Treasury Wines says it is ready for the reopening of China if tariffs are removed

Treasury Wine Estates is preparing for the reopening of the Chinese market if tariffs are removed, and will reallocate its luxury iconic drink to the region.

Treasury Wine Estates is preparing for a reopening of the Chinese market if crippling tariffs are removed, and will divert supplies of its prized luxury wine Penfolds into China to win back its former loyal drinkers.

The nation’s largest winemaker, whose brands include Wolf Blass and 19 Crimes, has also identified the key wines from its portfolio that will spearhead its return to China if the 200 per cent-plus tariffs are removed by Beijing, with the company to distribute and focus on luxury and entry-level brands such as Penfolds Max’s, Rawson’s Retreat, Koonunga Hill and One by Penfolds.

The emphasis on Penfolds in particular signals the importance and value within the Chinese market, with its luxury Penfolds brand incredibly popular before China placed tariffs on Australian imported wine three years ago.

Before those tariffs, some as high as 218 per cent, were imposed, China was Treasury Wine’s largest profit driver and one of its biggest markets in the world.

In August, Treasury Wine chief executive Tim Ford said the winemaker was preparing to store up large stocks of its fabled Penfolds wine to prepare for a potential reopening of China as soon as next year, after recent trade sanctions lifted on Australian barley offered hope wine would be next.

“We are planning to sell more Penfolds in the second half versus the first half of fiscal 2024, and we’re doing that strategically to give us the flexibility of a potential change to the (wine) tariffs in China,” he said at the time.

At the weekend, China said it would review the wine tariffs, lifting hopes this was the first step in the ultimate dismantling of the punitive trade sanctions, which when slapped on imports, destroyed a billion-dollar market for Australian wine.

Vineyards in Shangri-La in Yunnan Province in China, where some of the grapes for the new Penfolds wine come from. Picture: Supplied

In a statement to the ASX on Monday in response to the weekend moves, Treasury Wine said it was well-placed to rebuild its business in China if the tariff regime on Australian wine ended and led to a reopening of the market.

Shares in Treasury Wine rose more than 1 per cent in a falling market as investors welcomed the possibility of its most lucrative export market reopening. The shares later closed up 1.4 per cent at $11.93.

Treasury Wine has maintained its commitment to China – which before tariffs were imposed was the company’s largest export market – by retaining experienced and strong sales and marketing leadership in China. It has also continued to build its industry and customer relationships through its ongoing growth of multi-country-of-origin products, including the first Chinese sourced and produced luxury Penfolds wine, it said.

“Therefore, Treasury Wine is well-placed to rebuild its business in China, should tariffs be removed at the end of the review ­period, through a series of plans which would be implemented progressively over time.”

The company said if tariffs were removed it would continue to focus on its multi-country-of origin-portfolio, where it grows and makes wine for the Penfolds brand in France, the US and China. It would also rebuild distribution for Penfolds entry-level wine such as Penfolds Max’s, Koonunga Hill and One by Penfolds.

It would also seek to reallocate a portion of luxury Penfolds wine from other global markets to rebuild in China.

“It’s great to see an agreement for an expedited pathway forward to allow our Australian brands and wine to be sold in the Chinese market,” Mr Ford said.

“There are only positives to come out of a favourable review for the Chinese consumer, customers and the wine category, for the Australian wine industry and for Treasury Wine.”

Treasury Wine said there would be incremental sourcing for Penfolds luxury tiers to meet existing and future demand, noting that the age of release of these wines would be between three and five years. There would be investment in further sales and marketing resources within China to rebuild the distribution footprint of Penfolds.

“Treasury Wine will continue to apply its globally standardised margin structure to Penfolds sales globally, to ensure long-term brand health and price integrity. This ensures that sales prices and margins from luxury wine are ­materially consistent in all markets,” the winemaker said.

UBS analyst Shaun Cousins said the timing on the reopening of China to winemakers such as Treasury Wine could be stretched with the review set by the Chinese government set at five months, longer than that proposed for the review into barley tariffs.

“Progress occurring on Chinese duties, which is a positive, although timing is a little later than expected,” Mr Cousins said.

But the progress being made on trade relations with China was a positive for Treasury Wine and the Australian wine industry.

“Existing Australian Penfolds volumes to be reallocated from other markets,” Mr Cousins said.

Originally published as Treasury Wines says it is ready for the reopening of China if tariffs are removed