Aus winemakers prepare to re-enter China as tariffs dismantled

The first shipments of Penfolds will be China-bound next week as other winemakers prepare to re-enter the market. But will it be the bonanza it once was?

Mary Hamilton of Hamilton Wines in McLaren Vale, SA, expects to restart her China business after Easter.

Some time next week a shipping container of Penfolds will leave a warehouse in Adelaide, be put on a ship and waved goodbye by Tim Ford as it heads for China – where it should be in the hands of Chinese drinkers by the end of May.

“They can’t wait, they are ready to go, as we are, and very keen, with the Penfolds brand still so strong which is quite remarkable given the last three years,” Mr Ford, the CEO of Treasury Wine Estates, told The Weekend Australian.

For the Treasury Wine boss it’s something he and his team have been working on for at least a year as he pulls the trigger on saved up orders and diverts huge shipments of his luxury wine brand Penfolds to China now that tariffs have been dismantled and the country is once more ‘open for business’.

Treasury Wine Estates chief executive Tim Ford. Picture: Aaron Francis

In South Australia’s McLaren Vale, Mary Hamilton, the boss of the nation’s oldest family owned winery, the 185-year old Hugh Hamilton Wines, is reviving old networks and business relationships in China, bringing them out of a deep freeze they have been in since crippling tariffs were imposed in late 2020. China once took as much as 7 per cent of her wine production and it’s time to get her label back in front of drinkers in Beijing, Shanghai and dozens of other Chinese cities.

Nearby in the Clare Valley, Mitchell Taylor of Taylors Wines is dusting off his China plans, with only a few months ago his family’s $20 Taylors Heritage Label Shiraz 2022 named the best wine in the world at an international wine show – and which can now be finally sold to China.

And across the border in the thick of Victoria’s food bowl of the Goulburn Valley, Alister Purbrick at his family owned winery Tahbilk is manoeuvring to once more enter China which at its peak took 25 per cent of his production but collapsed to zero when Chinese-Australian relations soured. When China caught winemakers off guard with the tariffs in late 2020 Mr Purbrick’s Tahbilk was left with a warehouse full of wine with specially produced Chinese labels, instantly made unsellable in China. These scars are still fresh, not just for Tahbilk but all Australians in the $45bn wine sector.

And China has changed too when tariffs of 170 per cent to 220 per cent destroyed a thriving $1.2bn export market. It’s a slowing population, an ageing population and one where consumers are drinking less wine and in particular less red wine which was considered Australia’s expertise.

But first come the celebrations. Late Thursday a simple and brief announcement from the powerful Chinese Ministry of Commerce confirmed the tariffs would be wiped away and Australian wine could once again make a case for itself to be included on wine lists, supermarket shelves and at Chinese New Year parties.

“The overriding emotion would be relief,” Mr Ford told The Weekend Australian just a few hours after the decision was announced.

Mary Hamilton and her father Hugh Hamilton at their McLaren Vale vineyard.

“Until it is announced there is always that element of doubt. So it’s great the final decision has been made and we can get on with it now.”

“We are delighted,” said Mr Taylor, “it’s been a long, very tough three years and we’ve been putting in a lot of preparation, we’ve been working on this decision for the last six months. I was in Hong Kong last week and now we have got some clear direction so we can start to rebuild the relationships.”

“I’m pretty ecstatic to hear the news,” Ms Hamilton said on Thursday night when the tariff news broke. “It will give an instant shot in the arm to our business and I would say that our business would not be unique, that would be for many businesses and particularly for those businesses that have pre-existing Chinese distribution relationships that still exist. I would expect it would pretty quickly lead to opening purchase orders from existing companies who still have their networks over there.

“I think this will open up a restocking (of wine) for those relationships, which is very welcome because of course we are in a cyclical slump with other industry pressures right now and orders have been pretty thin on the ground for the Australian wine industry with the shutting of China. It is very good news.”

For her family vineyard and label, Hugh Hamilton Wines, the work begins as soon as Easter ends in firing up those frozen trade links and to once more get her wines in front of eager Chinese drinkers whose attention has been captured by wines from France, Italy, Argentina and Chile in Australia’s absence.

