brl hardy: globalizing an australian wine … … · web view2012-12-18 · marginal brl hardy...

BRL HARDY: GLOBALIZING AN AUSTRALIAN WINE COMPANY

BRL Hardy: The Post Merger Success

Perhaps the main drive for BRL Hardy’s post-merger success was the fact that the two

merged companies were so distinct from each other. BRL was a company that sold fortified

wines and took a bulk and volume approach, and thus had as one of its main assets its grape

resources. Hardy’s on the other hand was a recognized, traditional award-winning brand wine

that had marketing expertise and brand recognition. This essentially meant that Hardy had the

know-how and innovation while BRL had the funds and resources to implement the ideas.

Another reason for the success was the appointment of Steve Millar as CEO of the newly

merged companies. Millar’s management placed an emphasis on turning BRL Hardy into a

global powerhouse brand by emphasizing the need to decentralize risks and responsibilities

while still maintaining the accountability of central management. Steve Millar also took a

rational approach by focusing on the Pareto Principle, the law of the vital few (the “80-20”

principle), in business. That is, he recognized that 80% of achievements roughly come from 20%

of the amount of time and effort spent. He thus decided to focus his operations on getting 80%

success with around 20 projects as opposed to 100% success with just one or two.

The overall company strategy was also a big reason for the success that occurred post-

merger. The company’s central leadership decided to emphasize the majority of their sales in the

domestic (Australian) market which resulted in stately domestic bottle share and increasing

company profitability. There was also an emphasis on cutting costs and finding ways to improve

efficiency such as reducing the number of brands offered as well as employees by repositioning

with only a few strong brands.

Chris Carson, the experienced Hardy manager, was also vital to the success of BRLH

because he was able to recover failing UK and European enterprises by reducing the product

portfolio by around 70% and halved the employee count. As a result of the goal to become a

global company, the company’s strategy of strengthening international distribution, investing in

the improvement and acquisition of new properties and facilities related to wine-producing, as

well as the positioning and labeling of global brands also stimulated the success of the company.

The company was able to take a “minimum risk” global approach by sourcing their wines from

multiple regions. The approach to decentralize while maintaining central accountability was


also solid in that it planned to place the responsibility of labeling, pricing and branding in

Australia while entrusting to foreign branch managers the responsibility of distribution,

promotion and sales.

Decentralization vs. Centralization: Power Struggles between Davies and Carson

The main source of tension that existed between Stephen Davies and Christopher Carson

was the simple conflict of centralized management vs. foreign branch autonomy. This seemed to

be an issue that arose in a post-merger context due to the fact that Carson was initially part of the

Hardy Co. before the merger with BRL and was previously used to operating under a

decentralized structure whereas after the acquisition, his previous experience and

accomplishments would be ignored as a result of new management and he’d lose autonomy over

his operations in the UK by being forced to answer to Stephen Davies. Another area of conflict

stemmed from the fact that pre-merger, Hardy and BRL took very different approaches to selling

wines. BRL was more of a bulk oriented seller that emphasized brand-name importance, and

controlling its position from home, whereas Hardy took a more local approach and emphasized

the importance of retailer relations when deciding how to label and position the brand. This was

a major source of conflict because the long-term goals of BRL involved becoming a large

global player in the wine industry which obviously involved having a tighter and more

centralized grip of overseas operations.

Steven Millar’s reaction and handling of the conflict between Stephen Davies and Chris

Carson is open to a little bit of “managerial interpretation”. On the one hand, executives want

their managers to be competitive with each other and clash in order to stimulate new ideas and

creativity. On the other hand, his actions could be considered messy for encouraging such

ineffective behavior like dual-line reporting (when managers have responsibilities to one

executive but report to another one). This is grave considering the fact that Carson, while

autonomous was also technically still below Davies on the hierarchy, and had to consult

marketing and brand strategies with him while also having to submit profit reports directly to

CEO Steve Millar. It is difficult to make an absolute judgment on the actions taken by CEO

Millar, but for the most part, it seems that they had positive, albeit not flawless, results. Millar’s

objective from the beginning was to create a decentralized approach to expanding the newly


merged company but to still maintain management accountable. This was slowly achieved by

allowing them to negotiate and settle their conflict, and in the process promoted growth of up to

70%. However, Millar did not specify exactly how he wanted to organize the structure for a

decentralized approach that still maintained central-management accountability, his hope for

negotiation between Davies and Carson could be viewed as “passivism” and thus and indicator

of weak executive management, and, despite the growth that arose from these conflicts, they

would later manifest themselves more intensely when Carson’s appointed marketing manager

and his UK branch would come to back their wine brand Kelly’s Revenge while senior

management (including Mr. Davies) was backing Banrock Station.

