Treasury Wine Estates is counting the cost of the coronavirus crisis in China, downgrading its full-year profit forecasts for the second time in a month.
“Whilst the full operating and financial impacts of the outbreak are yet to be fully determined, TWE now has sufficient information in its possession that would indicate consumption across discretionary categories in China has been significantly impacted through February, and that this impact on consumption is expected to be sustained to at least through March,” the company stated in an ASX announcement.
“As a result, TWE no longer believes that it will achieve the previously provided guidance for F20 reported EBITS growth of between 5% and 10%.
As a result of the continuation of infection containment controls from the central government and provincial authorities throughout China, TWE’s staff have not yet returned to the office and continue to work from home.
The same situation is being experienced by TWE’s partnership network, including wholesalers, retailers and logistics providers.
TWE noted that depletions leading into Chinese New Year continued to be strong and in line with its plans, “reflecting strong marketing and pull-through programs across TWE’s brand portfolio prior to impacts from the outbreak”
However, post Chinese New Year consumption across discretionary categories has been significantly adversely impacted.
“TWE will however remain vigilant in ensuring its shipments into the market are appropriately calibrated to the rate of depletions once consumption normalises.”
The company said the COVID-19 outbreak may impact performance in markets outside of China, however at this stage this is not expected to have a material impact.
“TWE remains committed to the health and safety of its employees and to being a supportive long-term partner to its customers in China, and will actively support them through this period,” the company added.
Wine exports to China down 90%
Australian wine exports are in free fall as the coronavirus continues to decimate on and off-premise trade in China.
If the crisis continues, it’s predicted Australia’s $1.3 billion-a-year export market to China could lose millions.
“It’s a disaster,” a representative from one of Australia’s biggest wine producers, who asked not to be named, told Crikey.
“Sales are off 90% for the first two months and there is no relief in sight.”
Howard Park owner Jeff Burch told Augusta Margaret River Times: “In China, the Chinese new year was a non-event with people in lockdown and restaurants shut.
“No one is moving around, and no one is buying wine.
“Wine that was ordered primarily to meet the demand for Chinese new year has not been sold and there is a backlog on the docks, with none of it moving. The pipeline is full, so it is going to take another 12 months to work through once this thing settles down.
“And there is no idea when that might start.”
Citi analyst Craig Woolford predicts Australia’s biggest wine exporter to China, Treasury Wine Estates, faces a massive hit.
“We see a $15 million impact from coronavirus in FY20,” he told The Australian Financial Review. “This estimate is based on volumes for China falling 20% for 4½ months”.
Alberto Fernandez, managing partner of major importer/distributor Torres China, told Wine Searcher he expects sales to be down 80% this month, and at least 50% next month
It’s estimated that the wine trade in China overall will suffer a 20% downturn in 2020. Extensive bankruptcies are predicted for the first half of the year, especially among small and medium-sized retailers.
The China Culinary Association has reported that 78% of businesses have seen more than a 100% drop in operating income, due to venues having zero revenue, but still needing to pay rent, wages, insurance and other costs.
Restaurateur Ignace Lecleir, whose four-venue group includes TRB Forbidden City and TRB Hutong, among Beijing’s top destinations for wine fans, said his revenue has dropped 95%. He only has restaurant operating, Hulu in central Beijing.
Pernod Ricard CEO Alexandre Ricard recently told analysts: “Nightclubs and night bars are all closed in China and those bars and restaurants that are not closed are empty.”
Major wine exporting countries such as Chile are also feeling the impact.
Forbes reports: “A third of all Chilean wine is exported to China. Since the outbreak, exports have slumped 50-60%, with Chile blaming the downfall on both a slow in orders and a hold-up at the ports.
“Before coronavirus, China admitted up to 350 containers of Chilean wine a day. Now, an average of 50 cases per day pass through customs. The remaining cases sit in the port, unsold and unconsumed. Even with the backlog at the ports, few cases are being sold.”
Most Chinese wine trade shows have also been postponed or cancelled due to coronavirus issues.