The sobering reality of business in Britain

Posted on 1 Mar 2010 by The Manufacturer

It has made a massive commitment to bottling wine and beer in the UK, but US wine bottling group Constellation is finding it a taxing time. Mark Young talks to the company’s President of Europe and Australia, Troy Christensen, to find out why.

In November 2008, Constellation Europe opened its brand new 850,000 sq ft bottling plant and warehouse in Avonmouth, Bristol. Given the moniker Constellation Park, the site, which can house 57 million bottles of wine, is a structural symbol of an investment totalling over £100m that the global company has made on British shores.

So eighteen months on, with their feet firmly under the table at the new site, there should now be a glowing and great success story to raise a glass to. “Believe me,” says Troy Christensen, President of Constellation Europe and Australia, “had we known it was going to be like this we would never have invested in the UK.”

Not quite then. So why is the champagne staying on ice? It’s not that the new site is failing; Constellation Park has enabled the company to introduce a raft of cost saving and efficiency measures such as significantly reducing shipping miles, the use of light weight glass, the addition of a fourth shift and the additional capacity to 15 million cases of wine per year, almost all of which is now being utilised.

The problem is one which the leaders of Diageo, Unilever and Reckitt Benckiser have all referred to in the press in recent weeks. “We’ve communicated quite clearly to Westminster and the Treasury that their punitive tax systems are making it very difficult to succeed,” says Christensen. “It’s unbelievable the amount of taxes that have been bought in against wine in the last three years. These staggering increases are an exponential factor in the profit I can make. You can never get ahead.

For a four pound bottle of wine, two pounds of that is tax and when government is increasing tax up to 14p in a year, we can’t reduce that much cost.

It’s not fair. We’re battling so hard just to keep our heads above the water, but unfortunately despite all our efforts we don’t actually see the savings on our margins because government picks them up and puts them in their pocket.” Now, he says, it would be very difficult to convince Constellation’s global headquarters to invest any more money in the UK, regardless of projected return on invested capital. “They’d just be worried about what was going to come next out of Westminster,” he says. “The tax code for us has no transparency or consistency. We get surprise increases against what we’ve been told before and you can’t do business like that. We’ve moved the manufacturing business here for cost savings which also reduce our carbon footprint. We’re doing all the right things and we should be benefiting, but at the end of the day it really doesn’t matter because the tax increases overcome any cost savings we can make.” Christensen’s words should act as a stark warning to Alistair Darling, and George Osborne.

Constellation will sleep in the bed it has made – for now at least – having made its big investment. But should the tax regime not be changed to make it worthwhile for big companies to operate here, the UK may find repeats of Constellation’s decision are rare.

Now that the company has set up camp though, Christensen will attempt to overcome the odds and make the move a profitable one for Constellation. He will focus on ‘total supply chain’ to drive up quality, brand value and customer empathy, rather than just trying to compete on cost.

“We’re going to re-engage with our customers, find out what they want and then tell the major retailers what they need on their shelves. It’s about trying to work with our suppliers to make it beneficial for both of us instead of just beating each other backward and forward on price. And we’ll also be continuing to improve efficiencies in bottling so that we can eke out a couple more million cases. The culture in England right now seems to be focussed on taking cost out all the time, and this is being driven by the massive power the major retailers have. But we’ll listen to what consumers want and will invest in innovation so that we’re able to dictate to the market on a much more product centred base. If you just concentrate on taking out margins, you’ll soon find you haven’t got any margins left.

“I think soon people are going to get a bit more experimental with their consumer dollars and we’ve got a couple of propositions which are going to entice them.” What has become Constellation Brands started in 1948 as a team of eight people distributing barrelled wine from the US to Europe. It now produces, sells and distributes over 100 brands of wines, beers and spirits in more than 150 countries, employs over 6,000 people around the world, operates over 50 wineries and has sales approaching $4bn dollars globally.

Christensen first joined the company 14 years ago with its California wine business, having begun his professional career as a recovering accountant for Ernst & Young, and then moved through a series of finance positions at FMCG food manufacturers.

He swapped coasts and returned to his native city of Chicago to work for Constellation’s beer division, where became CFO of beer and spirits. Three years ago he moved to the UK to be CFO but quickly found himself president of the firm’s UK operations.

Then, just six months ago his duties were expanded to include all of the company’s Australian operations, as well as the UK and distribution in Australia too.

Christensen is a fan of manufacturing, but his numbers background has been the biggest contributor to his success in the industry, he says.

“As an accountant you sit there day to day being the score keeper, and that always gets boring.

But working with a bunch of people that save the company a million dollars through new innovation or improving customer service to drive more business – that’s the fun stuff. One of the important things if you want to get on is to find a way to show results.

I was attracted to manufacturing and management accounting because of the ability to work with people and help them show observable results which benefit the business. I guess that’s one of the things that I’ve been lucky enough or successful enough to do – to demonstrate how finance geeks can work with other people to get a much bigger result for the business.

“You’ve got people selling stuff and people making stuff. If you can figure out how to help those two things, things will work out for you.”

Simple as that?
Well perhaps not, but while you feel that he is simplifying the role of leading a multinational wine producer across two continents, there are certainly elements of common sense in the way Christensen goes about his business. He says that, particularly in manufacturer, a good leader needs a talent for going out and talking to the people within the business.

As long as they are committed to the success of the business, it is each individual who knows best what they need to make their lives easier or their work more productive. “It’s not just about sitting in the ivory tower pushing things down; it’s about building an understanding from the people about what they need to be successful. Because nobody knows better than they do. My job is then figuring out how to bring those things into the strategy. You’ve got to listen to everyone from the ivory tower to the third shift because there’s valuable input throughout the organisation.

“You have to get people fired up and focussed on what they need to do. We’ve built a real culture in our manufacturing base of performance and camaraderie. We give people the information and the tools, rather than just instruction, which makes them feel empowered. Everyone understands what they need to.” While he doesn’t claim “cork dork” status, Christensen does have a favourite tipple. Perhaps unsurprisingly, it is one of Constellation’s brands; the Robert Mondavi Pinot Noir from Napa, California. “We bought the brand a few years ago and I was down there sorting out the details. I was lucky enough to have a glass with the man himself and I’ve never looked back.” When he gets a rare day off Troy likes to fish.

Unfortunately, however, his opinion of the UK’s facilities to accommodate his favourite past time is barely better than the way he feels about the tax regime. “I hear you’ve got some good lakes which I should check out, but I’m used to fishing for big old bass in the Mid West. Sitting by the edge of a canal fishing for carp just doesn’t seem the same to me!” Christensen’s message to Whitehall is one he says he’s told them countless times before: “If tax and red tape were cut the UK would be a prime opportunity for dramatic growth because there are good minds, good entrepreneurial people, people that can drive it forward. But bureaucracy – though well intentioned – is making it hard for UK companies to compete and is stifling growth.

“And get some better fish.”