D’Istinto : A European Brand with Aussie Backing

As CEO, Millar had to make a lot of decisions that involved competition and brand

overlapping between branches within his own company. Involved in these was usually the very

savvy Chris Carson, particularly in his creation of the Italian brand D’Istinto versus the Chilean

Mapocho brand. The decision by Millar for choosing between these two overlapping brands

seems quite rational, stick with Carson’s proposal to launch D’Istinto and scrap the

Chilean project altogether. While acquiring Chilean wineries and facilities fit in with BRLH’s

objective of spreading the risk and trying to build up a global brand, the flaws mismanagement

of the Chilean enterprise doomed Mapocho to failure. Management was unreliable, sales were

unstable, forecasts were grim, and it put the company at risk of facing a loss of around £400,000.

D’Istinto, on the other hand had much success. The Italian brand had the advantage of

real cooperation with around 135 experienced wine growers in Sicily as well as help from

corporate that would send technical experts to enhance the value of farmers harvest via

new productive vineyard techniques and winemaking methods. There was really only one

threat to the launching of the D’Istinto line, and that is the fact that it would stretch an already

thinned out human resources department that had been forced to deal with about 5 years of

expansion. From a managerial perspective, D’Istinto did have the advantage of being a personal

project of Chris Carson, who wanted to position the brand by giving it a very attractive

Mediterranean image of warm, passionate, and relaxed while pairing it with food. This made it

an attractive brand, particularly to British consumers, and versatile as a result of its marketing


with a complementary good: food. It also allowed the consumer to participate in the image of the

product by allowing them to submit recipes involving the use of the D’Istinto wine.

D’Istinto would also have a higher chance of succeeding due to its higher attractiveness

to retailers, which Carson pointed out as being essential to succeeding in local markets. Thus, it

seems that, despite the risk of overworking a diluted Human Resources department and the fact

the shortcomings of other “foreign brand” ventures, Millar should decide to back Carson’s

proposal for D’Istinto but also cut out the Chilean sources and brand Mapocho in order to

cut costs on an unstable, doomed project and focus more on a brand that has serious

hierarchical cooperation and appeal to consumers in its respective market.

Global Prospects vs. Regional Goals: Banrock Station vs. Kelly’s Revenge

The choice between Kelly’s Revenge and Banrock Station is a difficult choice for the

BRLH Wine Company. It is one that, again, stems from its desire to be a global company but at

the same time one that is decentralized to better adapt to local and particular national markets

while also maintaining central management accountable. Kelly’s Revenge was, like D’Istinto, a

pet project from Carson’s UK Operations. However, it did not seem as though he was as

involved with this project as with D’Istinto, but rather the marketing manager he appointed, Paul

Browne. Banrock Station, on the other hand, was the brand that had been launched in Australia,

New Zealand and the US with much success, one of the main sources of its appeal was the

fact that it emphasized its use of earth-friendly production methods. Judging from the

already proven success of Banrock Station in global markets, as well as the company’s desire to

stimulate growth first on the Australian home turf, it seems that the most rational course of

action would be to support the launch of Banrock Station and gradually fade out the

production of Kelly’s Revenge.

The main issue with Kelly’s Revenge is the fact that its development was far too

decentralized from home management and ran the potential for relabeling or rebranding the

BRLH’s image in the UK and Europe without BRLH’s consultation or approval. The brand was

designed to be a blatantly Australian brand with international appeal. This was a good concept

that kept in line with BRLH’s goal of becoming a global wine company, but the problem is that

the image ran the risk of seeming “too Australian”, thus alienating and failing to attract


consumers in the UK, particularly among the young crowd. Banrock Station already had success

in three markets, one of them being the aforementioned domestic Australian market that

BRLH wanted to emphasize in order to promote company growth. A driving force behind its

success in Australia, New Zealand, and the US, was its image as an eco-friendly brand through

use of earth-tones in its labels as well as informing the customer on the label of the earth-friendly

production methods used to make it. A theme like “environmental friendliness” is certainly

one that has more of a global appeal than the perceived Australian exclusivity of the Kelly’s

Revenge brand. However, the management team responsible for the development of Kelly’s

Revenge expressed doubts about the launch of Banrock Station, citing the fact that in the UK and

European markets, BRLH wines were still in their growing stages, meaning that the “green

image” it was trying to ride to glory would have very limited appeal to UK consumers, on top of

the fact that its dull, colorless label would also not be too appealing to retailers.

