Treasury Wine Estates (TWE) has outlined plans to focus on luxury wine, cut more than 40 brands from its portfolio and review its Americas business.
The company said the move would reshape its portfolio around evolving consumer and customer needs, with increased investment behind its strongest long-term growth opportunities.
The plans were announced at its annual Investor Day, with TWE shares surging 13% to $4.66 following the news.
TWE Chief Executive Officer Sam Fischer said: “We have some of the world’s most recognised wine brands, outstanding vineyards and winemaking assets, deep expertise from grape to glass, and strong customer relationships across global markets.
“Wine continues to play an important role in consumers’ lives, but consumer preferences and market dynamics are changing.
“The future belongs to wine businesses that are more focused, agile and closely aligned to where consumers and customers are heading.”
Backing the growth areas shaping the future of wine, TWE said it will focus on 10 key brands.
“Premiumisation remains a powerful long-term trend, with consumers increasingly choosing to drink less but better,” Fischer said.
“At the same time, we’re also seeing strong growth in lighter styles, more relaxed social occasions and moderation trends, particularly among younger consumers.
“We’re reshaping Treasury Wine Estates to where we see the strongest long-term demand and growth opportunities in luxury red, luxury white, and more contemporary wine experiences.”
TWE will transition to a more focused portfolio centred on ‘Power Brands’ and ‘Regional Heroes’. The ‘Power Brands’ – Penfolds, DAOU and Matua – will receive increased investment and support to accelerate growth across multiple markets from FY28.
These will be complemented by ‘Regional Heroes’ including Frank Family Vineyards, Beaulieu Vineyard, Stags’ Leap Winery, Wynns, Squealing Pig, Pepperjack, and Coldstream Hills which will continue to play an important role in key local markets.
TWE said it expects these 10 brands to contribute around 90% of group net sales revenue within five years.
Plans to axe 42 brands
Over time, TWE said it expects its portfolio to reduce from 76 brands to less than 30, allowing it to concentrate investment behind the brands with the strongest long-term growth opportunities and consumer relevance.
“Penfolds continues to define modern luxury wine globally, DAOU has reshaped luxury Cabernet for a new generation of consumers, and Matua continues to lead refreshment-led wine occasions through strong cultural relevance and innovation,” Fischer said.
“This sharper focus allows us to invest more behind the brands, innovation and consumer experiences that will be the engine of TWE’s future growth.”
TWE tried to sell some of its brands, including Wolf Blass and Lindeman’s about 18 months ago, without success. Endeavour Group also flagged last week that last week that it planned to offload brands.
Allan Gray chief investment officer Simon Mawhinney expressed concern about selling wine assets in a depressed market.
“Exiting all non-core winery assets makes sense, but at what price? You don’t have to look too far at Australian Vintage and Treasury Wine Estates – the wine market is dreadful at the moment so unfortunately it is not the time to be selling wine assets,” he said.
TWE also said it would continue work underway to simplify its operating footprint – primarily across its production regions in the US and Australia. This includes the potential divestment, retirement, or optimisation of selected assets – primarily in California and Australia – to improve operational efficiency, and ensure the business is better aligned to future consumer demand.
Fischer declined to discuss which brands would be axed, but confirmed there could be some job losses and roles affected by the transition.
Review of Americas business
TWE announced it has also commenced a strategic and operational review of its Americas business. It plans to divest and exit leases in the Napa Valley, Sonoma and California’s central coast over the next four years.
Production of the Frank Family Vineyard and Stags’ Leap brands will be consolidated into TWE’s St Helena Winery, which will will become its main U.S. luxury production hub.
While the company said it continues to see attractive long-term opportunities in the region, elevated inventory levels
and excess supply chain capacity are challenging overall operating performance.
In recent years, analysts have been urging TWE to exit the US completely, citing it as a drag on the company.
Pitcher Partners chief investment officer Cameron Curko said strategic reviews “tend to herald partial or complete exits from a particular division and should help rationalise what has become too big a business”.
“Our first thoughts of the investor day presentation are positive as … the company is undertaking a strategic review into the US – something that will be music to the ears of many shareholders,” Citi analyst Sam Teeger said.
Opinion piece tears into TWE
Sydney Morning Herald business columnist Elizabeth Knight said the winemaker is “staggering from one misstep to the next”.
“The history of stuff-ups, miscalculations and underachievement at Penfolds owner Treasury Wine Estates could fill a book. Its capacity to disappoint is legendary,” Knight said.
“History and probability don’t favour the success of the latest plan to simplify Treasury Wine’s portfolio from 76 brands to 30 and potentially sell some or all of its US wineries. But the sharemarket certainly bought it.
“However, last year’s unsuccessful attempts by [Fischer’s] predecessor Tim Ford to address that shift by selling the company’s supermarket Wolf Blass, Lindeman’s, Yellowglen and Blossom Hill brands provided evidence that execution of this strategy could be difficult, and costly.”