Boom vintage sets Penfolds up for growth as China reopens
Penfolds will soon have 200 staff on the ground in China as it aims to aggressively grow the recently reopened market, on the back of a record Australian vintage.
Business
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Treasury Wine Estates’s decision to keep the core of its in-country Penfolds team employed throughout China’s trade war with Australia positions it for a rapid ramp up now that tariffs have been lifted, chief executive Tim Ford says, with initial sales figures looking strong.
Penfolds’ ultra-premium wines have only been back on Chinese shelves - outside some e-commerce sales - for about six weeks, following the Chinese government lifting its tariff barriers in March.
But Mr Ford, who updated the market on the Penfolds strategy on Thursday, told The Australian that “the initial depletions are really, really positive’’.
While there are concerns broadly across the wine industry that the Chinese market will be materially smaller now than when tariffs were introduced in 2020, at which point Australian wine sales were running at more than $1bn per year, Mr Ford said this was more of a concern for mass-market products, with Penfolds commanding strong loyalty among consumers.
And because, “we really don’t have enough wine to sell for the next couple of years’’, meeting demand was the issue at the forefront of Treasury’s management, Mr Ford said.
Keeping the China team at strength throughout the tariff period was, “one of the better investments/decisions we’ve made, because we’ve maintained the relationships with the customers, the brand awareness is still strong”, Mr Ford said.
“We took this decision quite deliberately at the start of the tariffs that we were going to maintain a pretty large team in China for a three-year period, led by Jack Wu, who continues to lead the China business,’’ Mr Ford said.
“We were going to invest behind the Penfolds brand and maintain its awareness because we were selling our French and American and lately our Chinese wines as well.
“So it became essentially a self-funding business or zero-EBIT business for those three years.
“Our customer base still very much behind us, and now we’ll essentially, broadly, double the team that we kept over that period of time over the next few months and get back to it.’’
Mr Ford said Treasury had been working on its China re-entry strategy for the past 12 months.
He told analysts during the presentation early on Thursday that Penfolds was targeting 200 staff on the ground in China next financial year.
“Our clear ambition is to be the number one luxury wine brand in China,’’ the company said in a statement to the ASX.
Penfolds hosted China’s second-in-command Premier Li Qiang at its Magill Estate cellar door during his visit to Australia last week, with winemaker Peter Gago welcoming the Chinese politician on a tour which heralded the further easing of trade restrictions into the country.
Mr Ford said on Thursday Penfolds was poised for growth in the next few years, with a record 2024 Australian wine grape vintage setting the division up for strongly increased supply in the second half of 2026.
“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,’’ Mr Ford 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 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 Treasury’s decisive measures taken to create the best opportunities to provide luxury grade fruit, which are clearly paying off.”
Mr Ford said Treasury had invested about $100m since 2018 in vineyard replanting and acquisitions to enhance long term production capacity, with improvements focused on soil revitalisation and vine redevelopment.
“Additionally, from 2018-2022 we invested $180m in Treasury’s Barossa winemaking and packaging facilities to ensure world-class supply chain capabilities to cater for increased luxury wine production and availability,’’ Mr Ford said.
Penfolds’ pre-tax earnings are expected to come in at $418-$421m for the current financial year, “driven by strong top-line growth across all portfolio tiers and price points, with the weighting of Bin & Icon portfolio shipments to the second half of 2024 completed as planned,’’ the company said.
The Penfolds division earned $364.7m last financial year.
The earnings margin is expected to be about 42 per cent, with the company incurring costs associated with re-entering the Chinese market this year and next.
That margin is expected to improve within the range of 43-45 per cent next financial year, while the target after that is 45 per cent.
In the 2026 and 2027 financial years Penfolds is targeting earnings growth of about 15 per cent in each year, “driven by the significant increase in availability for the Bin & Icon portfolio from the record 2024 Australian vintage intake’’.
Price increases of about 6 per cent will be implemented across the Penfolds range from July 1.
Originally published as Boom vintage sets Penfolds up for growth as China reopens
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