Foster's: two bill too big

by PHILIP WHITE
This was first published in The Independent Weekly in February 2008

They just don’t get it. Between them, The Australian Financial Review and The Australian published a virtual novella about Foster’s CEO Trevor O’Hoy in one recent week. I mean novella in the number of words, but it applies in another way. Let me explain.

The Fin Review scooped everyone with a folksy piece about the former St. Kilda footballer and economics grad, concluding that he’s not demonstrative or flamboyant, but deeply cerebral and committed, and that he feels that some see his humility as a weakness. Jeez.

But the guts of the story was Trev’s humble back-flip over his purchase of Southcorp. After thirty years slavery in the bowels of Carlton & United Breweries, he’d ascended the throne of CUB’s umbrella, Foster’s, promising shareholders there’d “be no big acquisitions on his watch”. Six months later, after a brief chat with chairman Frank Swan – three minutes after – he approved the $3.7 billion takeover. Which Merrill Lynch analyst David Errington agrees was $2 billion too big.

So somebody kicked some arse at The Australian. Out came the me-too scribble. Matthew Stevens called O’Hoy “just a tad gloomy”, and “wry, personable and approachable”, if showing “slightly disturbing honesty” in recent “engagements with the media”, meaning the AFR yarn.

In the same Business section, The Australian’s John Durie was a little less romantic in his “Foster’s chiefs must deliver or go”.

The takeover was a disaster. Showing devastating ignorance of the wine market, O’Hoy attempted to slash costs by having his new premium wine brands, like Penfold’s, distributed and sold by the same dudes who flogged his ordinary beer.

So you run a medium-sized pub. You sell a lake of Cooper’s and a fairly big dam of premium red, and have a couple of vintages of Grange on your list, which came from your private collection, because you don’t sell enough Koonunga Hill to earn yourself a Grange allocation. In comes the Foster’s rep, wanting you to switch taps to Foster’s and Carlton, and replace your precious boutique hand-made red listings with industrial plonk from a portfolio containing 100 brands and two or three thousand products.

So you put down your bar cloth, forget about your lunch customers, and help the sweaty beer rep through his great big friggin’ book? Uh-huh.

Both newspapers talked about the sacking of the three or four thousand, and how O’Hoy eventually repented his error, and appointed seventy wine apostles to sell, well, wine. Their brilliant plan is to “mosaic” customers, a new verb meaning “think about what they buy, then push equivalent bar codes from the thousands in your book”.

Given Southcorp’s history with computer systems and information networks, I’d avoid being mosaicked. The more lugubrious retailers claim service has improved; humble O’Hoy says the worst is over.

But that’s not my point. My point is the two gaping holes in these reports justify the second implication of “novella”. Neither mentions premium wine as a gastronomic item. It’s a commodity, tied like Gulliver with the infernal strings of percentages of this and targets of that and returns of so many per cent or even less. And fair enough, for this is business, and this writer is no expert at that. But this writer is expert at recognizing the difference between an industrial product made in a refinery by industrial chemists wearing steel-capped boots, hard hats and safety glasses, and a wholesome, organic drink made with minimal irrigation, bugger all chemicals, and a whole lotta love, by someone in thongs, with a soulful understanding of the gastronomic rewards implicit in such luxury.

He’s more Country Road than thongs, but think Peter Gago and his Grange. Therein lies value. And shareholder return.

The other hole’s bigger. It’s called water.

Do these people – O’Hoy, Foster’s, and the business hacks – know something I don’t?

The arid land irrigation which pumped up nearly all Southcorp’s grapes is over. No matter that the cotton fields and the rice paddies and the dairy cattlemen waste more water than the grape cockies, who happen to waste shocking amounts anyway. And why not? They pay bugger all.

But such sugar mining is over. It can’t continue. Even if the Queensland rain did fill the River for a month, the time it will take to convert all Murray Valley irrigators from overhead sprinklers and open channels to pipes and drippers will be long enough to get us to the next normal drought, and by then, it’ll be over. Again. Still.

Not to mention salt.

Add to this the strangulations Karlene Maywald has clamped on the Murray water irrigators of Clare, the Barossa, Langhorne Creek and even the recycling experts, McLaren Vale, who use no Murray, and you’ve got a problem that’s much bigger than Trevor O’Hoy’s cerebral humility.

It’s a ruder, truer measure of the real value of Foster’s.