TWE Struggling

[Hacker]

Jan 28 (Reuters) - Australia's Treasury Wine Estates (TWE) on Tuesday lowered its fiscal 2020 and 2021 earnings expectations, citing pricing pressures and increased competition at its United States business.
The impact of global trade disputes and severe weather and fires in Australia also threaten to erode margins.
The owner of the Penfolds and Wolf Blass labels expects EBITS (earnings before interest, tax, and the agricultural reporting standard SGARA - self-generating and regenerating assets) growth of about 5% to 10% for 2020. That compares with an earlier range of 15% to 20%.
Treasury blamed unexpected changes in its U.S. management team and higher costs from promotional activity in the U.S. market, where suppliers have moved surplus wine across the market at lower prices.
Private label businesses generally source wine from third-party manufacturers, which they sell under their own brand - an increasingly popular trend in the United States.
"Further, impacts from the trade war and above average recent vintages have led to increased levels of supply across the market, which has contributed to high levels of discounting," Treasury said in a statement.
Treasury added that drought, heat and fires in Australia have created challenges that threaten to drive up the cost of its 2020 Australian vintage wine, which is currently in harvest.
The company reported half-year net profit after tax at A$229.2 million, up 5% from the previous year.
Unable to continue the aggressive pricing activities it employed in delivering the first-half result, Treasury said it would instead focus on "sustainably growing profit" into 2020 and 2021, albeit at lower growth rates than expected.
Reported EBITS growth for fiscal 2021 was expected to recover slightly from 2020 and was seen at about 10% to 15%, helped by continued demand for its luxury wine labels - a category that includes Penfolds, Beringer and Stags' Leap.

[phillisc]

Hacker
Take your point at the moment...but dont think the shareholders are too upset...400% in less than 4 years.
That said TWE have completely alienated the domestic market and have made some pretty poor business decisions. Karma!
Cheers Craig

[crusty2]

Another scathing opinion piece
https://www.theage.com.au/business/companies ... 53vpb.html

[sjw_11]

Another scathing opinion piece
https://www.theage.com.au/business/companies ... 53vpb.html

Erro doesn't seem to mind the price gauging or the obsession with China, just the US domestic platform.

[Mahmoud Ali]

Coincidentally, yesterday I had a wide ranging discussion with a well versed sales assistant at a wine store and the topic of Penfold's came up. He said there was a time when the store stocked it but now there is no interest in the brand and he cannot recall when anyone expressed an interest or enquired after it.

[phillisc]

And a further note
Pennies are going to have a Pennies Bar in the new Adelaide airport redevelopment. According to the person interviewed his quote on the news last night was "it will be very Penfolds!" Whatever the F that means!!??
On the one hand woo a few international visitors for a glass of something from a bottle that has been sitting there all day...on the other hand charge prices way and above what you would see anywhere else, probably even more than Magill Estate and see more punters head to the Coopers Bar instead. There is already a premium wine store and all things SA store, generally with about two people in it at anytime I have walked past...and all at grossly inflated prices.

Another wonderful marketing strategy...pseudo CD perhaps
Cheers Craig

[sjw_11]

see more punters head to the Coopers Bar instead.

The Coopers Bar isn't exactly a paragon of virtuous pricing itself. Most notably I was very grumpy that they refuse to serve beer in any measure smaller than a pint. Not great from a responsible service perspective either.

[phillisc]

see more punters head to the Coopers Bar instead.

The Coopers Bar isn't exactly a paragon of virtuous pricing itself. Most notably I was very grumpy that they refuse to serve beer in any measure smaller than a pint. Not great from a responsible service perspective either.

True Sam...only cheap drinks at Adelaide airport are in the airline lounges (if I can get in as a guest )...and agree that RSA has gone out the window some time ago.
Cheers Craig

[Ian S]

Yes airport shops and bars have long since become overpriced sh*te. There are one or two very rare exceptions, e.g. at some of the tiny Italian airports, where it's still possible to get a good espresso / caffè macchiato for just over a euro, plus the odd location that has food good enough to eat there and forego the 'free' meals on board. I can still remember some interesting and locally sourced duty free shops going back 2 decades or more, but I can't think of a recent one that I'd recommend. Perhaps Jamie has some gems from his work travels?

