Demand for luxury wines resists slowdown, says Penfolds-Maker

(Bloomberg) – Treasury Wine Estates Ltd., best known for its Penfolds brand, said it expects demand for its premium and luxury products to remain strong even as an economic downturn threatens to exacerbate pressures on the cost of living.

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Australia’s largest publicly listed winemaker is betting on price rises to boost revenue, focusing on its premium wines.

“The wine category has proven resilient during the tough economic times we are experiencing around the world, with wine generally viewed as an affordable luxury by many consumers,” chief executive Tim Ford said Thursday during a briefing. a call with investors. . “Consumers will, we believe, become increasingly discerning in how they spend their disposable income.”

Young drinkers in particular are indulging in wine at higher prices, while domestic consumption remains high — two trends that have accelerated during the pandemic, Ford said.

The Melbourne-based winemaker has focused on a series of customer experience initiatives, including a pop-up store at Harrods in London as well as a Penfolds house in Singapore later this year. Meanwhile, its Americas division – which produces wine from California’s Napa Valley – is set to launch a 19 Crimes-branded sparkling wine label next month that will be promoted by American rapper Snoop Dogg.

For the financial year ended June 30, net sales for its Penfolds brand outside mainland China rose 45%, the Treasury said on Thursday. Its best performance was recorded in Asia, where sales jumped 106%. Still, its previous reliance on China sales manifested itself in the 9% drop in its overall revenue from the division.

The Treasury has stepped up its efforts to tap markets beyond China after Beijing in 2020 imposed tariffs of more than 200% on products from Australia for a period of five years.

Focus on China

Rebuilding its China business – which previously accounted for around 30% of the company’s annual profits – remains a priority, the company said. Treasury has expanded its offering of wines from other countries, including the United States and France, and recently announced Chinese-made Penfolds, slated for release later this year.

READ: Penfolds wine made in China will avoid crippling import tariffs

“The Australian wallet is still at the core, but new home countries will be a focus in mainland China,” Penfolds chief executive Tom King said on the call. “I hope that as we are able to meet demand, source more fruit and produce more wine, we will sell more Multi-Countries of Origin around the world.”

The Treasury also warned of headwinds from continued inflationary cost pressures as well as global supply chain risks, which had an impact of around A$25 million across the whole of the year. He expects an additional impact of 25 million Australian dollars for the year 2023.

Treasury shares soared as much as 2.7% on Thursday after the company reported full-year profit that was in line with analysts’ average expectations.

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Elisha A. Tilghman