In a strategic move to revitalize Treasury Wine Estates (TWE), Tim Ford, the Chief Executive, is charting a course towards premiumization.
In an exclusive interview with the Australian Financial Review, Ford disclosed plans to divest the group's less expensive brands, aiming to position TWE as a powerhouse in the premium and super-premium wine segments.
With a deadline set internally for the end of the year, Ford intends to either sell off or de-merge the lower-tier brands, redirecting TWE's focus solely towards premium offerings. This strategic pivot comes amidst a global trend where consumers are increasingly favoring high-quality, premium wines over lower-priced alternatives.
Ford's vision is clear: TWE will target the market for bottles priced at AUD 30 (EUR 18) or higher, capitalizing on the shifting consumer preferences towards premiumization. By concentrating efforts on premium labels, particularly the lucrative Penfolds brand, TWE aims to solidify its position in the upper echelons of the wine market.
The decision to separate the lower-priced brands aligns with TWE's core profitability drivers. Currently, approximately 75% of the company's profits are derived from the Penfolds business and its luxury wine portfolio in the United States. The recent acquisition of Daou Vineyards further bolstered TWE's luxury wine segment, signaling a strategic emphasis on high-end offerings.
Ford's contemplation of hiving off the portfolio of non-luxury brands underscores TWE's commitment to strategic realignment. Internal restructuring efforts have already commenced, reflecting TWE's determination to optimize its operations for premiumization.
Among the brands potentially earmarked for divestment or separate entity status are Wynns, Pepperjack, Lindemans, Seppelt, Rawson’s Retreat, Squealing Pig, and Wolf Blass. Additionally, mid to lower-priced brands such as Sterling Vineyards, 19 Crimes, Matua, St Hubert’s, and Castello di Gabbiano may undergo restructuring or removal from the TWE portfolio.
Analysts anticipate significant benefits from this strategic shift, with luxury wines boasting gross margins exceeding 50%, compared to 25% for cheaper bottles. The move to prioritize premiumization is further reinforced by Ford's plans to increase prices for the Penfolds range and other ultra-premium wines by approximately 7% from July 1.
This decision reflects the growing demand for luxury wines, especially as the Chinese market reopens, juxtaposed against the oversupply of commodity wines. By reshaping its business towards premiumization, TWE under Ford's leadership is poised to navigate evolving consumer trends and emerge as a dominant player in the global wine market.