Australian wine giant Treasury Wine Estates (TWE) has issued its first earnings downgrade for Penfolds in 2025, blaming a steep slowdown in China — once its most lucrative market.
The company announced on October 13 that it will redirect part of its Penfolds portfolio to other regions after demand in China weakened significantly, a move that triggered a 14% plunge in its share price on Monday, reported by Vino-Joy.
Weak Chinese Demand Dampens Outlook
TWE reported that Penfolds’ first-quarter shipments for fiscal year 2026 (ending September) were broadly in line with expectations, but consumer sales in China dropped sharply from June onward. Although there was a modest uptick in August, Mid-Autumn Festival sales fell below expectations, signaling a deeper structural issue.
The company linked this trend to China’s May 2025 government directive restricting official alcohol consumption — a policy that has severely impacted banquet and business-related drinking, traditionally vital channels for premium wine and baijiu alike.
Preliminary September data revealed that while sales were slightly higher year-on-year, they still failed to meet internal targets. TWE warned that if current trends persist, Penfolds’ depletion targets for FY2026 in China will not be achieved, and its earlier guidance of low- to mid-double-digit EBITS growth for FY2026 and around 15% for FY2027 was no longer realistic.
To mitigate losses, TWE will reallocate Penfolds inventory to other major markets and tighten controls on parallel imports to maintain pricing consistency. The company stressed that protecting the long-term brand equity of Penfolds remains a priority despite short-term headwinds.
China’s Structural Wine Market Shift
The latest downgrade underscores deep structural changes in China’s wine market. For decades, imported wines were positioned as symbols of sophistication and prosperity, dominating corporate gifting, banquets, and festive occasions. Penfolds, with iconic labels like Bin 389, Bin 407, and Bin 707, capitalized on this trend, achieving unparalleled recognition among Chinese consumers.
However, the post-pandemic landscape tells a different story. China’s sluggish economic recovery, coupled with reduced business entertainment and the May alcohol restrictions, has reshaped consumption habits. The dominance of baijiu — perceived as culturally rooted and symbolically powerful — has further marginalized wine’s role in social and official settings.
Industry analysts note that imported wine brands now face the challenge of repositioning themselves for lifestyle-oriented drinking occasions rather than relying on banquet-driven consumption.
U.S. Market: Transition and Opportunity
Outside China, TWE’s Americas division continues to evolve. The company highlighted strong performance across DAOU, Frank Family Vineyards, and Stags’ Leap, with sales growth outpacing the luxury wine category by over 5%.
Nevertheless, in California, temporary distributor changes and account restructuring with key clients in September led to short-term constraints. The company described these as transitional issues expected to normalize in the coming quarters.
Given the uncertainty in both Penfolds’ China performance and the U.S. adjustments, TWE said it would withdraw its group-level EBITS growth guidance for the current fiscal year.
Market Reaction
Investor response was swift. TWE shares fell sharply from AUD 6.98 (EUR 3.90) at Friday’s close to AUD 5.99 (EUR 3.34) in early trading Monday, before partially recovering to AUD 6.23 (EUR 3.48), still down 10.7% for the day.
Market observers say the sell-off reflects waning confidence in China’s high-end wine segment, which for years fueled TWE’s premium growth story. As one analyst put it, “The banquet economy is fading, and with it, a key pillar of imported wine demand.”
Outlook
For Treasury Wine Estates, the China downturn signals more than a temporary market shock. It marks a paradigm shift — from reliance on institutional consumption toward individual, lifestyle-driven wine enjoyment.
How TWE and other premium producers adapt their brand strategies to fit this new reality will shape the next chapter of global wine trade. As the company pivots to diversify Penfolds’ market footprint, the slowdown in China may prove to be not just a challenge, but a turning point for the brand’s global evolution.
Source: Vino-Joy