The dynamics of running the UK subsidiary of an international producer .

Sometime in the late 1500s the Duke of Alba, who was attempting to govern the Netherlands on behalf of Spain, wrote in frustration: “If death came in an order from Madrid, we would all be immortal”. Read any book on the development of the British Empire and what may come as a surprise is how so many key decisions – many of which still have repercussions today – were made in the absence of any grand plan from “head office”.

Well, I would suggest that most of those running companies which are subsidiaries of international wine producers are more likely to complain about too much direction as opposed to too little. But either way it is not easy for a parent company (or indeed a central government) to get the balance right.

Too much control from the centre and there is a risk that the subsidiary loses the flexibility it requires to realise its full potential in the market. Too little control, and one loses the synergies, and puts at risk the global strategy.

One of the key reasons that producers set up subsidiaries is to control the approach to a particular market, so it stands to reason that they will err on the side of too much control rather than too little. But in my experience at IDV (now Diageo), Southcorp and Vincor there is a remarkable variation in the philosophies of international companies when it comes to how much flexibility is given to the regional team.

Subsidiaries dominate the UK wine trade

This issue is important because, at a rough estimate, some two thirds of the UK wine business is in the hands of subsidiaries: the decisions they take therefore affect our category profoundly. At a macro level, at one extreme, they can decide to pull out and focus elsewhere … or, at the other, increase their investment significantly.

At the next level down they can decide to get fully involved in industry and generic initiatives, or simply follow their own path. Finally, the way they behave in terms of their marketing and sales approach will tend to set the tone for the market, given their market and brand strength.

Just consider the following list of companies and you will see they comprise most of the movers and shakers in the UK wine category : Pernod Ricard, Concho y Toro, Accolade, Percy Fox, Treasury Wine Estates, Gallo, Mentzendorff, Hatch Mansfield, Codorniu, Fratelli Martini, Freixenet (DWS), Grand Chais, Gonzalez Byass, Australian Vintage, DGB, Negociants, De Bortoli and Delegats.

What is striking too is that they are all marketing-oriented companies. They are brand owners and brand building is, to a greater or lesser extent, a core capability. Twelve of the current top 15 UK wine brands come from subsidiaries. Given at this critical time we are in fairly desperate need of long-term vision, innovation, and marketing investment, then the implication is that these companies are now more important than ever.

Independence diminishes as the UK market declines

A key factor in how much control a UK subsidiary has over its own destiny is the importance of the UK market to its parent. So as this market becomes relatively less profitable, both for reasons particular to the UK and due to the opportunities in Asia and elsewhere, it stands to reason that the head of any UK subsidiary who is putting the case for increased investment in, say, sales resource or brand development is less likely to be successful than in the past. And, at the risk of being alarmist, there is therefore the potential to get into a downward spiral: less investment, less innovation, less success, less investment and so on.

I don’t, however, see us being in that position currently. The recent positive statements in the press by Paul Schaafsma at Accolade and Andrew Hawes of Mentzendorff, and a presentation I heard at the BACK Course by Lee James of Pernod Ricard, suggests to me there is no reason to be over-pessimistic. However I am sure these companies, and others, are having particularly interesting discussions with their head offices about the way forward in the UK.

Being a fly on the wall

I would love, in fact, to be listening in to some of these conversations, particularly those relating to the amount of independence given to the UK team in terms of their marketing and sales approach. The outcome of such discussions does not only depend on the importance of their market or even their particular level of success. It also depends on the culture of the company and how internationally focussed are the marketers, and indeed the winemakers.

The visionary head of Southcorp in the early 1990s, Ross Wilson, once said that he would ideally like to take all the head office marketing team and put them somewhere in the Indian Ocean. At which point someone in Operations was heard to mutter “great idea, preferably in a boat with a hole in it”. I’m sure indeed there are many in the wine business who would think the Indian Ocean an ideal place for a marketing team, but Ross was far from being a marketing cynic. He believed that the danger for any global company was that a head office marketing team was inevitably biased towards their domestic market and that, in an ideal world, it should be positioned in a neutral setting.

Certainly one has to be careful that marketers, and winemakers, are not unduly influenced by the opinion of the local trade and consumers. As a minor example, the move to unoaked Australian Chardonnay in the UK in the 90s was, in my view, led by the robust opinions of the “Sydney dinner party set” far more than by our own consumers.

As another example, when at Western Wines we wanted to launch a brand sourced from Vincor’s producers in Western Australia, we held a video conference blind tasting of the various options in terms of style. We found that the styles each team preferred were almost at opposite ends of the spectrum. I should add that we were allowed to go with our preferences.

Vincor’s solution to this whole Global v Local conundrum was in fact to have a very limited central marketing function : each subsidiary was, to a large extent, charged with selling its brands to the other subsidiaries within the context of an over arching  global strategy.

Every approach, however, has its strengths and weaknesses; there is no single right answer. What is crucial, however, is that there is a culture in which subsidiaries are not forced to spend far too much time on internal matters, time which could be much better spent in the marketplace. This can lead to procrastination and a resulting loss of credibility with customers. It also gives one’s UK-owned competitors, who are inherently lighter on their feet, a distinct advantage. I was generally very lucky in this regard … but others I get the impression have not been so fortunate.