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Australia's Penfolds Bets On China-Made Wine To Rebuild Tariff-Hit Business

By Dave Simpson

Australia's Treasury Wine Estates is taking a fresh crack at China, hoping that a new strategy to produce wine there and sell others made in France and the United States will rebuild its Chinese business after diplomatic ties frayed.

Details

Australia's biggest wine company has been one of the worst corporate casualties of recent frictions with China after Beijing began an anti-dumping probe into Australian wine imports in 2020 that decimated its business there.

Last month, the company launched a new China-made red blend priced at 228 yuan ($31) a bottle aimed at sophisticated, urban, Gen-Z consumers in China, branded "One by Penfolds".

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"We're a big believer that we will rebuild a business over multiple years in China," the firm's chief executive, Tim Ford, told Reuters on Wednesday.

That effort aims to burnish the Penfolds brand, using wines sourced from China, France and the United States, he said by telephone from Australia.

"Before the tariffs we had 600,000 cases of luxury wine to China (a year), and we think we can get back there over the next decade."

The line, pitched at a lower price than premium offerings, is also being marketed at a key state-led trade fair, the China International Import Expo, in the financial hub of Shanghai.

Its China launch was accompanied by a brand takeover of the city's youth-focused TX Huaihai mall, complete with a DJ booth and rocket-themed installations.

Chinese consumed just over a billion litres of wine in 2021, making their nation the sixth thirstiest wine market in the world.

In keeping with the focus on younger consumers, One by Penfolds will be more widely available online, rather than in traditional shops, and will roll out globally after the initial appearance in China.

It encompasses wines made in the United States, France, and China's Ningxia region, with a higher-end product made in the southwestern city of Shangri-La also in the works, Ford said.

Before the probe and tariffs introduced last year that set customs duties of up to 218.4% on Australian wines, China contributed about 30% of TWE's 2019 operating income of A$664 million ($431.27 million).

That has withered to a negligible share in the company's 2022 results.

Penfolds has spent five years working on diversifying the locations where its wine is made, so as to cut its dependence on the limited resource of grapes available in Australia.

While the strategy also aimed to help satisfy global demand, it has "100%" become more important in the effort to recoup Penfolds' position in the Chinese market, Ford added.

"The relationships we've built with a lot of our customers and the brand connection meant we as a leadership team just couldn't walk away," he said, explaining why the company had ruled out shutting up shop in China, despite the barriers.

It has continued to invest in intellectual property protection in the market and promoted the Penfolds brand to keep it to the fore for Chinese clients, Ford said.

"Albeit we haven't had much product to sell, we're pretty focused on making sure we keep the brand relevant and keep it alive."

Other TWE Brands

In addition to Penfolds, beloved by connoisseurs for its premium wine Grange, TWE's portfolio includes brands such as Lindemans and Wolf Blass.

News by Reuters, edited by Hospitality Ireland. Click subscribe to sign up for the Hospitality Ireland print edition.

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