Treasury restructures to combat China loss & accelerate growth in luxury markets

February 17, 2021
By Ioni Doherty

At its half yearly results announcement, Treasury Wine Estates announced a 28 per cent drop in profits from Asia with the next half of FY21 expected to dip even more.

While the profit drop in Asia can be attributed to the crippling tariffs imposed by China late in 2020, the pandemic has left no market untouched for TWE as demand for luxury wines fell due to hospitality industry restrictions.

CEO Tim Ford who took to the helm just prior to the Chinese tariffs being imposed, is not just weathering the storm but also steering the ship to new horizons and friendlier waters.

TWE anticipates a modest turn to profit in FY22 and is optimistic of positive traction and a return to profit globally as the vaccine rollouts take hold and luxury markets open up.

TWE’s road to recovery includes the COVID-19 Plan Ahead Agenda, announced last August, and the Global Response Plan to China. Central to both strategies is to drive growth in expanding luxury markets the world over.

The recovery will start with an entire restructure of the business. Starting FY22, TWE will shift to a brand led divisional model with three separate portfolios:

  • Penfolds, led by Tom King. 
  • Treasury Americas, led by Ben Dollard. Given Treasury Americas is a principally US-sourced and sold in the Americas business, US Supply will sit inside the business ensuring end-to-end accountability. 
  • Treasury Premium Brands, led by Peter Neilson.

These will be supported by best practice supply chains, a business solutions department and corporate division.

  • The integrated nature of supply in Australia and New Zealand means TWE will have a central Supply group, led by Kerrin Petty, to service Penfolds, Treasury Premium Brands and (for non-US sourced products) Treasury Americas.
  • Treasury Business Solutions will be led by Matt Young (as part of his CFO remit)
  • Kirsten Gray will continue to lead as Chief Corporate Services Officer and Company Secretary
  • Katie Hodgson will continue to lead as Chief People Officer
  • Stuart Boxer will continue to lead as Chief Strategy & Corporate Development Officer

One objective for Treasury Americas is to build the Penfolds’ brand in the US with a view to a long term and successful presence. The business is about to launch its Californian version of Penfolds with two of the four wines from the range crafted with a sizeable amount of South Australian grapes. Atop the range sits Quantum retailing for $950 per bottle. With its Californian origin, it is intended that this range will also make its way to China.

In reallocating stock that had been intended for China prior to the MOFCOM investigation and imposition of tariffs, TWE is exploring and investing in alternate key Asian markets, such as Hong Kong, where demand for Penfolds remains high.

As announced in August lat year, TWE intends to continue to divest US investments unaligned with its strategy for growth in luxury and masstige markets. However, where it might be divesting its US investments, the business will continue to invest in South Australia (Bilyara Winery, Nurioopta pictured below) to support its growth in the luxury winemaking sector as well as continuing to invest in its luxury winemaking asset base in Bordeaux, France.

As far as China is concerned, TWE is expanding its country of origin wines building up its portfolio of wines from both the US and France.

The business intends to retain a meaningful presence for Penfolds in China, like the aforementioned Californian Penfolds, and will continue to work with the network of solid contacts and the talented individuals they have brought to their team over the years.

Volumes in Europe and the UK continue to perform well, particularly for 19 Crimes which is now in the Top 20 of UK wine brands. This performance has helped TWE weather the storm.

E-commerce remains a strong channel, particularly in Australia where consumption at home of well known and trusted brands continues to see the business enjoy a strong performance.

TWE has revised its dividend per share down from 20 cents to 15 cents.

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