Stephen Millar: The Vinter's Tale

Promise what you deliver, and deliver more than you promise. That seems to have been the guiding philosophy for Stephen Millar at BRL Hardy

By Leon Gettler

In just over a decade Stephen Millar has turned the Adelaide-based vintner BRL Hardy into one of the 10 largest wine companies in the world. BRL Hardy's wellknown brands include Leasingham, Houghton, Stonehaven and, of course, Hardy's. It has a 24% share of the Australian market by volume and a 25% share of all Australian wine sold in Britain. Some achievement.

How big an achievement? The answer came in January this year when BRL Hardy announced a merger with the United States group Constellation Brands, creating the world's biggest wine maker with Millar at the helm of global wine operations and annual revenue of about $3 billion.

Based in upstate New York, Constellation has annual revenue of about $US2.8 billion ($4.8 billion) from its three divisions - wine, beer and spirits. With the addition of BRL Hardy, Constellation's wine division will contribute more than 50 per cent of group revenue. Analysts were surprised by Constellation's offer of almost $2 billion. But because of BRL Hardy's extraordinary growth trajectory, and its potential, there is every chance that Constellation has picked up a bargain.

The remarkable part is that BRL Hardy seemed to come from nowhere - not unlike Millar's beloved Adelaide Crows when they won back-to-back football grand finals in 1997-98. Millar and his team took a small Adelaide company, formed by merging the unlisted co-operative Berri Renmano and the privately owned Thomas Hardy & Sons, and turned a $90 million operation into $1.9 billion.

However, Millar's reputation for under-promising and overdelivering can have disadvantages. Towards the end of 2002, BRL Hardy's share price plunged to its lowest level in two years after the full-year profit forecast was toned down because of tight market conditions. Investors sold, even though the group was foreshadowing a healthy 15% rise in profit this year.

"What you learn in the public arena is that the minute you promise something you are really held to that," Millar says. "The real change in the last couple of years is that people no longer believed our conservative numbers. Now they take our numbers and they pump them up - which gives us no room if there is a bit of a downturn."

BRL Hardy was a pioneer in an industry that has become Australia's most globalised sector. Wine is a textbook example of Professor Michael Porter's model for competitive advantage: intense competition among a diverse group of companies; welldeveloped infrastructure for research and development, training, and dissemination of knowledge; robust lines of supply; scale; and cost advantages in land and labor. The result is that more Australian wine is sold overseas than in Australia. An estimated 565 million bottles were on tables in other countries last year - the equivalent of over 1000 bottles sold every minute of the year. In 1980, the industry was exporting about eight million litres of wine, worth about $12 million. In the 12 months to September 2001, it achieved exports of 438 million litres worth $2.1 billion.

Such is the huge growth of exports that Australia will provide only 20-25% of BRL Hardy's profit in the next year or so. As Millar says, you would not get much sleep if you relied on profit from a market as small as Australia. This is a growth story of an industry, a company and the man who has been managing director of the wine maker since it was floated in 1992.

Wine industry analysts were privately dismissive of BRL Hardy's prospects when the original merger was announced. Hardy had accumulated prestige labels but it was in debt and it had made the mistake of buying one of Italy's oldest chianti producers, which drained resources and was later sold back at a fraction of the purchase price. Berri Renmano was awash in vintages of low-priced cask wines that were far from fashionable.

Apart from the problem of merging two different corporate cultures, there were questions about Millar. An accountant by training, he had been in the wine business for just nine months at Berri Renmano. Until 1991 he had worked for the South Australian brush and mop maker Sabco.

Millar proved his critics wrong. From the time BRL Hardy produced its first net profit - well above prospectus forecast - it has continued to achieve better than expected results. Group profit rose from $8.8 million to $72.2 million for 2001, and if Millar's 15% forecast is right, it will be above $83 million this year. Group sales grew from $140.9 million in 1992 to $757.6 million in 2001. Millar says one of the reasons for the market's initial scepticism was that wine companies, apart from Mildara Blass, had not achieved exceptional returns. There was a belief at the time that wine companies belonged to wine makers who tended to focus more on their craft than the market. Coming from a consumer products company, and having a financial background, gave Millar a different perspective.

"What I found coming into the wine industry was an amazing opportunity. Wine was one of the oldest industries in the world but it was also one of the least developed. When I looked at other consumer industries, there was usually a dominant player like Nestle, Kellogg's or Microsoft. In our industry the largest wine company was Gallo in the United States which was privately owned and 95% of its business was in the US.

"There was a lack of professional management in the wine industry. Most of the companies were run by wine makers or families and there wasn't a global focus."

Millar says anyone can make wine if they have the right people, mindset and access to capital. The hard part is selling it, and few wine makers know how. "You have to do both, but the real success comes from being a successful sales and marketing operation. The secret to our success was changing the culture and recognising that you will succeed as well as you succeed in selling and distributing your products in world markets."

He says one of the keys to success is having a small company take over a larger one. "The fact that a small company took over a big one meant there was an increase in opportunities for the bigger company's staff and the smaller company didn't have enough staff anyway to try and decimate the other so it actually did become a true merger."

Being a newcomer to the wine industry also helped. "I didn't come in with preconceived ideas about the strengths and weaknesses of either organisation. We were determined that it be one group, to work together and change the culture."

One important change was to devolve power. Most wine companies have centralised systems of control. For Millar, harnessing creative energy required a different approach. "The culture I changed was to give people the opportunity to show what they could do. If they got it wrong, we would help them fix it, and if they got it right, we would praise them."

The result was a flatter organisation. The human resources and supply departments were scrapped. Executives were given more freedom and responsibility for profit and innovation. This seems to be based on another BRL Hardy philosophy. Unlike most rivals, its focus is on organic growth, not acquisition. A flagship wine, Banrock Station for example, has grown out of nothing into a brand of two million cases.

"We are probably the only large wine company in the world that has been successful in creating new brands. If you are not pushing and looking for opportunities, then things don't happen. It's all in the organic growth strategies that we have embraced through decentralised control and encouraging our people to have fun. We almost encourage them to make mistakes. The worst thing is not making decisions."

The $5.8 billion merger with Constellation opens a new chapter in the history of the Australian wine industry. From now on, the decisions will assume global significance.

The Vinter's Tail was published in the March 2003 edition of Management Today. For details of Management Today back orders please click here.