With someone given the kind of autonomy that Chris Carson has, it would seem like a

wise idea to stick by the ideas and projects of the managers he has appointed. However,

autonomy aside, someone like Carson needs to realize that company goals and interests need

to be taken into account before the creation or even discussion of a new brand. His ultimate

decision should be to side with the implementation of Banrock Station while finding a way to not

alienate his own managers and leaders involved in the creation of Kelly’s Revenge. One way to

ease the fall, as well as keep the brand from competing with the D’Istinto line would be to

position the brand slightly higher than expected, at the £3.99-£4.49 price range as opposed

to £3.49-£3.99.

Steve Millar acknowledged that he is partially responsible for some of the tension that

occurred between Banrock Station and Kelly’s Revenge because he encouraged decentralization

and Carson to delegate more responsibilities how he saw fit, and in doing so further

compromised central managements control over its own brand to its foreign subsidiaries. Steven

Millar should acknowledge that the Banrock Station brand has already garnered domestic and

international success in certain markets, and that the market testing and appeal of Kelly’s

Revenge was poor among senior managers and consumers. He should communicate with Carson

and remind him that the ultimate goal of the company is to become a globally recognized brand

and that with consumer appeal and sales results backing his claims, Banrock Station has more of


that potential over Kelly’s Revenge. In order to shake off the “passive” reputation that Millar

has had with regards to dealing with disputes inside his own company, he should give

Carson the ultimatum to remove Kelly’s Revenge and focus on Banrock Station as the go-to

brand while giving him more power over marketing, sales, and promotion tactics in his

region. This would help to restore Millar and central management’s grip on its overseas

subsidiaries while not compromising its desire to be decentralized or the autonomy of its

overseas managers like Christopher Carson.

The Raw Facts: Interpretation of Charts and Data

Since decentralization was a main source of conflict throughout BRLH’s organizational

history, but also a goal that it wanted to successfully achieve in order to better respond to the

demand of regional markets, we must first start off with analyzing the numbers for its subsidiary

BRL Hardy Europe Ltd., particularly under the leadership of Mr. Christopher Carson, and then

compare them to the actual historical figures of overall company performance. For the majority

of this analysis, we will focus on marginal data and rates of change derived from the tables

provided in the case study in order to go beyond analysis of just absolute figures by deciding

how much certain expenses or gains increased or decreased by and why.

BRL Hardy Europe

For the most part, it seems that the financial performance of BRLHE Ltd was quite solid.

If we peek at Appendix 4 and look at the graph comparing the Δ Gross Profit (after distribution

expenses) and Δ Administrative Costs, we notice that the former experiences a steady increase in

its slope, and that during the 1995-1996 time period, the gap between these two factors was at its

greatest, and a forecast for further separation between these two lines, indicating a prediction for

increased efficiency geared at increasing revenue while decreasing costs. Δ Net Sales Turnover

(In £) also showed much promise, with the time period between 1996 and 1997 showing a sharp

increase in the steepness of the slope and a forecast of further sales expansion.

However, there is some cause of concern. Despite the stellar performance of BRL Hardy

Europe, there seems to be an efficiency issue. Let us first focus on employee figures. During the

beginning of Carson’s reign as Managing Director of BRLH Europe, we notice a reduction in the


number of employees, consistent with his plan to cut costs and increase efficiency, however, if

we consult Appendix 2, the number of people employed by BRLH Europe began to increase

after 1993. This is not necessarily a bad thing, however what is daunting is the fact that sales per

employee, measured in £, began to decrease. Now, immediately we can place the blame on the

simple fact that this branch was attempting increase employment so soon after its merger and

“recover process”, that not enough sales were being produced among the new arrivals, thus

bringing down the once high average. Even more alarming is the fact that the graph in Appendix

4 measuring the Δ£ Sales per Employee predict negative rates of change, meaning that the

forecasts expects sales per employee to go down! Another cause for concern is the Return on

Investment, measured here in percentages. The main cause for concern is the fact that there’s too

much fluctuation. At the beginning this could be explained, again, by the transitional period that

occurred during the post-merger period. From 1994-1995, ROI saw its lowest rate of change as

we can see on the ΔROI graph in Appendix 4, while predicting further decreases in the future.

