Treasury Wine Estates (TWE) has provided a market update on its Penfolds business, price rises and its revised China strategy.

The update comes almost three months since the removal of tariffs on Australian wine imports into China and follows Chinese premier Li Qiang visiting Penfolds Magill Estate this week

TWE CEO Tim Ford told analysts at an investor update that it will take three years to rebuild the company’s business in China. While the Penfolds business is expected to grow about 15% in the 12 months ended June 30, the cost of restarting trade to China will cut into margins, which are expected to fall from 44.5% to 44% this year.

Penfolds EBITS are expected to be delivered in the range of $418-421 million in FY24, driven by strong top-line growth across all portfolio tiers and price points, with the weighting of Bin and Icon portfolio shipments to HY24 completed as planned,

Ford said Chinese consumers had reignited their passion for Penfolds great Australian luxury wines and there was a sense of renewed market momentum now that the China market had re-opened.  

“We are delighted to be bringing more of our Australian luxury wines back to China, at a time when the luxury wine market presents significant long-term growth opportunities for Penfolds and the wine category overall,” he said.

“By leveraging our unique Penfolds brand status to drive ongoing demand, we remain steadfast on our clear ambition to be the number one luxury wine brand in the market.”  

The company announced the delivery of a record 2024 vintage, which it said will support a significant step-up in the availability of Penfolds Bin and Icon wines from HY26. 

“The 2024 Australian vintage has delivered record intakes for key Bin and Icon portfolio wines as a result of a combination of factors, including our extensive grower network and TWE’s decisive measures taken to create the best opportunities to provide luxury grade fruit, which are clearly paying off,” Ford said.

“Since 2018, TWE has invested $100m in vineyard replanting and acquisitions to enhance long term production capacity, focusing on soil revitalization and vine redevelopment. Additionally, from 2018-2022 we invested $180 million in TWE’s Barossa winemaking and packaging facilities to ensure world-class supply chain capabilities to cater for increased luxury wine production and availability.

“This is an exciting time for TWE and the Penfolds business as we enter a post tariff era as a stronger and more diversified global business, with all the necessary elements at our disposal to  maximise the incredible long-term growth opportunities in China.”    

Penfolds MD Tom King added that Penfolds portfolio of globally sourced luxury wines continued to provide consumers from across China with access to wines from regions including Australia, America, France and, more recently, China. 

“The power of Penfolds to engage with consumers across four countries of origin is truly unique,” he said.

“Our most recent Penfolds China wine releases have provided excellent praise from wine critics and present an incredible opportunity to drive further connection and engagement with our consumers in China, and to become a global ambassador for Chinese luxury wine.  

“Similar to the roadmap we have followed in France, we continue to explore further winemaking opportunities in China, including investing in local sourcing and production opportunities to support future portfolio growth opportunities.”

Australian wine sales reboot in China

TWE welcomed Chinese premier Li Qiang to Penfolds Magill Estate this week following Australian wine exports hitting $86 million in value after trade sanctions lifted.

The majority of Australian wine exports to China have been from South Australia, with South Australian wine producers exporting almost $80 million of wine to China in the first month since duties were removed (92.1% of Australia’s total wine exports to China).

Trade Minister Don Farrell told Sky News: “In the last month, since the bans on wine were removed, we’ve sold $86 million worth of new wine into China. 350, predominantly South Australian wine makers, have now got their wonderful products back into the Chinese market.

“If that continues, then our wine trade with China will be back to where it was, which was over $1 billion.

“We’ve managed to get all these things without kowtowing to the Chinese government.”

Price rise for Penfolds

TWE confirmed it will lift prices on July 1 on its top-tier products – including Bin 128, Bin 389 and Bin 407 – by an average of 6% across all its markets including China.

The move was foreshadowed in April, when TWE told the Australian Financial Review that demand exceeded supply globally even before the reopening of the China market, which had been its largest overseas source of sales.

“With demand for the Penfolds Bin and Icon portfolio expected to exceed availability in the short term, [TWE] will also commence working with its global customer base to finalise price increases across the Bin and Icon portfolio,” it said.

The company said the standardised global pricing structure would “ensure long-term brand health and integrity”. Future price increases will also be considered as part of Penfolds long-term pricing roadmap.

Ford told analysts this week “we really don’t have enough wine to sell for the next couple of years’’.