Case Study: Tohu Wines Limited
Introduction
In 1998, a novel idea was made reality when the first Māori wine company, Tohu Wines Limited, was established. Tohu Wines, which also produced its first vintage in 1998, was originally conceived as a vehicle to export Māori culture to the world by placing it on the tables of the world's finest restaurants.
What first began as a dream now ranks as one of the fastest growing wine companies in New Zealand, a feat worthy of respect in one of the most competitive markets in the world. There are approximately 400 wineries in New Zealand. Tohu is in the top 30 after only five years. Within two years it intends to be within the top 10, if not the top 5.
Tohu's Chief Executive, James Wheeler, has been with the company since it was established and has guided it from humble beginnings to its present position. Prior to taking up his role as Chief Executive, James spent 25 years in the New Zealand Army and South Pacific Tyres NZ Ltd.
Structure
Tohu Wines is a limited liability company owned by three Māori-owned organisations, the Ngāti Rarua Atiawa Iwi Trust (Motueka), Wakatu Incorporation (Nelson-Marlborough) and the Wi Pere Trust (based in Gisborne). Tohu is governed by a board of six directors, the membership of which is drawn from the three shareholding entities. All of the three shareholding organisations are successful in their own right and own various other ventures in addition to Tohu Wines. All of Tohu Wines' directors are experienced business people who are well aware of the differences between governance and management and the respective roles and responsibilities of each within the Tohu structure.
All roles are well delineated. Most of the directors of Tohu hold responsibilities within other organisations and recognise they must be aware of which hat they are wearing at all times. Tohu Wines employs three full time staff in its Lower Hutt office and presently has the equivalent of 25 full time staff positions. The organisational structure of Tohu is constantly evolving in response to the market and opportunities that are presented to them.
The original target market for Tohu was the Eastern seaboard of the United States. This remains the main target market to this day. However, opportunities in other parts of the world have seen Tohu develop additional arms.
On a trip to find an importer in the United States, James had a stopover in London. Whilst there he met an importer enthusiastic about Tohu's product and saw a market for it in Europe. As a result of this chance meeting, Tohu established its own importing company, Tohu Wines Europe Ltd, a wholly-owned subsidiary of Tohu Wines Limited.
Tohu's structure evolved further when it purchased a 19% stake in an American company called Davies and Co Inc. Davies and Co Inc specialises in importing New Zealand and Australian wines. Ownership in this company ensures Tohu has secured an importing structure within the lucrative United States market.
Organisational Structure
Although the United States continues to be the primary market for Tohu wines, the flexibility of the Tohu strategy means the company now exports to Canada, the United Kingdom, Ireland, Denmark, Germany, Holland, and Belgium. Asia is also a developing market.
Core Purpose
James puts the success of Tohu down to its personnel and the company's insistence upon producing and promoting only the highest quality wines. When Tohu was first established, the Board made a conscious decision to target the high end of the wine market.
The original intention of Tohu was to export Māori culture. Wine was seen as an excellent vehicle to do this with. The original idea behind Tohu was to put Māori culture on to the labels and export this around the world. Additionally, the Marlborough region is recognised as one of the best wine producing areas in the world.
The company has three main goals, the most important of which is to make money. The Board recognises that this must come first in order to maintain and grow the business. The second goal of Tohu is to export Māori culture throughout the world by achieving its third goal of producing excellent quality wines with a unique point of difference. It is the only Māori wine company exporting in the world.
As an export focused company, the main restrictions on Tohu's growth are external market driven forces. In the year 2000 the exchange rate was on the side of exporters, however, this has changed. Additionally, recent significant world events, such as the Iraq war, have had an impact upon the market, resulting in restricted sales. The current period represents a sales slump for everyone and most exporters are experiencing a difficult time in the market.
A combination of events such as the 2003 SARS outbreak, terrorist activity around the world and a high New Zealand dollar mean it is not an exporter's market. James explained that exporters must be aware of these issues as they cause people to pull in slightly and become more wary. He noted this is a business reality which will hopefully go away; however, it does demonstrate that like all exporters, Tohu Wines is at the mercy of the market.
The wine industry is one of the most competitive in the world and this means that developing good relationships with importers, distributors, retailers, chefs, restaurateurs, and sommeliers is essential. As James puts it, "The wine game is all about relationships" because "there is a tonne of wine made in this world and a good relationship can mean good sales."
Governance Board
As stated earlier, the board of Tohu Wines consists of six members. James believes that the current size of the board works well but stresses that the skills board members bring are more important than its size. Tohu believes that its board must include different skill sets with core competencies of accountancy and banking, entrepreneurialism and risk taking, and marketing.
Tohu's board members are appointed by the shareholding organisations. All board members are practitioners of good governance who act in the best interests of the shareholders. They are aware at all times of Tohu's governance requirements. In addition to this they necessarily bring an understanding of the issues of the three shareholding companies. James explained that Tohu recognises it must operate within the tikanga structure that the shareholders require.
Tohu has found it easy to find the necessary skills it requires as they are found within the boards of the shareholding companies. James notes that Tohu has the benefit of accessing the experience of some of the best Māori business entities in the country. The respective skill and expertise of the shareholding companies' boards are now reflected in the Tohu board.
