TWE is boosting its supplies of Penfolds wine in anticipation of the Chinese market rebooting in the next six to 12 months.

CEO Tim Ford told analysts during the company’s FY23 results presentation that TWE would delay decisions about country allocations of its annual vintage of Penfolds for a few months because it was “prudent to give ourselves some flexibility”.

“We are planning to sell more Penfolds in the second half versus the first half of fiscal 2024, and we’re doing that strategically to give us the flexibility of a potential change to the (wine) tariffs in China,” he said.

“And the barley announcement two weeks ago was a very positive step forward. Now if that doesn’t occur, then we can re-evaluate our shipment plans, but we are doing that just to give ourselves the optionality should things continue to improve the Australia-China relationship.”

Penfolds drives growth

Demand for luxury wine drive growth for Treasury Wine Estates in FY23, with earnings up by 11.4% to $583.5 million.

Penfolds reported a 14.2% increase in EBITS to $364.7million and an EBITS margin of 44.5% (in line with F22). Strong,
NSR growth of 14.3% was delivered through Asia, Australia and EMEA, reflecting the continued momentum behind
the Penfolds strategy to build distribution and grow consumer demand. In addition, the successful launch of One by
Penfolds and growth of the multi-country-of-orgin portfolios contributed to NSR growth, particularly in Asia.

Ford said: “The Penfolds result was the standout, with strong top-line luxury growth reflecting the unparalleled strength of this exceptional brand and outstanding execution by the team.

“Treasury Americas Luxury portfolio execution was a highlight, with price increases and growth in distribution achieved despite significant volume availability constraints, setting a strong platform for future growth.

Protecting Australian retail relationships

While Ford was eager to get more Penfolds wine into the Chinese market, he said he was mindful of upsetting local retailers by cutting back on stock after gaining positive momentum in Australia.

TWE’s listings in retail stores and restaurants for Penfolds in Australia increased by 7% over the past year. 

We’re not going to short markets, so to speak,” he said. “We’ll just monitor where we allocate over the next four to five months. If China reopens, demand will be above supply.”

Penfolds Managing Director Tom King said he was particularly buoyed by the progress that had been made in Australia with the brand.

“We knew this was a market that was going to take a bit of time, we had some work to do to win back some hearts and minds with the trade and with consumers and put the right resourcing and investment in place,” he said.

“And what we’re seeing now is some really strong activity that’s driving awareness and consideration at a consumer level, and bringing new younger consumers into the category for the first time with some of our activation that we’re doing, and some really positive changes in our distribution. And whilst 7% growth might seem small, it’s on a significant base across the Australian market.”

Tougher period for Treasury Premium Brands

Treasury Premium Brands reported a 5.4% decline in EBITS to $81.7million and an EBITS margin of 10.4% (in line with F22). Reduced NSR for the Commercial portfolio in the UK and Australia in addition to unfavourable foreign exchange movements were partly offset by 7.8% NSR growth for priority Premium brands, including 19 Crimes, Squealing Pig and Pepperjack.

“Treasury Premium Brands made significant headway towards its new operating model, right-sizing the cost base for the future while enhancing both operational and strategic flexibility, and we will continue to assess additional optimisation initiatives,” Ford said.

TWE said its long-term financial objective remains to deliver sustainable top-line growth, high single-digit average earnings
growth2 and a Group EBITS margin target of 25%+.

Supporting this objective will be continued portfolio premiumisation, growth in distribution, demand and availability for TWE’s priority brands, cost optimisation and consumer-led innovation.

Ford said: “We enter F24 with confidence that the execution of our premiumisation strategy will continue to deliver our long-term growth ambitions through the cycle. We are a much stronger business today and are well placed to succeed in the
current macro-environment where consumer demand for Luxury wine is strong and Premium wine remains resilient.”

The company also announced that its chairman Paul Rayner will retire at the next annual general meeting in October. He will be replaced by outgoing Telstra chairman and current Treasury Wine Estates non-executive director John Mullen.

Rabobank predicts tough two years ahead

RaboResearch associate analyst Pia Piggott, the author of the Rabobank Wine Quarterly Q3 2023 report, has predicted two tough years ahead for Australian wine producers as they struggle with the huge surplus of wine.

She said even the early removal in the Chinese market of anti-dumping tariffs would not be enough to prevent Australia’s wine industry facing several years of oversupply.

Australia drowning in huge wine glut