[Ian S]

As for TWE, it's not the first company to lose a lot trying to break into the US market. Amusing when the US complains about China and Japan not opening up their markets, but obstacles exist to entrants into the US as well. Still, Casella showed how it could be done, but there was a perfect opening for them at that point in time, whilst the backlash against Parker / The grateful palate style wines is still strong, so breaking into the wine enthusiast market is very tough at the moment. For those that still remain interested, they are more likely to stick with Mollydooker, rather than switch to Penfolds.

As a wine enthusiast Penfolds lost me a long time ago with the optimistic/aspiration/(masstige ) pricing. They were lucky to inherit the prestige of Penfolds Grange and they've worked hard to maintain and leverage that marketing position. I can't see myself ever buying another bottle of Penfolds, and I know a few others here are in the same position. Other labels in the portfolio retain interest e.g. Wynn black label CS

[marsalla]

Hi Ian,
I think the problems in the US are their US wines, not necessarily AUS wines going there, and secondly, but more importantly, the cantine\buffet at Palermo Airport was always very good. I used to go early before flights as an excuse to go there.

[Mahmoud Ali]

I think the problems in the US are their US wines, not necessarily AUS wines going there.

I don't understand, could you explain?

[Matt@5453]

I think the problems in the US are their US wines, not necessarily AUS wines going there.

I don't understand, could you explain?

Marsalla is right - google TWE brands. They have real estate in the Napa

[phillisc]

Hi Ian,
I think the problems in the US are their US wines, not necessarily AUS wines going there, and secondly, but more importantly, the cantine\buffet at Palermo Airport was always very good. I used to go early before flights as an excuse to go there.

Yes had an excellent pizza and a bottle of Canadian Cabernet (Okanagan Valley??) at a place in Calgary airport last year, for a very reasonable sum
Cheers Craig

[Polymer]

As for TWE, it's not the first company to lose a lot trying to break into the US market. Amusing when the US complains about China and Japan not opening up their markets, but obstacles exist to entrants into the US as well.

Which obstacles are you referring to?

[marsalla]

Thanks Matt, yes, Beringer, Blossom Hill et al.

I imagine the difficulties Ian may be referring to in the US is the complex three tier import/distribution system required in the US. It works well for established players but can be a barrier to entry. That said it can be a barrier to every new wine / spirit business.

[Polymer]

I don't see how it is a barrier to entry....Australia uses the same model (although it isn't shoved down your throat). In fact, many countries do this to some extent..

Producer to importer/wholesale/distributor to retailer to end user.
You sometimes see
Producer to importer/retailer to end user
And if you're lucky
Producer to End User

But we see that in many countries..including the US...Domestic Australian wines often go producer to wholesaler to retail to end user...although some don't...

The biggest barrier I see is the fact that each state has their own laws and that can be a major pain in the butt..but that wouldn't matter to people sending wine to the US...

Australian wine faces a few different challenges in the US...
Stylistically it has gone out of fashion and the people that like that style have found cheaper alternatives...
Prices are still not great...You'd think with the weaker AUD you'd start seeing better AU Wine pricing in the US...nope...
So you struggle with wines that fit into roughly the same quality level as wines from other countries in a marketplace that is fairly free (outside of the latest French tariffs) and has access to wines from all over.
When faced with great alternatives that are local and more familiar...or great alternatives from France, Italy, Spain, etc....It's not like AU where they have a price advantage...on a level playing field the wines just don't stand out and the wines that might stand out at their price point...don't even make it into the country.

So how do you convince retailers to carry the wine when they've done so poorly in the past because of the lack of hype? Where is the marketing? Where is push for better value to gain market share? There is this weird assumption people will just know about the wine but when your wines that would show well to an international community have a hard time even making it out of the country, people just won't know about them...

[crusty2]

I don't see how it is a barrier to entry....Australia uses the same model (although it isn't shoved down your throat). In fact, many countries do this to some extent..

So how do you convince retailers to carry the wine when they've done so poorly in the past because of the lack of hype? Where is the marketing? Where is push for better value to gain market share? There is this weird assumption people will just know about the wine but when your wines that would show well to an international community have a hard time even making it out of the country, people just won't know about them...

Some importers are lazy and virtually demand a representative of a winery to come from Aus to USA and do their marketing for them. For small producers on small margins the average $20k cost to schmooze the importer for a week and show their portfolio is not viable.
Aussie wine is hard sell if you are not present or the "next big thing" which lasts about 6 months before somebody else comes along.