Tohu insists upon good governance and management and this is demonstrated by the fact that all Tohu Board members must go through the Institute of Directors Governance Course. James explained this course is required reading for all board members. This requirement was instituted by the Wakatu Incorporation.
Each of Tohu's owners put out their own pānui informing their respective owners of developments within each organisation, and Tohu prepares its own pānui on activities to accompany these. The owners of the three shareholding companies are not directly involved in Tohu Wines decision-making as it is a limited liability company. However, they are involved as much as they can be through communications media.
The performance of the Tohu board is measured at board meetings in terms of financial and management issues that come through for governance level decisions. Management performance is based on key performance indicators such as sales and budget control. Performance is continually gauged through periodic reviews.
James said that he expects a director to practice the right governance and tikanga principles. Directors must always act in the knowledge that they are doing it for the owners. James explained that his grandmother was a founding member of the Wakatu Incorporation and therefore he is constantly mindful of the fact that he is working for his grandmother and the vision she had. As James stated, "If we continually keep that in mind we can't go wrong."
Tohu's directors employ rigorous and tight processes. The board meets once a month when it is appraised of the market and financial statements and matters arising. At these meetings the board directs management in terms of important issues and it is management's responsibility to get them done. This process is very effective and the board has an ongoing involvement in business.
Should any conflict arise between the board and management, it is the chairman's role to resolve it. James is clear that management report to the board and management must do what it is told. Tohu Wines is a professional organisation and the issue (conflict) has never arisen. However, there are systems in place to manage any conflict. The board runs the company through the management team.
Business Environment
The wine industry is an extremely competitive market with many brands on the market reflecting various levels of quality. When the idea to form Tohu was first developed in the mid-1990s, New Zealand was experiencing a different economic situation. As James explains, the wine business is not a get rich quick scheme. To be successful wine companies need the right land, planted with the right grape varieties and cared for properly by applying the best viticulture techniques.
Wine is a medium to long term risk. A thorough financial assessment was undertaken before Tohu was established in order that all the owners had a full appreciation of what they were undertaking. The business began with the understanding that it would not make a profit for the first six years. Despite this, Tohu Wines made a small profit after four years.
As has already been stated, competition within the wine industry is fierce. James says that New Zealand sauvignon blanc is regarded as being amongst the best of the world. In addition to this, Marlborough produces the best sauvignon blanc in New Zealand. He explains that Tohu Wines has the ability to be at the forefront of New Zealand wines and be up there with the best.
Tohu constantly benchmarks itself by comparing and rating its performance against other wine companies. The real competition is getting the product in the forefront of the salespeople and James noted that Tohu needs to strategise on how to improve this aspect of the business. Tohu believes its point of difference is a key to achieving this.
The board constantly examines the financial risk and looks for better ways of increasing profit margins and economies of scale. However, this can be difficult because prices are increasing all the time. It is always a battle to keep economies. In addition to this, a certain amount of bureaucratic "red tape" confronts the company. However, as James noted, "It doesn't matter how much red tape there is, you've just got to get out and do the business. We rely on our entrepreneurial skills. Sales will counter everything."
Tohu acknowledges that its strategy is constantly evolving. As James put it, "a strategy is something you write down and then constantly change - Tohu must constantly look at changes to the strategy to reflect the real world." Tohu's management use hard data to give as accurate a picture of their market reality in order to deal with it appropriately.
Possible Changes
Tohu's directors and management are constantly examining better ways of doing things. As has already been noted, Tohu constantly changes strategy as new things arise. Tohu is constantly evolving its strategy process trying to figure out how to "hit the target" and to put its product on top of the mountain of wine in the world.
Externally, he notes that a new Wine Bill currently before Parliament will create more bureaucratic red tape for the company which they could do without. This Bill will require companies to advertise the amount of standard drinks on the back of the bottle. This creates compliance costs and, in James's opinion, is "red tape nonsense".
Additionally, he notes that most of Tohu Wines' competition enjoys some type of export incentive scheme, while New Zealand has nothing. He believes this is an area which should be addressed as New Zealand is a trading nation and "without trade we would die."
James believes government needs to create export incentives, lessen the amount of red tape confronting exporters and somehow foster more Māori involvement in tourism. He believes this would help business and be easy to achieve. He believes Māori must become involved in tourism at the highest levels in order to effectively promote New Zealand tourism and export related activities. As James puts it, "It could only do wonders for New Zealand. If exports fail, New Zealand fails because the Government has sold everything. There is nothing left but our ability."
Māori Organisational Characteristics
James believes making money is the key to being a successful Māori organisation. However, this must be tied to the principles of tikanga. "If we just did those two things we'd be right - everything else would follow on."
He notes that the ability to offer employment to their people would make Tohu Wines more successful. The company has plans to leverage off tourism to raise the profile of Tohu Wines around the world. Exporting is a key to achieving this.
Tohu Wines is a good example of a successful Māori organisation succeeding in an extremely competitive international market by utilising a formula of excellent business sense and skill, adherence to tikanga and a single-minded desire to succeed.
Page last updated: Thu, 12 May 2005