“We have already been in contact with our existing partners and I think Tuesday after Easter it will be firming up those conceptual ideas of what opening orders might look like and getting actual purchase orders into the system.”

Taylors Wines’ Mitchell Taylor is dusting off his China plans now that tariffs have been dismantled.

“It is encouraging and timely for the industry that more Australian wine will now fill the glasses of wine lovers around the world,” said Endeavour Group boss Steve Donohue. Endeavour, is the owner of liquor outlet Dan Murphy’s as well as a portfolio of wine brands such as Oakridge, Josef Chromy and Riddoch whose cabernet sauvignon was recently awarded best wine in the world at the International Wine Challenge to make it a potential winner in a reopened China.

For Mr Ford, he’s spent the last year painstakingly storing away his Penfolds wine to prepare for the reopening of the China trade. At one point, before Covid-19 and all the nastiness between Beijing and Canberra, Treasury Wine made the bulk of its profits from China. Analysts estimate the reopening of China could funnel an extra $100m in earnings to Treasury Wine Estates by 2026.

“We’ve got customer orders ready to go awaiting once the determination was made that tariffs would come off and I’d expect to have product leaving our warehouse just out of Adelaide next week, to be on the water to head to China. And we would expect that to be in the market at the back end of May.”

The battering ram to get back into China will be tipped with its luxury brand Penfolds. A much loved and prized Australian wine.

“The (shipment will have the) total Penfolds portfolio, which still has a lot of demand in China. I was up there last week talking to all our major customers and they’re very keen to get pretty much the full portfolio from Penfolds Grange down to Penfolds Max’s. We have a reallocation plan we’ve deliberately planned for a number of months now that will ship essentially the full portfolio of Penfolds over the coming weeks.

“The first priority is to get Penfolds back on the shelves because that’s what the demand is for.”

But there is also the sobering reality of massive shifts in the Chinese market over the last four years, with many experts believing that Australia winemakers will be lucky to recapture around half of the $1.2bn in annual sales it once enjoyed.

“China isn’t going to be a ‘silver bullet’ for the industry,” said Mr Purbrick from Tahbilk.

“The market in China due to the country’s economic circumstances is down around 50 per cent, so the whole wine market is down around 50 per cent. And of course in the interim because we vacated the market a lot of international winemaker competitors have been utilising that void.

Tahbilk winery’s Alister Purbrick, who is excited about the reopening of China’s market but also cautious. Picture: Jay Town

“And the other thing that has happened is that not only has the wine market halved in its size but the mix of wine has changed. What was dominantly a red wine market, where a lot of red wine was sold, has changed. Habits of banqueting and company largesse, celebratory functions, where most red wine was drunk, has changed to more red wine drunk at home.

“And here the woman of the household has more of a say on what wine is purchased and drunk. And this is seeing more sales of sparkling wine, white wine and so there will be a pivot change over time of what is drunk in China.

“I hope Australia can reclaim around $500m to $550m of export sales, that’s around half the market it once was, and this might happen over time.”

There is also the political uncertainty and sovereign risk of trading in China, and for Tahbilk while it once sold as much as 25 per cent of its sales into the region it has revisited its risk matrix to now designate a maximum of 15 per cent exposure to one brand and China.

Industry bodies are cautious too.

“We look forward to seeing Australian wines back on Chinese dining tables and rejuvenating our relationship with customers and business partners in that market,” said Australian Grape and Wine chief executive Lee McLean. “We will also, however, be maintaining our focus on diversifying our export footprint and growing demand here in Australia as well.”

For Mr Ford, he is slightly more upbeat in what the reopening of China can mean for Treasury Wine and the industry, and the export sales now up for grabs.

“It’s very difficult to say exactly, but given what I’ve seen up there demand is still very strong and when you have zero market share even if it has contracted slightly over the last three years, it is still a very big luxury wine market and is a tremendous opportunity. The reality now is we need to make more wine to satisfy that demand.”