Penfolds maker tweaks shipments as it eyes end of Chinese tariffs

Global wine giant Treasury Wine Estates is planning for the potential end of China’s hefty wine tariffs, adjusting the global shipments of its flagship Penfolds brand and driving higher brand recognition among younger consumers in China.

Chief executive Tim Ford said the company would “wait and see” if Beijing would remove its tariffs on wine, as it did with barley two weeks ago, and is leaving its options open if import duties are dropped later this year.

“Normally, what we would do with Penfolds, on an annual basis, is our first half shipments will be slightly ahead of our second half shipments,” Ford said.

“We’re going to plan to ship more in the second half in totality, just to give us the flexibility should the situation change with China over the next four or five months ... It’s about giving ourselves the flexibility about how we allocate over the course of the full year.”

Treasury Wine Estates chief executive Tim Ford.Credit: Eamon Gallagher

Treasury Wine has also been working hard to curry favour with younger consumers, particularly in Asia, as wine consumption declines around the world. Gen Z drinkers have demonstrated a preference for beverages like seltzers, liquors and spirits instead of beer or wine.

“Bringing new consumers into wine is the single most important job we have to do,” Ford said.

The Penfolds maker revealed a slide in net profit of 3.3 per cent to $254.5 million for the 2023 financial year, down from $263.2 million the previous year as it wrote down the value of several commercial wine brands and announced the closure of one of its Victorian wineries used to make budget wines.

While the company managed to pass through price increases for many of its top-end brands such as Penfolds, sales of budget labels such as 19 Crimes and Wolf Blass faltered in the cost of living crunch. Commercial wine brands have performed poorly as cheaper plonk declines in popularity. Net sales declined 2.2 per cent to $2.4 billion.

However, the strong performance of its marquee Penfolds brand and an average 12.7 per cent price rise for its wines helped drive operating earnings 11.4 per cent higher to $583.5 million.

Penfolds maker Treasury Wine Estates has revealed a slide in its 2023 full-year net profit.

The company will pay a final dividend of 17 cents per share fully franked, taking its payout for the year to 35 cents per share, a 12.9 per cent increase on the year before. Investors welcomed the update, sending the share price 2.8 per cent higher.

Australian drinkers can expect local bottle prices to stay fairly steady this financial year, though Ford noted this was ultimately up to the retailers.

“You’ve got to ask Endeavour and Coles,” he said. “From our point of view, we don’t plan to take price increases in this market.”

Treasury Wine announced a multi-country of origin collection strategy last financial year to circumvent Beijing’s wine tariffs and meet demand from Chinese consumers. Wine from the ‘One by Penfolds’ collection is sourced from Ningxia, China; Bordeaux, France; and California, US.

As part of the One by Penfolds launch, Treasury Wine appointed Japanese fashion designer, DJ and entrepreneur Nigo as a creative director in July to boost credibility with younger consumers. Nigo is the artistic director of streetwear brand Kenzo and founded clothing line A Bathing Ape.

The appointment of Nigo, who created four animal motifs representing the four countries Penfolds grapes are sourced from, has already driven “social media buzz younger consumers engage in”, Ford said.

The chief executive has made multiple trips to China this year to rebuild customer relationships as winemakers and wine exporters wait for wine tariffs to be dropped.

However, some industry insiders do not expect the Chinese wine market to be the same as it was in its heyday before COVID-19, when it was a $1.2 billion industry. Beijing’s wine tariffs pushed many wine growers out of the industry altogether and has driven an oversupply in red wine that may force some growers to mothball their vineyards this year.

The current oversupply in red wine is equivalent to 859 Olympic swimming pools, according to Rabobank’s latest wine report, which said that even early removal of Beijing’s tariffs would still see Australia facing two years of oversupply.

Treasury Wine announced on Tuesday its chairman Paul Rayner will retire at the next annual general meeting on October 16 and will be replaced by outgoing Telstra chairman John Mullen, who is currently a non-executive director on the board.

Rayner said Mullen had the appropriate skills to steer Treasury Wine for future growth. “He has my full support as chairman-elect and I look forward to handing over the role to him as part of the company’s broader succession strategy,” said Rayner.

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