Treasury Wine Estates crushes China market

China-based American wine expert Jim Boyce has been watching the rapid development of the Australian wine business in China.

A man walks past a shelf of wines produced from Winston Wine's own Australian winery at one of its stores in Shanghai, China on 18 October, 2011. Photographer: Qilai Shen/Bloomberg

China-based American wine expert Jim Boyce has been watching the rapid development of the Australian wine business in China for the past few years.

“Australia has been the wine success story of the past decade in China,” he told The Australian this week.

“Australia’s import numbers into China have been impressive,” added Mr Boyce, who has been running his Grape Wall of China website, following the growth of the Chinese wine market, for the past 10 years.

Mr Boyce was speaking after the release of figures from Wine Australia this week showing that Australia’s wine sales to China have grown by 24 per cent over the year to the end of September to become a business worth more than $1 billion a year.

While the figures show some slowdown in the rate of growth of the market from a massive 55 per cent rise for the 12 months to the end of March, China-based trade sources indicated this week that this could be partly due to a slowdown in the Chinese economy.

The figures for the past six months would also have been ­affected by a halt in some shipments by Treasury Wine Estates, the largest single exporter of wine to China, to its warehouse in Shanghai earlier this year.

There has been speculation that the shipments may have been held up partly as a result of political tensions between Australia and China, although this has never been confirmed and Treasury Wine Estates has said the ­issues were resolved some months ago.

Australia’s former ambassador to China, Geoff Raby, told The Australian that the early figures could also be a little distorted due to the initial impact of the start of the Australia-China Free Trade Agreement.

“If you told people a few years ago that Australia would be selling more than $1bn in wine to China and have five times the market share by value of wines from Italy and Spain, most of them would have laughed,” Mr Boyce said.

He added that Australia had also considerably improved its market share in China compared to France, which is the biggest foreign wine supplier to the country.

“In 2011, Australia’s volume of wine sold to China was a quarter of France’s volume,” he said.

“Now it is 50 per cent and, in terms of value, it is now two-thirds of what France sells.

“This means the average bottle of wine from Australia comes through the Chinese customers at a higher price than the French wine.”

Mr Boyce said he believed that Australian wine was gaining traction in the market because Australia had a good reputation in China for being “clean and green”.

Its products also were being ­associated with high levels of food safety.

“The Chinese like the fruity ‘bottled sunshine’ of Australian wines,” he said. “Many Chinese have now ­either studied in Australia or visited Australia, giving them an interest in Australian wine and food products.”

Mr Boyce said Australia’s free trade agreement with China would also be helping Australian wine sales.

“Australian wine producers are also producing the wines which the Chinese are more likely to know such as cabernet, shiraz and chardonnay,” he said.

Treasury Wine Estates head of Asian operations Peter Dixon told The Australian this week that the company was optimistic about the market potential in China.

He said customs clearance ­issues faced by Treasury Wine Estates in bringing some wine into its Shanghai warehouse earlier this year were resolved some time ago.

“There are no lingering delays for getting our shipments into China,” Mr Dixon said.

“We continue to be very happy with our inventory levels.”

Mr Dixon said that Treasury Wine Estates operated in the luxury end of the wine market in China. “We are not experiencing a slowdown in demand for our wine in China,” he said.

“The recent Wine Australia export data clearly shows continued growth in these exports, especially in luxury masstige wines, which is the focus of our portfolio in China.

“We had some issues which we all read about with the customs clearance (in China), but that is all cleared through.

“We haven’t had a single problem since.”

Treasury Wine Estates, which has been exporting wine to China for the past five years, has been trying to diversify sales away from its flagship Penfolds brand.

The winemaker recently launched its first wine product designed for the China market, a fortified red wine with an infusion of Chinese baijiu, called Lot 518.

The launch ceremony took place in Beijing two weeks ago and was attended by several Chinese celebrities.

Also present were about 350 Treasury Wine Estates customers in China including online buying club Sam’s Club, run by US mass market retail giant Walmart.

Treasury Wine Estates is now looking to its new product, which has 6 per cent Chinese baijiu, as a way to expand its market across the country.

Mr Dixon said Treasury Wine Estates was “very excited” about its new product, which it has been working on for some time.

The new wine is a premium product retailing for about $150 a bottle in China.

“It’s one of the most innovative products we have released as a business,” he said. “We are really excited by it.

“It’s our first product crafted for the Chinese audience. You don’t do these things lightly.

“We are very optimistic about this product. We have had great feedback about it, not just in China.”

Mr Dixon said he could also see it appealing to consumers in other Asian nations.

He said Treasury Wine Estates believed its new product would allow it to “continue to engage more deeply” with the China ­market.

Treasury Wine Estates does not release figures on its sales of wine to China, instead including them with it overall sales figures into Asia.

The company is predicting a 25 per cent growth in its earnings before interest and tax for the 2019 financial year, partly driven by the strong growth in demand for its products in China.

“We are positioning ourselves as a premium luxury winemaker in China,” Mr Dixon said.

“We are very optimistic about the future for Treasury Wines in the China market.

“We are continuing to invest in people, marketing, and resources, and we are continuing to expand our distribution to more and more cities.

“We are on the right track for continuous sustainable growth”