Penfolds girds itself for China tariff damage

Treasury Wine Estates, the manufacturer of the iconic Penfolds Grange Hermitage, has announced a raft of changes in response to China’s imposition of harsh tariffs on Australian wine exports to China.

The Penfolds, Grant Burge and Lindemans wines amongst a host of others admitted that the tariff, between 107 per cent and 212 per cent depending on brand, would cut China demand for its products with sales likely to be ‘extremely limited’.

TWE brands will be hit with a 169.3 per cent tariff.

Even before the tariffs TWE’s Asian earnings before interest and tax were down 14 per cent due to the effects of the Covid-19 pandemic.

In an attempt to reduce the effect of the China tariffs the company is reallocating Penfolds Bin series wines from China to other markets, which have been undersupplied in recent years.

The company will also accelerate marketing activity in these other markets in Asia, Australia, the United States and Europe.

It will also reallocate luxury grape supplies to other premium Australian wines including Wynns, Wolf Blass, Seppelt and Pepperjack. exporting its brands based in France to the middle kingdom, and also potentially boost sales of its own China brands.

In the China market the company will pursue ‘alternate supply chain models’ – this is possible as Penfolds Grange is in huge demand in China making it the most faked Australian manufactured product.

However these changes can only do so much and the China tariffs are going to hit TWE, and other producers, hard.

Last year Chinese earnings accounted for 30 per cent of TWE’s earnings, and China demand for Penfolds products grew 35 per cent.

And in bad news for Australian grape growers, TWE announced a reduction in the intake of grapes starting from the 2021 vintage – a predictor of future reduced sales.

TWE’s Tim Ford said: “There is no doubt this will have a significant on many across the industry, costing jobs and hurting regional communities and economies which are the lifeblood of the wine sector.”

Picture: TWE

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