(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 cost-of-living pressures.
Australia’s largest listed winemaker is betting on price increases to drive up revenue, with a focus on its top-end wines.
“The wine category has proven to be resilient through past periods of economic tightening like we’re going through around the globe, with wine typically seen as an affordable luxury by many consumers,” Chief Executive Officer Tim Ford said on a call with investors Thursday. “Consumers will become, we believe, increasingly discerning in the way they spend their disposable income.”
Younger drinkers in particular are engaging with wine at higher price-points, while home consumption remain elevated -- both trends that accelerated during the pandemic, Ford said.
The Melbourne-based winemaker emphasized a series of customer experience initiatives, including a pop-up store in London’s Harrods 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 promoted by US rapper Snoop Dogg.
For the year ended June 30, net sales revenue of its Penfolds brand outside mainland China grew 45%, Treasury said Thursday. It’s strongest performance was in Asia, where sales jumped 106%. Still, its previous reliance on China sales was shown by its overall revenue from the division falling 9%.
Treasury has ramped up efforts to tap markets beyond China after Beijing in 2020 slapped tariffs of more than 200% on products originating from Australia for a period of five years.
China Focus
Rebuilding its business in China -- which previously represented about 30% of the company’s annual earnings -- remains a focus, the company said. Treasury has expanded its offerings of wines originating from other countries including the US and France, and recently announced made-in-China Penfolds, due for release later this year.
READ: Made-in-China Penfolds Wine Will Dodge Crippling Import Tariff
“The Australian portfolio is still the core, but the new countries of origin will be the focus in mainland China,” Managing Director of Penfolds, Tom King, said on the call. “Hopefully, as we are able to fulfill demand and source more fruit and make more wine, we’ll be selling more of the multi-countries of origin around the globe.”
Treasury also warned of headwinds from ongoing inflationary cost pressures as well as global supply-chain risks, which had an impact of approximately A$25 million in the full year. It expects an additional A$25 million impact for full-year 2023.
Treasury shares climbed as much as 2.7% Thursday after the company reported full-year profit that met the average of analysts’ expectations.
©2022 Bloomberg L.P.
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