Penfolds' new collection launch in Shanghai (Pic: TWE)

Penfolds' new collection launch in Shanghai (Pic: TWE)

Treasury Wine Estates has announced today that it will pivot towards other luxury markets to offset its loss in China and hints at opening a new production base in the country.

Treasury Wine Estates, owner of popular wine brand Penfolds, has announced today that it will pivot towards other luxury markets to offset its loss in China, following China’s devastating decision to slap up to 212% tariffs on Australian wine.

The company said today it will reallocate Penfolds Bin and Icon range from China – which represent 25% of TWE’s annual global Penfolds allocation volumes and approximately 39% of TWE’s annual global Penfolds allocation revenue – to other key luxury growth markets including Asian markets outside of China, Australia, the US, and Europe.

Meanwhile, in order to secure its remaining stakes in China, the company hinted at a possibility of opening up a Chinese production base to make wines from the local market, an idea that Penfolds has been reinforcing through its multi-region and multi-sourcing philosophy.

When detailing China market enhancement measures, the company says, “Acceleration of the multi-country of origin portfolio growth strategy, with a focus on growing sourcing for TWE’s portfolio from its existing asset base in France and
potentially from China.”

Treasury Wine Estates, owner of popular wine brand Penfolds, will divest from China.

The company has already ventured outside of Australia to make wines in the US and France, where it makes Maison de Grand Esprit and a Champagne with Thienot.

Details regarding the potential move to China are yet to be revealed. But if wines are made in China by TWE, it could bypass the Country of Origin export restriction placed on Australian wines.

“Decoupling” from China could be costly and damaging for TWE, as China remains its most profitable market which contributes one third of the group’s annual earnings.

In F20 China represented approximately two-thirds of the total Asia region earnings, or 30% of TWE’s Group earnings. TWE sells a premium portfolio in China, with luxury and masstige wine contributing 63% of volume and 91% of revenue in F20. Of the remaining portfolio, Rawson’s Retreat is the largest volume commercial brand sold by TWE in China.

The group’s CEO Tim Ford admitted the tariff decision by Ministry of Commerce will have adverse impacts across the wine industry, costing jobs and local economies.

“We are extremely disappointed to find our business, our partners’ businesses and the Australian wine industry in this position,” he comments.

“We will continue to engage with MOFCOM as the investigation proceeds to ensure our position is understood. We call for strong leadership from governments to find a pathway forward.”

“At the same time, we will continue to work with our customers and partners in China to demonstrate our long-term commitment to the growing number of Chinese consumers who enjoy our brands.”

China accounts for one third of TWE’s group earnings.

TWE is the biggest Australian wine exporter to China and was slapped with the highest tariff rate at 169.3% among all companies that participated in the investigation.

The provisional measures as the company says will remain in place till August 2021 pending on the full investigation result, as it expects demand in China will be “extremely limited.”

Other measures announced today to buffer the blow from China also include ramping up investment in other key export markets and reallocation of luxury grape sourcing to other premium Australian portfolio brands, including Wynns, Wolf Blass, Seppelt and Pepperjack.

The newly announced tariffs on Australian wines would be detrimental to Australian wine exports, which sold AU$1.2 billion worth of wines to China, by far its biggest export market.

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