TWE's country of origin strategy stakes its ground in China

Treasury Wine Estates will release a Chinese-made version of a Penfolds red wine in China later this year.

Priced at between $30 and $50 a bottle, the wine will be made mainly from cabernet grapes sourced from primary winemaking region Ningxia, in China's central-north in the eastern foothills of the Helan Mountains and Shangri-la in the south-western Yunnan province, bordering Laos, Myanmar and Vietnam.

Chief executive Tim Ford says that the wine had passed the strict quality controls set out by Penfolds' winemakers and had the approval from chief winemaker, Peter Gago.

TWE has always maintained that it "hasn't given up on China".

"China is an emerging fine winemaking region and we're confident we can produce a premium Chinese Penfolds that maintains the distinctive Penfolds' house style and uncompromising quality," said Mr Ford.

The company has also entered into an agreement with the China Alcoholic Drinks Association, the country’s main alcohol industry body, to build the Chinese wine industry through technical knowledge and expertise exchange in China's wine regions.

TWE says the agreement is testimony to the company’s commitment to partnerships with the Chinese wine industry and the strong equity that the Penfolds brand has established with its consumers in China.

The 'made in China' release is part of a multi-faceted approach by TWE to circumvent the tariffs on Australian wine imposed by China in 2020. TWE is also growing grapes in Bordeaux and California to craft country of origin Penfolds branded wines. Penfolds announced the California Collection release in 2018, prior to the imposition of tariffs. It launched in China last year.

Once tariffs hit, the yearly value of Australia's wine industry declined from $1.26 billion a year to $82 million. For TWE alone, earnings from Australian-made wine sold in China plummeted from $78.2m in the first half FY21 to just $2m in the first half FY22.

Penfolds Managing Director Tom King, who is based in Shanghai, was tasked with "recruiting new consumers" as Penfolds' stock intended for China was re-directed, distribution expanded in key markets and premium partnerships established throughout Asia.

Earlier this year, the company recorded growth in Malaysia, Singapore, Thailand, Hong Kong and Taiwan.

At the time, Mr King said that Penfolds continues to have a presence in China and consumer demand persists.

The inaugural French Penfolds portfolio of Champagne and Bordeaux is expected to launch in China in mid-2022.