEOPLE POWER AND TASTE GLOBALISATION Australia vs Style 2013 2012 CHG Style 2013 2012 Change Shiraz 24.7% 25.5% -3% Red Blend 22.5% 23.0% -2% Pinot Noir 18.4% 16.9% 9% Cabernet Sauvignon 12.8% 13.8% -7% Cab Sauv 15.9% 15.7% 1% Pinot Noir 10.5% 9.2% 15% Cab Merlot 7.5% 7.6% -1% Shiraz 8.7% 8.3% 5% Merlot & Blends 7.3% 7.6% -4% Merlot 7.0% 7.5% -7% Shiraz Blends 3.7% 4.3% -14% Sangiovese 6.4% 6.7% -4% Grenache & Blends 3.5% 3.8% -7% Malbec 4.7% 3.4% 38% Sangiovese & Blends 3.4% 3.1% 11% Bordeaux Blend 4.6% 5.6% -18% Cabernet Blends 3.4% 3.9% -14% Valpolicella 3.3% 3.1% 8% Tempranillo & Blends 2.0% 1.9% 5% Rhone Blend 3.0% 2.4% 29% Rhone Blends 1.6% 1.4% 14% Zinfandel 3.0% 2.5% 20% Red Blend 1.5% 1.7% -8% Tempranillo 2.4% 1.2% 91% Malbec & Blends 1.0% 0.8% 27% Gamay 1.8% 1.7% 6% Shiraz Viognier 1.0% 1.1% -11% Nebbiolo 1.4% 2.2% -35% Bordeaux 0.8% 0.8% -4% Amarone 1.4% 1.9% -29% Gamay 0.7% 0.5% 36% Cabernet Franc 0.9% 0.8% 13% Nebbiolo & Blends 0.7% 0.3% 154% Barbera 0.7% 0.6% 11% Zinfandel 0.5% 0.4% 30% Grenache 0.6% 0.6% -2% Barbera 0.4% 0.4% 25% Montepulciano D'Abruzzo 0.6% 0.7% -10% Mourvedre 0.3% 0.2% 42% Carmenere 0.4% 0.6% -34% Canada Source WBS Wine On-Premise Research *Big Opportunity for SA Reds WORLD LEADING INNOVATION 25
WINE THAT TASTES LIKE WINE ROSE REVOLUTION 26
DISIPLINE CRITIC AL 1. Right Grapes. Right Place. 2. GIs Set Up 3. Yield Limits / Limiting Yields 4. Vine Age Classification 5. Viticulture Standards 6. Production Standards 7. BEE / FAIRTRADE 8. Sustainability Practices NOW OVE RDRIVE 27
SA ALREADY PRETTY GOOD AT THE TOP END SOUTH AFRICA S WINNING HAND 1. CREATIVITY 2. COURAGE 3. CAN DO 28