This would make it very unattractive for potential investors and, if the trend continues along with

an unfriendly economic environment, would risk having current investors remove BRLH

Europe’s stock from their portfolios, which would in the long run affect the company’s abilities

to fund future projects and operations.

While BRLH Europe’s key figures (positive Gross Profit and Net Sales Turnover, flat-

lining to negative Administrative Costs) continue to look very healthy as we can see from the

graphs in Appendix 4, the little things that can in the long-run pile up, such as decreased

employee efficiency as well as ROI and Stock value at year end. The downward and negative

trends that we see in employee efficiency and inversely the positive increase in number of

employees coincide with the time period in which Carson and his marketing manager Paul

Browne were working on the development of their Kelly’s Revenge brand, indicating poor

prospects for the brand.

BRL Hardy Limited

From looking at the historical company data provided in the packet, post-merger, the

performance is outstanding. Debt/Equity Ratio, if we look in Appendix 1 keeps going down

consistently, and if we look at the first graph in Appendix 5, the rate of change for Total Assets


and Sales Revenue keeps going up consistently along with Shareholder Equity while the rate of

change for Total Liabilities goes down. In fact, during the 1997-1996 time periods, the gap

between the rate of change for Total Assets and Total Liabilities is at its highest. This is

indicative of strong financial performance and a solid investment opportunity for potential

investors. Taking into account the expansion attempts by BRLH and its goal to be a global brand

while also looking at the numbers, it seems as though they’ve managed to keep debt and

liabilities suppressed while increasing asset value and sales revenue.

While BRLH’s performance overall is very competitive and solid, there are points of

concern that arise. If we rely strictly on the information provided in the first table in Appendix 1,

all we would see is solid growth and no cause for concern. However, once we look at the

marginal data located in the second table in Appendix 1 we notice some discrepancies. For

instance an increase in the rate of change for Total Liabilities as well as fluctuating rates of

change in sales revenue during the time period between 1993 and 1996. The Debt/Equity Ratio,

while in absolute value terms is on the downward turn, when we look at its rate of change during

this time period, there is also fluctuation, reaching its high point during the time period between

1996 and 1997. In fact, from looking at the second graph in Appendix 5, we see that profit

reached their lowest points during 1994-1995 and during the time period of 1995-1996, in the

first graph of the same appendix, the gap between rates of change of Total Assets and Total

Liabilities is smallest, indicative of a very grim trend for a company’s performance. All of these

downturns and negative findings are time-consistent with the development of the Kelly’s

Revenge by BRLH’s European subsidiary and, obviously, the competition that occurred between

the aforementioned brand and the senior management backed Banrock Station.

The data for BRLH Ltd’s historical performance indicates an overall positive, solid

performance consistent with its desire to become a globally recognized brand. Efficiency

maximization appears to be tackled well with consistently decreasing liabilities and increasing

shareholder equity and total assets. The causes for concerns are the minor fluctuations previously

discussed. If in fact we assume that these fluctuations are directly correlated to the development

of Kelly’s Revenge as well as that brand’s competition with the company favorite Banrock

Station, it certainly shows us the power and importance of the European market not just to the

operations of BRL Hardy Ltd, but to the wine industry in general. Also, this minor instability


shows us the consequences of attempting to decentralize operations while losing central

management’s overlook: CEO Millar encouraged Carson to delegate responsibility in the

European branch to more managers without requiring that these prospective managers, or the

projects they have in mind, be first approved or consulted by central management.

APPENDIX 1

BRL Hardy Limited: Summary Group Financial Results – 1992-1997 (Aus$millions) 1992 1993 1994 1995 1996 1997SALES REVENUE 151.5 238.3 256.4 287 309 375.6PRE-TAX&INTEREST OPERATING PROFIT 16.7 26.6 30.2 34 39.3 49.2NET AFTER TAX PROFIT 8.8 13.3 15.8 17.4 21.2 28.4EARNINGS PER SHARE 0.132 0.141 0.157 0.157 0.181 0.233TOTAL ASSETS 216.8 234.6 280.7 329 380.6 455.5TOTAL LIABILITIES 117.4 127.4 146.6 160.4 194.4 205.8SHAREHOLDERS’ EQUITY 99.4 107.2 134.1 168.6 186.2 249.7DEBT/EQUITY RATIO 70% 57% 57% 53% 58% 41%

