The Wine Wizard of Oz

Australia's Southcorp aims to be the world's biggest wine producer in five years. Delusional? Maybe not

When Keith Lambert became chief executive of Australia's Rosemount Estates in 1997, he introduced mass-marketing tactics more commonly associated with selling beer, not wine. The trick, says Lambert, a former Foster's Brewing Group exec, was "demystifying what was in the bottle." That meant simple labels, colorful packaging, and distinctive bottles.

It worked: Four years later, family-owned Rosemount has tripled its sales to $192 million and become a tempting prize. In February, Sydney-based winemaker Southcorp Ltd. bought Rosemount for $728 million and kept on 46-year-old Lambert as CEO to run the merged company.

The deal turned Southcorp into the largest producer of Australia-grown wines and the world's seventh-largest wine company overnight, giving Lambert the platform on which to build a true global player. Already, Southcorp produces more than half of Australia's premium wine exports, while its three best-selling brands -- Rosemount, Lindemans, and Penfolds -- account for two-thirds of Australian wine drunk in the U.S. In the year ended June 30, Southcorp's net profit increased 4.6%, to $112 million, on sales of $1.4 million, up 35%.

"THE CRUX."

  Lambert's challenge is to keep Southcorp's exports growing at a 20% clip, crucial if the company is to achieve its ambition of becoming the world's No. 1 premium-wine producer within five years. To reach that level, Southcorp will have to handily outpace such U.S. giants as Gallo and Mondavi, among other global giants. "Keith is very aggressive," says Terry Davis, managing director of Beringer Blass Wine Estates, Foster's wine division and Australia's second-largest producer. "The crux is, can he take a family company successful in a single brand and translate that into a multibrand, multiregion portfolio?"

Lambert insists he can. One of Southcorp's biggest advantages, he says, lies in the depth and breadth of its offerings. A drinker can start out with a less pricey bottle, then move up the hierarchy or across different varieties, all the while staying within a single brand. What matters is brand retention.

Explains Lambert: "When people are at a wedding, they remember the Rosemount. Maybe it was the house wine, but it doesn't matter." That's because the group also produces pricey award-winning vintages to help promote its less-exclusive wines. American wine guru Robert Parker has described Penfolds'$180-per-bottle Grange as Australia's finest wine, and its 1999 vintage was ranked 58th among the world's best wines by Wine Spectator.

RECIPE FOR SUCCESS.

  Lambert's first goal is to boost sales of Penfolds in the U.S., where it's selling only 200,000 cases a year, vs. 1.6 million cases for Rosemount and 2 million for Lindemans. To do so, Lambert aims to leverage Southcorp's more successful brands to encourage overseas distributors to push its lesser-known labels. Says Lambert: "We've grown by making consumer-friendly wines."

What's more, Rosemount has an excellent reputation for providing a reliable, consistent, high-quality range of wines, which are essential for ensuring that its wines get space on the shelves of supermarkets and wine bars. "Southcorp has the capacity to respond to mass merchants and to what consumers want," says Greg Dring, wine analyst with Macquarie Research in Sydney.

Once Penfolds is selling better, Lambert plans to start plugging Wynns Coonawarra Estate, from Coonawarra, where the country's finest Cabernet Sauvignon grapes are produced. And in an effort to further broaden its global portfolio of wines, Southcorp in July announced its plan to launch a joint venture with the California vintner Robert Mondavi to make and market a pair of high-end wines.

PARING DOWN.

  Meanwhile, Lambert is restructuring the group. Within weeks of becoming chief of Southcorp, he sacked 150 employees, or about 6% of the labor force. In the coming months, Lambert will discontinue poorly selling brands, sell 2 of Southcorp's 14 wineries, close a handful of bottling plants, and reduce the range of bottle types from 80 to 30. He'll also streamline the current range of 1,200 different wines to avoid direct competition between different brands.

The company began as a brewer in the 1880s. It eventually sold the brewing division during the massive consolidation of the Australian industry in the 1970s and diversified into wine and household appliances in the 1980s. Now, Lambert aims to sell the sole remaining nonwine division, which produces water heaters. He hopes the deal will raise $355 million. Not that Lambert is eyeing more acquisitions. "I have four great brands and a huge portfolio already," he says. "Why would I want a fifth?"

Southcorp is also pushing to expand in Asia. Its wines are gaining acceptance in Japan, where young, chic drinkers are switching to fruity lighter wines, eschewing the whiskey- and Cognac-drinking habits of their elders. Southcorp's easy-to-remember names, less complex flavors, and stylish bottles are a hit with Shibuya-district drinkers in Tokyo. "Penfolds is gaining a good name," says Takuo Takeshita, a self-described evangelist of Australian wines. His restaurant, Grill and Wine Bar Arossa, serves wines only from Down Under. In Hong Kong, where some 40,000 Australians reside, Australian wines are set to overtake French wines in volume terms this year.

IN THE GAME.

  The ultimate testing ground for Southcorp's marketing tactics is in France itself. Earlier this year, Southcorp succeeded in convincing the French superstore chain Carrefour to start stocking its shelves with Lindemans. Specialty wine shops already do a brisk business selling Aussie wine to Britons returning to their homeland from French port towns, and Carrefour recognized the need to be in the game too, says Lambert.

Lindemans plans to ship as many as 100,000 cases to France in the next 12 months, some of which will end up in French homes. You know you've arrived when the French start drinking your wine.

By Frederik Balfour in Sydney

Edited by Douglas Harbrecht