Luxury wine sales boom in the US could lift Treasury Wine’s premium and luxury portfolio

A thirst for premium and luxury wine in the US, could boost Treasury Wine’s North American business.

Treasury Wine Estates US portfolio is 92 per cent skewed to premium and luxury wines which places it perfectly to benefit from a shift to greater luxury wine sales in America. Picture: Istock

Treasury Wine Estates’ premium and luxury wine portfolio – led by its Penfolds brand – will benefit as North American drinkers consume increasingly expensive wines, as well as from the recovery of higher margin sales to restaurants and bars.

There is growing evidence that luxury wine sales in the US are outpacing the broader industry, as many restaurants cull their wine lists to offer a diners a smaller, curated range of more expensive wines.

This will boost Treasury Wine as its large portfolio of premium wines remains popular with customers and venues, according to UBS analysts.

In a note circulated by the investment bank, researchers said an earnings update from luxury US wine company The Duckhorn Portfolio highlighted shifts in channel mix for wine sales as well as widening margins that pointed to customers picking up more expensive wines.

UBS analyst Shaun Cousinswrote in the note that, according to industry data cited by Duckhorn, the $US15-plus ($23-plus) a bottle category, which in that market is viewed as luxury, grew 3.5 per cent for the past 12 months, while the total wine fell 4.5 per cent.

Bolstering Treasury Wine’s ability to exploit stronger luxury wines will be recent deals by the Australian winemaker to rid itself of cheaper, more commercial wine brands and gather premium wine brands into its American portfolio.

“This should benefit Treasury Wine because in the US 92 per cent of their business is luxury and premium, so they’ve dramatically repositioned their business lately from where they were 55 per cent luxury and premium wines in 2020,” Mr Cousins said.

“And they have gone to 92 per cent by a small acquisition, Frank Family Vineyards (in California), but also by the sale of some of their lower tier Beringer products and BV products.

“So from an investor perspective, I think there had been a lot of suspicion and lack of trust about the Americas business – dare I say justifiably so given it has been a disappointment for many years – but what we’ve seen is a fairly bold repositioning.

“They did eight million cases in fiscal 2022 in the US, but they were up at 14 million cases three years ago, so they’ve dramatically shrunk their business, changed the mix and they are in the categories that are doing well. They are playing in the right area of the market.”

Mr Cousins said there was a “reopening leverage” in the US where the economy was opening up again. People were out socialising and drinking, and opting for premium and luxury wines.

Meanwhile, the trimming of wine lists was also noted by Duckhorn and cited by Mr Cousins as a benefit. Mr Cousins said the implication for Treasury Wine was that on-premise was a high margin source of growth.

“It looks like restaurateurs are trimming their wine list so that they have less wine. Part of it could actually just be less working capital in terms of they just don’t need to have a long wine list, which means having all those bottles of wine in stock. They are just going to have a narrower wine list, which means ultimately holding fewer bottles of wine,” he said.

“The broader idea of on-premise recovery is great.

“The trimming of wine lists, we just don’t know if that hurts or helps Treasury Wine, but I think generally bigger wine brands do better because as opposed to one small vineyard that only does a little bit, that might be harder to get into the slimmed-down wine list. So I think scale does count.”