Marginal BRL Hardy Limited: Summary Group Financial Results – 1992-1997 (Aus$millions) 92-93 93-94 94-95 95-96 96-97Δ Sales Revenue 86.8 18.1 30.6 22 66.6Δ PT&I Profit 9.9 3.6 3.8 5.3 9.9Δ Net Profit 4.5 2.5 1.6 3.8 7.2Δ Earnings Per Share 0.009 0.016 0 0.024 0.052Δ Total Assets 17.8 46.1 48.3 51.6 74.9Δ Total Liabilities 10 19.2 13.8 34 11.4Δ Shareholders’ Equity 7.8 26.9 34.5 17.6 63.5Δ Debt/Equity Ratio (%age) -0.13 0 -0.04 0.05 -0.17


APPENDIX 2

BRL Hardy Europe Ltd. Key Historical Data (in £’000) 1990 1991 1992 1993 1994 1995Net Sales Turnover 10788 12112 12434 15521 18810 27661Gross Profit ADE 1173 1429 1438 1595 1924 2592GP % Sales 10.90% 11.80% 11.60% 10.30% 10.20% 9.40%Administrative Costs 1104 1261 1164 1172 1308 1896Admin %Sales 10.20% 10.40% 9.40% 7.60% 7% 6.90%Profit After Tax -26 6 157 266 395 426PAT %Sales -0.20% 0.00% 1.30% 1.70% 2.10% 1.50%Avg. # Of Employees 31 27 19 20 22 24£ sales per employee 348 449 654 776 855 1153Stock @year end 1226 1043 605 897 1392 1265Stock Turnover 7.8 10.2 18.2 15.5 12.1 19.8ROI -2.10% 0.50% 11.20% 17.90% 24.50% 23.50%

1996 1997 1998 1999 2000 2001

32271 40100 53848 66012 78814 91606

3202 4212 5453 6488 7630 8787

9.90% 10.50% 10.10% 9.80% 9.70% 9.67%

2118 2717 3649 4473 5340 6207

6.80% 6.80% 6.80% 6.80% 6.80% 6.80%

723 948 1087 1286 1460 1644

2.20% 2.40% 2.00% 1.90% 1.90% 1.80%

28 34 48 62 76 91

1153 1179 1122 1065 1037 1007

1504 1500 2100 2600 3300 3900

http://en.wikipedia.org/wiki/Pound_sign


19.3 23.9 23 22.9 21.6 21.2

35.70% 39.70% 38% 37.80% 36.10% 37.20%

APPENDIX 3

Marginal BRL Hardy Europe Ltd.: Key Historical Data (in £’000) 90-91 91-92 92-93 93-94 94-95 95-96Δ Net Sales Turnover 1324 322 3087 3289 8851 4610Δ Gross Profit ADE 256 9 157 329 668 610Δ GP %Sales 0.009 -0.002 -0.013 -0.001 -0.008 0.005Δ Admin Costs 157 -97 8 136 588 222Δ Admin %Sales 0.002 -0.01 -0.018 -0.006 -0.001 -0.001Δ Profit After Tax 32 151 109 129 31 297Δ PAT %Sales 0.002 0.013 0.004 0.004 -0.006 0.007Δ Avg. # of Employees -4 -8 1 2 2 4Δ £ Sales Per Employee 101 205 122 79 298 0Δ Stock @Year End -183 -438 292 495 -127 239Δ Stock Turnover 2.4 8 -2.7 -3.4 7.7 -0.5Δ ROI 0.026 0.107 0.067 0.066 -0.01 0.122

96-97 97-98 98-99 99-00 00-01

7829 13748 12164 12802 12792

1010 1241 1035 1142 1157

0.006 -0.004 -0.003 -0.001 -0.0003

599 932 824 867 867


0 0 0 0 0

225 139 199 174 184

0.002 -0.004 -0.001 0 -0.001

6 14 14 14 15

26 -57 -57 -28 -30

-4 600 500 700 600

4.6 -0.9 -0.1 -1.3 -0.4

0.04 -0.017 -0.002 -0.017 0.011

APPENDIX 4


APPENDIX 5

brl hardy: globalizing an australian wine … … · web view2012-12-18 · marginal brl hardy...

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