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14 WINES&VINES March 2018 WINE INDUSTRY NEWS S an Rafael, Calif.—Treasury Wine Es- tates (TWE), the fifth-largest wine company in the United States, has dropped distribution for major retail- ers in key states as part of what the publicly traded Australian company is calling "U.S. route- to-market improvements." Unveiled in a report for stock holders and analysts, the changes "span a number of key states and range from implementing direct and hybrid sales and distribution models to chang- ing distributors." Those changes include: • A direct sales and distribution model in Califor- nia and Washington state, in which TWE will manage customer engagement, merchandising, logistics and back-office operations for national and regional retailers. The company is partner- ing with the smaller distributors Classic Wines of California and Vehrs Distributing in Washing- ton to service the remainder of the market. Vehrs is also taking over the Oregon market for TWE. • A hybrid model in Florida, where TWE will work with Breakthru Beverage Group to manage national and regional retailers, while Breakthru will provide full distribution service to the rest of the state. • Breakthru will also now be handling TWE wines in Illinois, Colorado, South Carolina and Min- nesota; Johnson Brothers is taking over distribu- tion in Indiana, Hawaii, Iowa, West Virginia, North Dakota and South Dakota, and Specialty Imports will handle the Alaskan market. The changes are expected to take effect by the end of fiscal year 2018 and cost $16 million, ac- cording to the TWE report. To prepare for the changes, "TWE invested in sales and marketing capability and also is reducing shipments to U.S. distributors in states where direct or hybrid sales and distribution models are being implemented and existing distributors will no longer be required to hold inventory." Leaving Southern Glazer's According to the Wines Vines Analytics' Dis- tributor Market Service, TWE is moving much of its business from the largest U.S. wholesaler, Southern Glazer's Wine & Spirits. Southern had represented TWE in California, Florida, Washington, Colorado, Iowa, Colorado, Wash- ington and South Carolina. A TWE representative, who requested not to be identified by name, said the changes came after TWE incorporated the former wine division of Diageo following a $600 million acquisition in 2015. "As a next step within the Americas region, this is part of TWE's overall strategy to fix, grow and accelerate our portfolio in the U.S.," the source said. "The new distribution arrangements will allow TWE to work with leading distribution part- ners in key markets to drive its portfolio more effectively, execute key consumer marketing plans, increase focus on premiumization and be more strongly aligned to address customer needs." The report also stated the route-to-market improvements will "better position TWE to deliver value from any future acquisitions in the U.S., and thus, implementing these structural changes prior to executing further M&A activity is a priority." New leadership TWE's new Americas president, Robert Foye, is coming from the company's Asian division, where Foye oversaw changes in distribution that included building a warehouse infrastruc- ture in China and dealing directly with some of the nation's largest retailers. Foye will be working with TWE CEO Mi- chael Clarke, who is planning to continue split- ting time between the company's offices in Melbourne, Australia, and Napa, Calif., through the rest of the year. The distribution changes come after TWE has enjoyed business success with growing sales of luxury wines such as Penfolds in Asia and a popular premium mass-market wine brand called 19 Thieves. According to the com- pany's report, the brand's sales volume grew by 131% in the United States. Helping the growth is a new augmented-reality label that is activated using consumers' smart phones. The company plans to continue to focus on premium and luxury winemaking with an ex- pected $13 million investment in oak, an $8 mil- lion investment in vineyard redevelopments and more than $7 million toward winemaking equip- ment and facilities. TWE, like the industry in gen- eral, is also pivoting away from lower priced wines (or "commercial," as TWE calls them) in light of flat sales aside from bag-in-box wines. TWE has reduced more than 1 million cases from such brands as Blossom Hill, Beringer Vine- yards' Main & Vine and BV Coastal in the United States and United Kingdom, and the company plans to reduce that by another 500,000 to 1 mil- lion cases in the coming year. In January, the company also announced it is moving 70 jobs from its offices in Napa to a new building in Oakland, Calif. Employees whose positions support direct-to-consumer sales and e-commerce will remain in Napa. —Andrew Adams TOP STORY Treasury Changing Distribution Network Treasury Wine Estates is investing in its premium labels in light of flat sales for value wines. NORTH AMERICAN TWE PROPERTIES Acacia Beaulieu Vineyard Beringer Chateau St. Jean Etude Greg Norman Estates Hewitt Vineyard Provenance Vineyards St. Clement Stags' Leap Sterling Vineyards Uppercut Velvet Crush Woodwork