Treasury Wines to focus on the Luxury wine market in China and the US

About Treasury Wine Estates Limited

Treasury Wine Estates Limited (ASX: TWE or Treasury Wines) is a global winemaking and distribution business selling wines in 70 countries under luxury and premium quality brands such as Penfolds, Wolf Blass, Pepperjack, Beringer and Lindemans. TWE was formerly the wine division of Fosters Group before its demerger from Fosters in May 2011.

Chinese Luxury wine brand market is a long-term growth opportunity

Removal of China’s tariffs on Australian wine exports as of March has cleared the way for Penfolds to become the number one Luxury wine brand in China over the long-term. This is TWE’s stated strategy in a fragmented Luxury brand market where the top 10 wine brands in the Luxury wine category account for only 30 percent of the market. China currently ranks fifth globally for Luxury wine sales and by 2030 is expected to account for 25 percent of the world’s Luxury goods consumption. TWE’s Luxury brand price point is $30 plus.

Wine shipments to China re-commenced from the end of March with seamless and efficient customs clearance processes and strong demand from Chinese distribution partners.  TWE has maintained in place an experienced and high performing local team supported with ground sales and marketing resources with clear territory and channel accountability, backed up by data decision-making.  TWE appear confident in their ability to re-establish the Penfolds brand in China and at a higher price point.

Global price increases effective from 1 July 2024

Despite a challenging macroeconomic environment, Luxury brand wine sales are growing in the US and China, while lower priced wine volumes decline. Penfolds has a track record of raising prices for its Luxury brand product without affecting sales volumes. TWE’s two Luxury brands are Penfolds and Treasury Americas, which is an emerging player in the US wine market. The Penfolds Luxury brand division accounts for 56 percent of earnings and Treasury Americas accounts for 31 percent of earnings. This leaves the Treasury Premium Brands division with the remaining 13 percent of earnings. TWE have indicated that an update on the future operating model for Treasury Premium Brands will be provided in August. This implies a restructure or divestment of this division as TWE focuses on its high-end wine product.

Looking Ahead

Overall consumer demand for Luxury wine has proved resilient across all markets globally despite macroeconomic headwinds. Removal of import tariffs on Chinese wine imports in a large and growing consumer market, and confidence about lifting prices without impacting volumes points to improved earnings in the 2025 and 2026 financial years.

TWE has foreshadowed top-line revenue growth driven by Penfolds price increases and margin improvement in the coming two financial years from 42 percent to 43 to 45 percent. This should support consistently positive shareholder returns in the period ahead, irrespective of global macroeconomic conditions.