Treasury Wine Estates (TWE) was hit with prohibitive duties of 177% on its Australian wine imports into China last year, but the company is determined to stay the course in one of the world’s most profitable markets.

The latest data from Wine Australia shows exports to China decreased by 24% in value to $2.27 billion and 17% in volume to 638 million litres in the year ended September 2021.

TWE CEO Tim Ford addressed the American Chamber of Commerce in Melbourne yesterday and said the effective closure of the China market to Australian wine, combined with the challenges of COVID-19, has presented a unique opportunity for TWE to “re-shape and build momentum” across its business.

“There’s been a lot of talk about the impact of the China tariffs, particularly on Penfolds given China was a priority growth market where our goal was to be the number one luxury wine brand,” Ford (above) said.

“The introduction of these tariffs saw the effective closure of the Chinese wine market to Australian wine – it was not only a significant event for TWE but also the Australian wine industry as a whole.

“At the time, everyone expected us to take China off our game plan, or take our bat and ball and go home. However, we were, and have been, very clear that we would remain committed to the China market for the long term. Our goal has remained unchanged.

“What we have done is adapted our plans and reshaped what the future looks like in this market – and it is still a very bright future,” he said.

TWE reallocated its Penfolds Bin and Icon ranges to grow demand in other markets and accelerated plans to serve the China market from other parts of its business.

Through the Penfolds global sourcing strategy, TWE has progressed with launches in China for the recent Penfolds California Collection and is responding to the demand for Rawson’s Retreat by producing it in South Africa. And from August next year, the Penfolds French collection will be available in the China market.

Strength in diversified sourcing model

Ford discussed the company’s investment in its portfolio of brands as well as its vineyards and production facilities, located in some of the world’s most acclaimed wine making regions.

He said diversified sourcing model was working well for the company. It includes an extensive grower network and vineyard and production assets in winemaking regions such as the Barossa, Napa, Marlborough, Bordeaux, and Tuscany, giving it the “ability to respond to manage vintage variation and changing customer and consumer preferences”.

TWE now has international portfolio of premium and luxury wines that are sold in more than 70 countries and produced from more than 12,700 hectares of vineyards around the world. It also has a 2600 strong global team, with many based in our key production, marketing, and distribution regions including Melbourne, Adelaide, Shanghai, Hong Kong, Singapore, California and, London.

“Penfolds is growing its presence in some of the finest winemaking regions in the world while maintaining the distinctive Penfolds ‘thumb print’, characterised by a house style and a quality standard that is never compromised.

“In March this year the Penfolds California Collection was unveiled – more than 20 years in the making,” he noted. “It received glowing reviews and has opened the door to grow the Penfolds Australia portfolio in the US also.

“More recently, we’ve purchased an additional winery and vineyards neighbouring our current site in Bordeaux. Our French winemaking capacity will grow by around a third to produce Merlot and Cabernet Sauvignon for the Penfolds Bin portfolio, with the majority planned for export.”

“And from August next year, Penfolds is combining its annual Australia, California, and French releases into one global collection launch, allowing it to leverage the portfolios in different markets and capture key selling periods.”

The challenges & opportunities of COVID-19

Ford said the company’s diversified business model had demonstrated its strength during the challenges of 2020 and 2021.

“Pre-pandemic, we were seeing good growth across on-premise, cellar doors, and travel retail,” he noted. “That all changed – and quickly.

“At one stage, all of these channels were closed or disrupted, globally. However, with the bad comes the good and with these key channels shut off, we saw new trends take off and we made the most of them.

“We saw a sharp increase in wine e-commerce and digital engagement driven by in-home consumption and consumers prioritising speed and convenience. The pandemic fundamentally changed the way people purchase wine. And, we’re seeing the US lead the way. According to the International Wine and Spirits Record, the US is forecast to become the world’s largest alcohol e-commerce market by the end of this year.

“Pre-pandemic, online wine sales only accounted for 2% of the overall wine sales in the US. Fast forward to the ‘stay-at-home’ orders and online wine purchases boomed – there was a 167% increase in online alcohol sales in the US in 2020, according to
Nielsen.

“We’ve been steadily growing our e-commerce channels, and these are now being prioritised for what is clearly a long-term trend.

“Our team went from hosting hundreds of wine events around the world each year to delivering these virtually – and with that we’ve been able to reach a far greater audience. There’s still a place for in-person events but we now have the capabilities for both physical and virtual.”

TWE reveals its ambitious US plans