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Treasury Wine Estates’ multilayered plan to reduce impact of China’s wine tariffs

Treasury Wine Estates (TWE) has set out a series of plans it will implement to reduce the impact of the tariffs on Australian wine announced by the Chinese Ministry of Commerce last week.

TWE is facing a 169.3 per cent tariff on its wine in containers of two-litres or less, which can remain in place until 28 August 2021 at the latest.

The final determination of China’s anti-dumping investigation will determine if the measure will be maintained, adjusted or removed, and TWE said it will continue to engage respectfully with the Chinese Ministry as part of the investigation, which is continuing.

TWE’s CEO Tim Ford said: “We are extremely disappointed to find our business, our partners’ businesses and the Australian wine industry in this position.

“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 strength of our brands, including Penfolds, combined with our diversified business model will allow TWE to implement a range of changes and plans that will enable us to manage through the significant impact of these measures going forward.”

TWE said its response to the tariffs includes, but is not limited to, the following:

  • Driving incremental growth across TWE’s global priority markets:
    • Reallocation of Penfolds Bin and Icon range from China – which represent 25% of TWE’s annual global Penfolds allocation volumes – to other key luxury growth markets where there is unsatisfied demand, including Asian markets outside of China, Australia, the US, and Europe;
    • Accelerated investment in sales and marketing resource and capability across these other luxury growth markets to drive incremental demand and expand the distribution footprint of Penfolds; and
    • Reallocation of luxury grape sourcing to other premium Australian portfolio brands, including Wynns, Wolf Blass, Seppelt and Pepperjack, which have been significantly supply constrained over recent years.
  • China business model enhancements:
    • Alternate operating and supply chain models for TWE’s China business; and
    • Acceleration of the multi-country of origin portfolio growth strategy, with a focus on growing sourcing for TWE’s portfolio from its existing asset base in France and potentially from China.
  • Global operating model changes:
    • Reductions in global costs of doing business, including supply and overhead costs, as appropriate; and
    • Reductions to future vintage intake plans, commencing from the 2021 vintage in Australia.

Ford added: “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.

“We will continue to work with our valued partners to further understand the implications and how we can work with the industry, governments and others to support the sector.

“At the same time, we will continue to work with our customers and partners in China to demonstrate our long-term commitment to the growing number of Chinese consumers who enjoy our brands.”

TWE’s share price fell by more than 11 per cent on Friday after the tariff announcement by China, before being placed in a trading halt, pending today’s announcement. At 11.45am today, the share price had again fallen, by just under six per cent.

By Andy Young, The Shout

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