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 |1993 |1994 |1995 |1996 |

|1992-1997 (Aus$millions) | | | | | |

|Δ Sales Revenue |86.8 |18.1 |30.6 |22 |66.6 |

|Δ PT&I Profit |9.9 |3.6 |3.8 |5.3 |9.9 |

|Δ Net Profit |4.5 |2.5 |1.6 |3.8 |7.2 |

|Δ Earnings Per Share |0.009 |0.016 |0 |0.024 |0.052 |

|Δ Total Assets |17.8 |46.1 |48.3 |51.6 |74.9 |

|Δ Total Liabilities |10 |19.2 |13.8 |34 |11.4 |

|Δ Shareholders’ Equity |7.8 |26.9 |34.5 |17.6 |63.5 |

|Δ Debt/Equity Ratio (%age) |-0.13 |0 |-0.04 |0.05 |-0.17 |

APPENDIX 2

|BRL Hardy Europe Ltd. Key |1990 |1991 |1992 |1993 |1994 |1995 |

|Historical Data (in £’000) | | | | | | |

|Net Sales Turnover |10788 |12112 |12434 |15521 |18810 |27661 |

|Gross Profit ADE |1173 |1429 |1438 |1595 |1924 |2592 |

|GP % Sales |10.90% |11.80% |11.60% |10.30% |10.20% |9.40% |

|Administrative Costs |1104 |1261 |1164 |1172 |1308 |1896 |

|Admin %Sales |10.20% |10.40% |9.40% |7.60% |7% |6.90% |

|Profit After Tax |-26 |6 |157 |266 |395 |426 |

|PAT %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 |1153 |

|Stock @year end |1226 |1043 |605 |897 |1392 |1265 |

|Stock Turnover |7.8 |10.2 |18.2 |15.5 |12.1 |19.8 |

|ROI |-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 |

|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.:|90-91 |91-92 |92-93 |93-94 |94-95 |95-96 |

|Key Historical Data (in £’000) | | | | | | |

|Δ Net Sales Turnover |1324 |322 |3087 |3289 |8851 |4610 |

|Δ Gross Profit ADE |256 |9 |157 |329 |668 |610 |

|Δ GP %Sales |0.009 |-0.002 |-0.013 |-0.001 |-0.008 |0.005 |

|Δ Admin Costs |157 |-97 |8 |136 |588 |222 |

|Δ Admin %Sales |0.002 |-0.01 |-0.018 |-0.006 |-0.001 |-0.001 |

|Δ Profit After Tax |32 |151 |109 |129 |31 |297 |

|Δ PAT %Sales |0.002 |0.013 |0.004 |0.004 |-0.006 |0.007 |

|Δ Avg. # of Employees |-4 |-8 |1 |2 |2 |4 |

|Δ £ Sales Per Employee |101 |205 |122 |79 |298 |0 |

|Δ Stock @Year End |-183 |-438 |292 |495 |-127 |239 |

|Δ Stock Turnover |2.4 |8 |-2.7 |-3.4 |7.7 |-0.5 |

|Δ 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

[pic][pic][pic][pic]

[pic] [pic]

APPENDIX 5

[pic] [pic] [pic]

................
................

In order to avoid copyright disputes, this page is only a partial summary.

Google Online Preview   Download