TWE diverts thousands of cases of China-bound wine to other markets to avoid new swingeing tariffs
Australian wine giant Treasury Wine Estates has said it plans to divert thousands of cases of China-bound wine to other countries to avoid the recently introduced swingeing import tariffs.
TWE CEO Tim Ford said the company is “extremely disappointed” by China’s decision to impose the hefty taxes of more than 169%, and that TWE would be “actively engaging” with the Chinese Ministry of Commerce.
“We are extremely disappointed to find our business, our partners’ businesses and the Australian wine industry in this position,” he said. ‘We will continue to engage with MOFCOM as the investigation proceeds to ensure our position is understood. We call for strong leadership from governments to find a pathway forward.”
The company, which has been forced to to rewrite its business strategy almost overnight following the collapse in demand from its biggest market, said it plans to redirect sales of its prized Penfolds label from China – which currently accounts for a quarter of TWE’s annual global Penfolds volumes - to other key luxury growth markets where there is unsatisfied demand, including Asian markets outside China, Australia, the US and Europe. Some of the wine to be redirected is already in port in Shanghai, added Ford.
Additionally TWE said it would be boosting its investment in sales and marketing resources across these alternative markets, as well as reallocating luxury grape sourcing to other premium Australian brands, including Wolf Blass, Whynns and Pepperjack.
“We are moving on with a plan ... to build the markets outside of China, and that’s what we’ll continue to do,” Ford told CNBC “A strategy of hope’s not a very good strategy.”
However, despite these measures, Ford conceded that the impact of the tariffs will be high for Australian wine exports to China. “There is no doubt this will have a significant impact on many across the industry, costing jobs and hurting regional communities and economies which are the lifeblood of the wine sector,” he continued.
He said that TWE expects demand for its wines in China will be “extremely limited” while the tariffs remain in place. This was confirmed by Ibis World analyst Matthew Reeves, who said: “Following the imposition of tariffs over the weekend, Chinese demand for Australian wines is expected to almost collapse.
“While these tariffs remain in place, Australia is effectively locked out of the Chinese market. Producers will attempt to divert supply towards other export markets, but the amount of product that will need to be redirected is anticipated to exert significant downward pressure on prices.”
Treasury shares nosedived by as much as 12% in early trading on Monday, with the stock down a third since China first announced the anti dumping investigation in August.
“China has been a cornerstone market for TWE in growing sales in its top end wines,” said Bank of America analyst David Errington in a note. “And the loss of China as a market is expected to be a setback,” adding that he predicted China’s earnings contribution to the company would almost halve by 2023.