Treasury Wine Estates (TWE) is making strategic moves to streamline its portfolio by divesting itself of its lower-priced wine brands, aiming to position itself as a premium and super-premium player in the market. In an interview with the Australian Financial Review, CEO Tim Ford disclosed that the company has set an internal deadline to either sell off or de-merge its less expensive brands by the end of this year.
The decision reflects a global trend where consumers are increasingly gravitating towards higher-priced wines, prompting TWE to concentrate its efforts on its premium offerings, particularly the lucrative Penfolds label. Ford emphasized the shift towards targeting the market for bottles priced at AU$30 or more, which he anticipates could constitute the majority of TWE’s business.
Currently, approximately 75% of the company’s profits are derived from the Penfolds business and a luxury wine portfolio in the United States, further underscoring the strategic importance of focusing on premium brands. The potential divestment of lower-priced brands such as Wynns, Pepperjack, Lindemans, and others would allow TWE to sharpen its focus on its core high-margin products.
Analysts estimate that luxury wines yield gross margins exceeding 50%, compared to 25% for cheaper bottles, highlighting the potential financial benefits of this strategic realignment. The move comes on the heels of TWE’s recent announcement of price increases for the Penfolds range and other ultra-premium wines, reflecting the pressure on supply, particularly with the reopening of the Chinese market.
Meanwhile, industry rivals Accolade and Australian Vintage are exploring options for restructuring their businesses, including potential mergers, amid market challenges and changing consumer preferences. TWE’s potential split from its lower-priced brands marks a significant shift from its previous expansion strategy, signaling a return to its roots as a focused player in the premium wine segment.
