We’ll weather economic downturn with premium wine: Treasury

The Penfolds producer says it isn’t seeing a shift in consumer spending despite financial uncertainty around the world.

Treasury Wine has a strong portfolio of premium labels led by Penfolds, Wolf Blass and Wynns while its North American wine business is 92 per cent weighted towards the luxury category. Picture: Carla Gottgens/Bloomberg

Treasury Wine Estates boss Tim Ford says he hasn’t seen a shift in consumer spending despite fears of the world’s biggest economies are slipping into a recession, with his portfolio of premium and luxury wines largely recession proof.

Trusted brands would continue to be sought after, Mr Ford added, although cheaper wines could struggle and were still in decline as those on lower incomes pulled back their spending.

Mr Ford also said that the recently released Chinese-made version of its flagship luxury wine Penfolds was doing well in China with strong feedback from retailers, customers and influencers.

Speaking after the Treasury Wine annual meeting on Tuesday, where the winemaker said first quarter earnings were tracking in line with expectations, Mr Ford said sales growth across his portfolio and regions – especially in the US – had remained consistent for most of this year.

“We are seeing wines under $10 a bottle category where everywhere around the world that are declining at the moment.

“It (premium wines) has been very consistent and whether it goes into recession, which is a terminology as opposed to what is the category doing across the globe – and it is consistent.”

Treasury Wine has a strong portfolio of premium wine led by Penfolds, Wolf Blass and Wynns while its North American wine business is 92 per cent weighted towards the luxury category.

Mr Ford said, historically, higher priced wines had done well through recessionary periods.

“That is not to say they are resistant to recessions or the conditions we see in markets, but they have always been very, very resilient and consumers still engage with the wines,” he said. “They make choices, and they generally go to brands, trusted brands, that they know and love in these periods, and we think we have the portfolio to deal with that as well.”

Mr Ford told shareholders in his address that “premiumisation” – selling more expensive wines – continued to be a key driver of the company’s momentum, with 83 per cent of its global revenue generated from the premium and luxury price points.

Mr Ford said this showed the continuation of a trend of “buying less, but better”.

He said the inflation and cost outlook remained in line with the expectations that the company shared at its full-year results update in August while Treasury Wine’s northern hemisphere vintages, including California and France, were progressing in line with expectations.

Turning to the outlook, Mr Ford told shareholders that Treasury Wine remained on track to deliver strong growth and EBIT margin expansion towards the 25 per cent-plus target in 2023.

“Our financial objective remains to deliver sustainable top-line growth and high single-digit average earnings growth over the long-term,” he said.

Mr Ford said Chinese consumers were excited to engage with the Penfolds brand with the recent launch of the One by Penfolds made in China using grapes sourced from the Ningxia region.

“It is very early, about two weeks of distribution into mainland China, and the feedback from customers and the media has been fantastic in terms of the quality of the wine and the fact that Penfolds is engaging back with consumers in the market in China is really positive.”