Eyeing Premiumization, TWE’s Clarke Hints At Offloading Commercial Wines

Following last night’s announcement that Treasury Wine Estates will acquire most of Diageo’s U.S. and U.K. wine business for $600 million, TWE chief executive Michael Clarke told investors that the company intends to intensify its premiumization strategy, and may look to sell off some of its commercial brands.

Noting that the Diageo acquisition will double TWE’s premium and luxury business in the Americas and offer added grape supply for existing U.S.-based TWE labels like Chateau St. Jean, Clarke said the purchase also adds critical mass to its commercial portfolio—particularly through the addition of Blossom Hill, a California label that ranks among the U.K. market’s bigger wine brands—which could potentially be sold.

The added scale from Blossom Hill could allow TWE to split its business into two parts, one focusing on commercial wines and the other on premium-and-above offerings. “It will make the commercial business a lot more attractive to someone outside the company. It’s a two-tiered strategy that I’m portraying. Yes, there’s optionality,” said Clarke, quoted by the Sydney Morning Herald.

While the company has already made strides in the premiumization department—with labels like Chateau St. Jean, Matua and Penfolds making gains recently—more than 60% of TWE’s U.S. volume is still accounted for by its two largest brands, Beringer and Lindemans, whose portfolios average $7.50 and $6.85 a bottle at retail, respectively, according to Impact Databank.

By gaining premium Diageo brands like Sterling, Acacia, Provenance, Hewitt and others, TWE has significantly raised its presence at higher-margin price levels in the U.S., paving the way for a potential divestiture from the commercial business.

Tagged : Diageo, Treasury Wine Estates, wine

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