Australia’s largest wine producer has moved to offset the crushing impact of Chinese tariffs on the country’s wine industry by hiring celebrity criminals to carve out a stronger position in the US luxury market.
Treasury Wine Estates, best known for its Penfolds and Wolf Blass brands, attributed rising US sales to the success of its higher-priced brands including 19 Crimes, a collaboration with rapper Snoop Dogg and former stockbroker turned media tycoon Martha Stewart.
19 Crimes sells wine with stories of Australian convicts and has adapted the concept for the US by collaborating with convicted celebrities. “Martha’s Chard” was launched under the 19 Crimes brand in January following two Snoop Dogg launches, of a Syrah-Zinfandel blend and a rosé, since 2020.
Tim Ford, chief executive of TWE, said the US luxury wine market was now a main part of the A$9bn (US$6.5bn) valued winemaker’s growth strategy after the collapse of its sales in China as a result of the introduction of steep tariffs on Australian wine.
“The US is the largest growing luxury wine market in the world. It’s a terrific market,” said Ford in an interview with the Financial Times. He said the company was “well on track” to reallocate luxury wine originally destined for China to other markets, a process estimated to take three years.
Sales outside China into Hong Kong, Singapore, Taiwan, Malaysia and Thailand hit 119 per cent, said Ford.
Celebrity-branded alcohol is a fast-growing segment in the beverage market. Successful launches include actor Dan Aykroyd’s Crystal Head vodka and heavy metal band Iron Maiden’s Trooper range of beers. The upmarket tequila brand Casamigos, co-founded by actor George Clooney, was sold to Diageo for $700mn in 2017.
The pivot to the US followed the imposition of a 175.6 per cent tariff on Australian wine by Chinese authorities in November 2020. Ford said China had been its “biggest and most lucrative market” with the luxury Penfolds brand popular with well-heeled consumers in the country.
Sales into China collapsed to only A$2mn from A$78mn in the second half of 2021, dragging down TWE’s net profit by 7.5 per cent to A$109m in the period. The Wine Australia trade body said this month that exports of Australian wine to China last year slumped 93 per cent to A$29mn.
That collapse in demand combined with a bumper harvest has led to a glut of red grapes in the wine-growing regions of Australia, with farmers facing the prospect of lower prices or wasted stock in 2022. “This is going to be a tough vintage for growers, no doubt,” said Ford.
Still, Ford was adamant that Penfolds had a future in China — a market where counterfeit versions of its wine appear under brands including ‘Benfolds’ — despite the imposition of tariffs. TWE has left 100 staff, including the head of the Penfolds unit, in Shanghai and is working to export French and American variants of the wine into the country.
“We are not walking away from China,” he said, adding that the company was in the middle of a “bridging period” where it finds new ways to supply Chinese consumers.
The tension with China has forced Australian winemakers to improve sales in other markets including the UK and US.
Ford said the US market, which TWE entered in 1990 when it was part of the Foster’s empire, was “a problem”. At the time, it owned brands sold for less than $10 with low profit levels.
It has since sold them off and last year paid A$434mn to acquire Frank Family Vineyards in the Napa Valley as it looks to create a Penfolds “sister” company in California.
As Australia lifts its strict Covid-19 restrictions, Ford is expected to visit the US in coming weeks, his first overseas trip since being appointed as chief executive in July 2020. He joked: “I managed to get to Adelaide though.”
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