Penfolds

TWE global heads discuss wine market recovery

August 14, 2020
By Alana House

Treasury Wine Estates announced its FY2020 annual results yesterday, which revealed how COVID-19 had affected its trading performance across the world. While net income was down 25% to $315.8 million, with sales revenue falling 6% to $2.65 billion, there are signs of wine market recovery.

During an analysts’ call, TWE’s regional heads in Asia, America, Europe and Australia gave further insights into how they’ve been adapting their business models in the rapidly changing landscape.

Consumption back on track in China

Tom King (below), MD of Asia, said that despite the challenges in the second half of FY20, he continues to see strong and growing support for TWE’s brand portfolio throughout Asia.

Tom King, TWE

For the Asia region, net sales revenue declined 14.7%, driven by second half volume declines in all key regions, with the majority of sales channels being shut down during February and March.

“In China, the market is showing signs of recovery as consumption occasions resume, with improving weekly trends across all channels from April onwards and channel operation now largely back to normal,” King said.

“Consumption trends are recovering quickly as more off-premise outlets reopen and traffic increases. Our depletions in the second half reflect broader market trends, with sharp declines in Q3, followed by depletions growth in Q4 driven by the list of government restrictions and also continued investment behind our core brands. June depletions were up approximately 40% on the prior year.

“E-commerce sales, already on a strong growth trajectory pre-COVID, accelerated further and TWE was the clear market leader across total wine, achieving 84% value growth in FY20 compared to 28% for the total capital.

“For TWE, sales in this channel also reflected continued premiumisation despite the broader market shift online towards lower value wine.”

Brand highlights included The Rawson’s Retreat Your Ideal Wine Moment digital campaign, which generated increased brand awareness with 190 million online impressions and 5% depletion growth.

In Southeast Asia, Wolf Blass showcased wine pairing with Southeast Asian flavours through recipes created by Michelin starred chefs. The campaign reached more than 20 million consumers.

Americas to halve volumes

In FY20, net sales revenue declined 12% and EBITS declined 44% in the Americans, with TWE’s performance reflecting challenging US wine market conditions through the second half, including the effects of COVID-19 and the continued growth of private label.

“While retail channels continue to perform strongly, and we have seen positive momentum through our direct-to-consumer and e-commerce platforms, the pace of stabilisation in these other channels has been gradual, and as such we remain optimistic but cautious on the short-term outlook,” said Benjamin Dollard (below), Americas President.

Ben Dollard TWE

“The US is the world’s largest premium wine market, and it continues a multi-year trend of premiumisation, led by strong growth in premium price points. This trend has not been impacted by the COVID-19 or recent market oversupply dynamics. In the 12 months to June 2020, the $8 and $20 and above $20 price points grew in US retail by 10% and 19%, respectively. Driving this growth has been the evolution of the US wine consumer, which includes the next-generation of wine drinkers, who are entering the category and have been trading up to higher price points.

“These favorable premiumisation dynamics set a very positive backdrop for our focused brand portfolio, which are by both portfolio of luxury and premium offerings that fit the profile of where the consumer is going, include brands like Beringer, BV, Stag’s Leap, Penfolds, 19 Crimes, Beringer Brothers, Matua and St. Huberts The Stag. This portfolio very much represents the future of our business and has been in strong growth throughout FY20, with that growth having accelerated in the past 6 months to be up over 27% in retail versus prior year.”

Highlights across TWE’s focused brand portfolio included: the recent successful launch of 19 Crimes Cali Red, a multi-year partnership with Snoop Dogg; and the #StayHome with Stags’ Leap promotion, which ran during the recent lockdown period, accompanied by targeted digital advertising and driving over 500% growth in e-commerce for the brand.

TWE also revealed that it will move to offering “broadly half the volume of today” in the US, but it will be heavily concentrated to premium price points and differentiated brands, which TWE said will result in a similar level of earnings.

Australia growing ahead of market

Peter Neilson (below), MD of Australia & New Zealand, said the ANZ business had navigated a difficult second half relatively well, with strong retail channel performance, partly offsetting the impact of the closure of other key sales channels.

Peter Nielsen TWE

“As we have called out previously, retail channel performance was, however, weighted to the Masstige portfolio, with lower sales of high-margin luxury wines impacting financial performance,” he said.

“The current retail market is still seeing elevated sales volumes, with growth driven by the above $10 price points. TWE is growing ahead of the market in the $10 to $20 price segment, led by focus brands including Squealing Pig, 19 Crimes and The Stag. We have also seen strong Wolf Blass, Lindeman’s and Pepperjack depletions as consumers increasingly seek well-known and trusted brands in the current environment.”

In terms of brand highlights for FY20, 19 Crimes was the leading brand in the wine category in terms of value growth in FY20; Penfolds celebrated its 175th anniversary; Seppelt once again partnered with the Victorian Racing Club during the Melbourne Cup Carnival, which includes naming rights of the Seppelt Wines Stakes Day; TWE returned as the official wine supplier for the Australian Open 2020; while Wolf Blass continued its association with the AFL.

Europe now in strong growth

Michelle Brampton (below), Director of Europe, Middle East and Africa, said that while there has been a retail sales upside from lockdown channel changes, notably in the UK and Nordics, FY20 results were impacted by declines in the second half outside of those two markets and non-retail channels.

For the region, volume and NSR declined by 4% and 3.7%, respectively. With second half declines in Continental Europe, the Middle East and Africa and GPR, due to channel closures, partly offset by strong masstige portfolio performance through retail in the UK.

“The wine category is now in strong growth across most European retail markets, driven by the globally consistent trend of switching from on-trade to off-trade,” Brampton said. “Positively, there is strong momentum for higher-priced wines and branded wines, particularly Masstige wine.

“In the UK, TWE’s second half performance is being driven by accelerated demand for Blossom Hill, Lindeman’s and the continued strong growth of 19 Crimes. Like other regions, we’ve seen a strong acceleration in e-commerce sales across key markets, with consumers increasingly shifting to this channel for convenience and personal safety. The majority of sales in the EMEA region come from our five core brands: Lindeman’s, Blossom Hill, 19 Crimes, Wolf Blass and Penfolds.”

Some of the highlights included the successful launch of Blossom Hill Gin Fizz, which increased volume sales by 195% during FY20; the launch of the B2C platform The Winery Collection, to connect with consumers and give them direct access to our multi-country of origin luxury portfolio and respond to the online trends; and a partnership with Wolf Blass and Deliveroo, where 20,000 samples of Wolf Blass were delivered with Deliveroo orders.

Treasury Wine Estates CEO Tim Ford discusses 2020 Annual Report and wine market.

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