TWE could remove all cheaper brands from portfolio by end of year

Tim Ford, chief executive at Treasury Wine Estates (TWE), has provided the Australian Financial Review (AFR) with further insight into ongoing discussions concerning the option of either selling or de-merging its less expensive wine brands. 

The move, which was first raised as a possibility in the Group's February interim results, would result in an increased focus on TWE's premium wines business and Penfolds label. Should it go down this path, TWE will likely have a much heavier reliance on wines priced above $30 per bottle.

“It could be anywhere between 90% to 100%,” said Ford to the AFR. 

Currently, about 75% of company profits are attributed to Penfolds and Treasury Americas. The move currently under consideration would further increase this focus, and is reportedly being motivated by trends in the global wine market moving away from sub $15 price points. 

“That’s where the consumer is going, that’s where the market is going,” said Ford. 

The brands that TWE is considering selling or de-merging into a separate entity are those that currently form part of the group’s Treasury Premium Brands portfolio and include Wynns, Pepperjack, Lindemans, Seppelt, Rawson’s Retreat, Squealing Pig and Wolf Blass. Also included in discussions are other mid or lower-priced labels such as Sterling Vineyards, 19 Crimes, Matua, St Hubert’s and Castello di Gabbiano.

Tim Ford told the AFR that a decision about whether TWE would de-merge or sell off its cheaper brands would be made over coming months, with the decided actions likely to be put into place by December.

The news has occurred just a week after TWE revealed its plans to increase the prices of the top tiers of its Penfolds range due to current demand exceeding supply. The news, which will likely see prices increase by 5-7%, followed closely behind the China’s Ministry of Commerce (MOFCOM) announcement on 28 March concerning the immediate removal of China’s tariffs on Australian wine imports. 

Despite the lifting of tariffs, TWE indicated in its February FY24 interim results that it is only anticipating small earnings contributions from its China sales for the remainder of F24. Profits are expected to develop momentum by F27 following incorporation of the Bin and Icon availability expansion currently in process.

“This is a medium-term growth opportunity that we will pursue in a deliberate and sustainable manner, focused on growing our portfolio in China while continuing the strong momentum that we have delivered in several global markets over recent years,” said Ford.

According to analysis provided to the AFR, approximately 300,000 cases of mid-tier wines from TWE are expected to be sold into China during the next financial year, delivering $22 million in additional earnings. 

Shares for TWE, an ASX listed company, have climbed more than 20% since the start of the year.

“The business is on-track to deliver mid-high single digit earnings growth in F24 and we remain confident that our premiumisation strategy, preeminent brand portfolio and attractive market fundamentals at luxury price points will allow us to continue to deliver our long-term growth ambitions,” said Ford.

“The Premium wine category, whilst resilient, is highly competitive and we continue to innovate and invest to achieve the goal of outperforming the category and importantly attracting new consumers to wine.”