Shares in winemaker Treasury Wine Estates Ltd (ASX: TWE) have surged more than 8% in the last week, as the company's new CEO said he was taking a cold and hard look at the business.
CEO Michael Clarke (not the Australian cricket captain) met investors and analysts earlier this week and said the market would not have to wait long for some decisive moves to improve performance to be put into action.
What is not on the table is the sale of the company's troubled US wine business, with Mr Clarke saying the business was too important to give up.
"I think the US is a key part of our business going forward … given the time I've spent with the team in the US, we've created a very solid plan for next year and 2016 — I think the US is a key platform for our growth agenda as we go forward," he has told The Australian.
Mr Clarke has identified a fall in consumer marketing as one of the major issues facing the US business. Distiller Diageo Plc spent 12% of revenues on marketing in 2013 according to Bloomberg, compared to Treasury's 4%.
"It's not a good way to rebuild a luxury and masstige brands, without marketing", referring to mass-market prestige wines, which range from $10 to $30 a bottle. Additional actions are likely to be slicing management costs, rationalising its current 83 different wine brands and selling under-utilised wineries and packaging plants.
Mr Clarke spent 17 years at food companies including Kraft and Coca-Cola, which will come in handy, given Australia's two largest supermarkets Woolworths Limited (ASX: WOW) and Coles – owned by Wesfarmers Ltd (ASX: WES), control an estimated 77% of the retail wine sales. He says the strategy to improve sales and profitability at Treasury doesn't just apply to wine, but also soft drinks, food and many other categories.
Foolish takeaway
Whether Mr Clarke's strategy can turnaround Treasury remains to be seen. But with some well-known brands like Penfolds, Wolf Blass, Lindeman's and Fifth Leg, shareholders' best hope of seeing a decent return on their investment may well be a takeover by one of the global wine giants, such as Constellation Brands.