[Ian S]

As for TWE, it's not the first company to lose a lot trying to break into the US market. Amusing when the US complains about China and Japan not opening up their markets, but obstacles exist to entrants into the US as well.

Which obstacles are you referring to?

Things like (existing and pre Trump) import tariffs, customs/import regulations, Screening regulations, subsidies to US businesses, plus legislation that places local or large existing businesses at an advantage.

I'm not making a case that they are better or worse than other countries (that's as much a political argument as a business one). It's a dance that all countries partake in, and that includes such stuff as wine labelling e.g. the renaming of Rutherglen stickies as part of Australia - EU negotiations.

[Polymer]

Ian,

Can you be a bit more specific? Because the tariffs are really low (outside of this latest Trump one on French wine). To a premium AU wine, it is a nothing. Any import screening for products (for pests, etc) apply to everyone importing wine..of which you can find from every country perfectly fine and priced competitively...Subsidies are generally there for other businesses not the wine industry although I know there is money put in for the marketing of US wine overseas....which AU has as well. I'm not familiar with any local legislation that is providing a leg up other than maybe some states allowing direct to consumer selling...(while many do not).

Also, lets be honest...you can't compare the restrictive anti-competitive legislation in China to that of almost any other country....outside of the fact that each state has their own specific laws (which everyone doing business in the US for anything has to deal with), there isn't anything in particular that would create other barriers to entry....You can get pretty much anything at a competitive price in the US so businesses are doing it. It is pretty unfair to look at anything but these AU companies as the party to blame.

Plus it would be really cheeky for any AU wine producer to complain when in fact they're highly protected...it isn't a surprise they have trouble competing overseas where that protection doesn't exist...

[Mahmoud Ali]

I did not know that Penfold's owned Beringer, etc. Are they doing worse than Penfold's?

I fail to see how the US distribution system has a deleterious effect on Australian imports that is any different to any other country. If there are three tiers between producer and retail then all other wine imports face the same challenges. Australian wines lost ground after the collapse of their brand, the big, ripe, block buster shiraz and are now struggling to recover. The system is not at fault. The same is true here in Canada, we have an importer/agent and then retail, some private but mostly government owned.

[Ian S]

Hi Polymer
I'm keen to avoid this getting into politics. but invariably this touches on it.

This article highlughts the extra governance hurdle for businesses for transactions that go to/from American financial institutions.
It also showed the fine of $963 million that BNP paribas had to pay the the US government for (significant) failures to screen against the US sanctions list.

https://www.wsj.com/articles/bnp-paribas-rev ... 1574204524

and just to be clear, I am not trying to compare, as I explained earlier

I'm not making a case that they are better or worse than other countries (that's as much a political argument as a business one).

For clarity, I will not argue politics, on this or any other subject. This is a wine forum and we've already diverged far enough off theme. Wine is also much more likely to be discussed amicably, whereas politics invariably isn't. I come here to celebrate a shared joy of wine.

Regards
Ian

[Mahmoud Ali]

I'm confused, why are we talking about US sanctions and penalties? I thought this thread was about TWE and their difficulty in the United States. If I can summarize, the culprits identified were the three tier import system, lazy marketing, and the need for producers to visit the US. From my perspective none of them are relevant to Australian wines penetrating the US market. They are common factors to all imports.

By the way, speaking of Beringer, I just got an newsletter from Wine Enthusiast with an advert about the 2015 Beringer Private Reserve Napa Cabernet getting 99, 97, and 95+ points.

[Ozzie W]

Now that Brexit has occurred, the import duties that previously applied to Aussie wines imported into the EU will no longer be applicable in UK. The UK is a large market for Australia. Should help TWE I would think.

[marsalla]

I'm confused, why are we talking about US sanctions and penalties? I thought this thread was about TWE and their difficulty in the United States. If I can summarize, the culprits identified were the three tier import system, lazy marketing, and the need for producers to visit the US. From my perspective none of them are relevant to Australian wines penetrating the US market. They are common factors to all imports.

By the way, speaking of Beringer, I just got an newsletter from Wine Enthusiast with an advert about the 2015 Beringer Private Reserve Napa Cabernet getting 99, 97, and 95+ points.

Hi Mahmoud, I think I identified the major part of the problem as being their American wine business, not really the Australian wines per se.

[Ian S]

I'm confused, why are we talking about US sanctions and penalties? I thought this thread was about TWE and their difficulty in the United States.

