The biggest players in beverage alcohol are not sitting still. Faced with the same margin pressure squeezing everyone, two of the industry's giants are responding in opposite directions, one by cutting back to its highest-value brands, the other by pushing a so brand into a new format. This week we look at both: Treasury's portfolio simplification and the very real difficulty of pulling it off, and Hennessy's entry into ready-to-serve cocktails.

What’s on tap for today:

• 🥇 Deep Dive - Treasury's Transformation: Compelling on Paper, Hard to Execute

• 📰 Thirsty Insights in the News - Business of Drinks Podcast + BevNet NYC

• 🆕 New Launch - Hennessy Very Special Cocktails

• ♨️ Hot Jobs - Apply Today

🥇 TREASURY'S TRANSFORMATION: COMPELLING ON PAPER, BRUTAL TO EXECUTE

Late last week came word of a new portfolio strategy at Treasury Wine Estates. Essentially, they are focusing on fewer brands - leaning into “Power Brands” and “Regional Focus”, and reducing focus on everything else through a mixture of divestitures, reducing resources, or discontinuing.

On paper, the strategy makes sense. Focus the portfolio on the brands that actually drive value, strip out the cost of carrying everything else, and the margin math improves. The slides look great.

With so many numbers flying around, we simplified the math to show the big picture and how it's meant to work👇️

A few thoughts on why this is extremely hard to execute in reality:

Scale matters more than Excel shows. Here's a theoretical example, but it's the kind of thing that actually happens. Today, because of portfolio scale, Treasury commands, say, 50 distributor salespeople in a given state to sell what Treasury wants sold. Maybe 45 go to Daou, Penfolds, and Matua, and 5 cover everything else. In the new, leaner world, reduced scale buys you fewer reps, say 40, and now all 40 go to the priority brands. Better focus, sure. But that's 5 fewer people focusing on what you wanted to focus on in the first place.

Trapped overhead is almost unavoidable. The model looks clean on the slide. Hitting those margin and SG&A targets in the real world is brutally difficult. Overhead doesn't shed in neat proportion to the brands you cut. If SG&A starts to creep up and volume losses erode gross margin, the strategy falls apart. Well executed you get a few hundreds bps of EBITDA expansion, pretty well executed gets you nothing.

Tail brands often plummet. Brands that don't fit neatly into either "Power Brands" or "Regional Focus" are at high risk, no rep will risk their number keeping a brand on shelf that might get cut anyway. So clear communication and an aggressive timeline matter: it's hard to sell a brand in rapid decline, especially when the decline is self-imposed and not driven by the consumer.

Culture impact can be a killer. The strategy can work, but executing it is painful. Can you convince yourself, in real time, that you're cutting fat and not bone or muscle? Every transformation looks like discipline until the cuts start hitting the people and capabilities that were actually working.

THE FINAL WORD
The strategy is compelling, but it's going to be very difficult to execute. Treasury has been dealing with this for years and knows what they're doing, there are some insanely talented people there. But these transformations challenge even the best operators. We'll be watching closely.

The worst outcome: you go through all this pain and end up a smaller company with the same growth and profitability you started with.

📰 THIRSTY INSIGHTS IN THE NEWS THIS WEEK

Last Wednesday I joined the Business of Drinks podcast for a mid-year M&A update. I've been a fan of the show for a long time, so it was a real honor to be included. If you haven't checked it out, give the episode a listen here:

This week (June 10–11) I'll be at BevNet in NYC. If you're headed there, send me an email and we'll try to grab a beverage together.

🆕 NEW LAUNCH: HENNESSY VERY SPECIAL COCKTAILS

The big guys are not going down without a fight. Fresh off a wave of new RTD and RTS launches from the large multinational suppliers comes Hennessy Very Special Cocktails.
The three launch flavors:

• Henny-Rita (18% ABV): A refreshing and vibrant twist on a timeless favorite. Henny-Rita blends bright natural lime flavor inspired by the margarita with the round citrus and toasted notes of Hennessy Very Special.
  

• Henny Berry (20% ABV): A fresh, mojito-inspired cocktail bursting with the brightness of natural blackcurrants and blackberries, with a twist of lime and mint balanced by the smooth spice notes of Hennessy Very Special.
  

• Henny Iced Tea (18% ABV): A laid-back refresher combining crisp black tea with delicate orange and lemon flavors, complemented by the soft vanilla and spice character of Hennessy Very Special.

Check it out below…

Why this matters

Premium RTS is a tough category. Trial is hard because the price point is naturally higher because of better ingredients, higher alcohol, and higher taxes, so these brands typically carry much greater funding needs than something like a 4.5% ABV RTD.

But over the past few months we've seen a steady stream of interesting smaller-size RTS concepts, and we think the consumer is starting to shift. People recognize quality, and some are looking to trade up. The smaller size is a big unlock: it lets the supplier hit a consumer takeaway price point that makes trading up feel lower-risk.

When a brand with Hennessy's equity and distribution muscle enters the format, it pulls the whole category forward fast. Watch whether the smaller independents can ride that halo, and whether people you know start bringing smaller cans and bottles to your summer get-togethers.

THIS WEEK’S HOT JOBS IN BEVERAGES

These roles came to us via ThirstyTalent.ai. Want your open role featured? Email: [email protected] 👇️ 

• Senior Director Brand Marketing - Beam - New York, NY

• Director Innovation Insights - Constellation - Chicago, IL

• Director of Sales - Olipop - Remote

• Director eRetail - Olipop - Remote

• Brand Manager - Copper & Kings - Louisville, KY

• Senior Manager, Brand Insights & Strategy - Pernod Ricard - New York, NY

• Brand Manager - Heineken - New York, NY

• Sr. Director Category Strategy - Pepsi - Purchase, NY

THANKS FOR READING

The Quench Report is a free weekly newsletter from Thirsty Insights, a beverage alcohol consulting company that serves top clients in data, strategy, insights, and analytics.

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