As China Lodges Massive Tariffs On Australian Wines, TWE Will Focus ElsewhereNovember 30, 2020
China has imposed preliminary anti-dumping tariffs ranging from 107% to 212% on Australian bottled wine imports, as trade tensions between the two countries continue to heighten. The move has forced an abrupt change in strategy for key Australian players like Treasury Wine Estates, whose bottled shipments will be tariffed at a rate of 169%. Australia’s bottled shipments to China—which account for about 40% of total Australian wine exports—increased 13.4% to $814 million last year, according to Impact Databank, on volume up 2% to 13.4 million cases.
In response to the tariff hike, Treasury Wine Estates (TWE) will reallocate shipments to other markets, but said it remains committed to growing its business in China over the long term. “The strength of our brands, including Penfolds, combined with our diversified business model will allow TWE to implement a range of changes and plans that will enable us to manage through the significant impact of these measures going forward,” said Treasury CEO Tim Ford. “However, there is no doubt this will have a significant impact on many across the industry, costing jobs and hurting regional communities and economies which are the lifeblood of the wine sector.”
TWE’s plans to combat China’s tariff hike include reallocating Penfolds Bin and Icon range from China—which represent 25% of TWE’s annual global Penfolds allocation volumes—to “other key luxury growth markets where there is unsatisfied demand, including Asian markets outside of China, Australia, the U.S., and Europe,” while boosting sales and marketing investments in those markets to drive Penfolds’ expansion. It will also divert some “luxury grape sourcing to other premium Australian portfolio brands, including Wynns, Wolf Blass, Seppelt, and Pepperjack, which have been significantly supply constrained over recent years,” and accelerate its “multi-country of origin” initiative, which includes plans to produce Penfolds bottlings in France and the U.S.
China accounted for about 30% of Treasury’s earnings in its fiscal year ended in June, with luxury and masstige ($10-$20) wine contributing 63% of volume and 91% of revenue. Rawson’s Retreat is now the largest volume commercial brand sold by TWE in China. In the four months through October, China depletions across the full TWE portfolio grew 35%, representing strong consumer demand, the company added.—Daniel MarstellerSubscribe to Shanken News Daily’s Email Newsletter, delivered to your inbox each morning.
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