Treasury Wine Estates French adventure

Spreading the treasure

Treasury Wine Estates (TWE) has announced it will launch a range of French wines targeted at the Chinese and general Asian market. It is certainly spreading the treasure.

TWE is not giving anything away but has created plenty of speculation. Media reports say the range will consist of red wines from Bordeaux, Burgundy and Châteauneuf-du-Pape plus a Provence rosé and a Champagne.

Will the range be under a collective name, eg Plume Plié (folded pen)? Would this work? Reports say TWE is not planning to acquire a Bordeaux base such as an established château. Therefore it must be renting space to make its own wine, or buying finished wine. The latter seems likely as the launch is scheduled for later this year or early next year.

It’s about lifting profit margins. TWE wants to get up into the 30 per cent plus area. It can only do this with certain brands and certain wines within those brands. The current and immediately past management have done a wonderful job with Penfolds. We think there is only Koonunga Hill that retails below $20 on the domestic market.

TKR assumes if TWE is using decent grapes, even with the lowest possible cost and biggest scale production, it would surely have to have a range that retails more than $20 on the domestic market to make a 30 per cent profit.

The Penfolds brand is now there and a top money earner for the company. Parts we think, but not all of the Wolf Blass range are also in magic margin land. Wynns should be but their core range is still retailing below $20 (domestic) so maybe only parts are. That doesn’t take into account what price Wynns fetches in China and other Asian markets.

Can Rosemount be resurrected? Anything is possible but at this stage TKR would be hesitant to put money on it. Maybe smaller volume brands can be upgraded to fall into the magic margin category such as Devils Lair, it’s all speculation.

On the other hand, going back to before this and immediate past management, Southcorp and Foster’s managed to destroy the once great Lindeman’s brand.

There is still speculation that the lower profit, mass appeal brands in the TWE portfolio will be spun off into another company. This could work well. There is money to be made in shifting large amounts of popular brands, but management and staff need to be free from the pomposity and one-upmanship so prevalent in the posh end of wine.

Coming back to the French project if it works Clarke will be a hero but it’s success is far from a certainty

TWE’s French adventure holds promise, but there is risk. Can TWE get the proposed $270 a bottle for a generic Bordeaux wine? Other expected prices haven’t been released but they would have to be high. Burgundy is renowned for patches of vineyard no bigger than a suburban backyard whose wines fetch hundreds of dollars a bottle. Will this translate to a TWE brand? As for Champagne, millions upon millions of francs and now euros are spent each year on maintaining a house’s reputation.

It’s hard to imagine TWE getting what in essence will be a house brand from one of the co-operatives that will fetch prices comparable to those of the Grandes Marques. TKR assumes an acceptable retail price will be around the equivalent of an Aldi, Tesco or Dan Murphy’s house brand, with a reputation to match. Clarke will be trying to convince his customers that the TWE offering is better than these and worth the high prices asked. It brings to mind the saying about fooling some of the people some of the time but…

Is the Châteauneuf-du-Pape really a Châteauneuf-du-Pape or is it to be a Rhone wine? The easiest to get up and running should be the Provence rosé, but this will, or should be, the cheapest, and therefore provide the lowest margin.

It appears Michael Clarke is looking at Moët Hennessy Louis Vuitton (LVMH) as a role model. He wants to build a portfolio of luxury brands that sell for astronomical prices on reputation.

We hold more doubt about the French venture than perhaps is warranted, only time will tell.

Clarke is bathing in the glory of shareholders’ adoration, having lifted returns, and the share price is now running over $12.  He is deserving, but luck was on his side in that the plan that he has successfully implemented was set in motion before he was appointed, and the company was spun out of Foster’s debt free.

4 thoughts on “Treasury Wine Estates French adventure”

      1. Tony – the point Sean was making is that Fosters launched this same concept back in 2009 as Maison de Grand Esprit – it failed. Ditto, Southcorp bought the (lower end) James Herrick (French) brand but eventually buried it too.

        1. Ah, slow to catch on, age is showing. Hardy’s did the same and were successful until Constellation Brands closed it, I can’t recall the name of that either

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