Hi Mahmoud
Thread drift for sure, and you're right to pull it back on track - I'd been asked to provide an example, so I did. No reason for this thread drift to go any further. It is not central to why TWE aren't succeeding, whilst other Aussie companies do have a profitable foothold.

[Ian S]

Now that Brexit has occurred, the import duties that previously applied to Aussie wines imported into the EU will no longer be applicable in UK. The UK is a large market for Australia. Should help TWE I would think.

Still 11 months to go before the UK exits the transition period and the revised trading relationship between EU and UK is agreed (though it is not out of the question that the current government will choose the option of no deal).

So this will be part of the negotiations with the EU (and other countries). If they go well, no additional import duties on EU wines and maybe agreement not to relax the import duties from elsewhere. If they go badly, then the reverse might happen. I can't predict the way it will go. I will however reflect on the ill-feeling generated at the time that the UK joined the EU, that New Zealand for sure, and I suspect Australia, felt let down by the way the trading relationship with the UK changed (my partner uses stronger language). We may be in for a little payback in those negotiations.

As for wine enthusiasts, the market isn't what it was when the exchange rate was AUD3 to GBP1. Back then we had the wonderful Australian wine bureau, bringing Australian wine tastings to all the cities (not just London), with very well-chosen selections hitting all the necessary bases. We also had high street chain Oddbins who had made their name on Aussie wines and retained a loyal following. Southcorp had attractive pricing on a wide range of wines, e.g. Bin28 at £10, but often reduced in price by a third. Ditto Wynns Black label. The former now £30 a bottle, the Wynns thankfully a little cheaper. Lots of Parker-style wines currently sloshing around the secondary market as well, the price dropping like a steady leak.

Today we have no meaningful Oddbins, no meaningful national marketing effort over here, though at least the exchange rate has crept back nearer to AUD2 = GBP1. That helps, but that's still a one third increase in effective price. Of the generation that grew up on Aussie wines, many have now discovered/switched to Italy, Spain, Portugal, France, Greece, Argentina, Chile etc.

That can all change, but it will need more than a friendly trade deal. That same concerted marketing effort is critical and pricing will need to be carefully considered. In terms of potential, I'd say it's likely to prove an easier market than the US (or mainland Europe), though nothing like the scale of the US (which feels like high risk, high reward in comparison).

[Mahmoud Ali]

Thanks Ian, understood.

I took a look at TWE's brands and I see that among their US brands are iconic and well known wineries like Beaulieu Vineyards, Stags Leap Winery, Accacia, Sterling Vineyards, Chateau St. Jean, and Beringer. These are all successful wineries that have had a long presence in the US market, with Beaulieu and Beringer going back almost a hundred years. Also, many of their AustralIan brands are well known and have had a long presence in the US and Canadian market.

As for any difficulty breaking into the US market I need only point to to '19 Crimes'. It is a brand that was created in only 2012 and has already made a big sales impact. Whatever TWE's financial problems are it seems to have little to do with the US distribution system and marketing.

[Mike Hawkins]

Thanks Matt, yes, Beringer, Blossom Hill et al.

I imagine the difficulties Ian may be referring to in the US is the complex three tier import/distribution system required in the US. It works well for established players but can be a barrier to entry. That said it can be a barrier to every new wine / spirit business.

I don’t agree with this. They have advantages, not disadvantages over many other non US wineries. Firstly, in the main, they import their own wine to the US. It is then added to the extensive distribution networks they have for their indigenous US brands. ... and this includes some hybrid models in various states as well as direct to customer where allowed.

As such, their position is theoretically better than Bordeaux, Italy etc who are at the mercy of all others in all 3 tiers.

[Mike Hawkins]

Thanks Matt, yes, Beringer, Blossom Hill et al.

I imagine the difficulties Ian may be referring to in the US is the complex three tier import/distribution system required in the US. It works well for established players but can be a barrier to entry. That said it can be a barrier to every new wine / spirit business.

I don’t agree with this. They have advantages, not disadvantages over many other non US wineries. Firstly, in the main, they import their own wine to the US. It is then added to the extensive distribution networks they have for their indigenous US brands. ... and this includes some hybrid models in various states as well as direct to customer where allowed.

As such, their position is theoretically better than Bordeaux, Italy etc who are at the mercy of all others in all 3 tiers.