Treasury Wine Estates has outlined the next steps in its ongoing premiumisation strategy as the company looks to strengthen the operating model and reduce the cost base of the Treasury Premium Brands (TPB) division.
TWE said that with the consumption outlook commercial wines remaining challenged, most notably in the UK and Australia, there will be margin pressures on TPB. With this in mind, TPB is premiumising its portfolio and focusing on growing priority premium and luxury brands including Wynns, Pepperjack, Squealing Pig and 19 Crimes across key global markets.
TWE puts luxury wines in the $30-plus bracket, premium wines in $10-$30 and commercial wines in the sub-$10 price segment.
Since embarking on its premiumisation strategy in FY2021, TPB has seen the contribution of its premium and luxury brands increase to more than 60 per cent of the division’s net sales revenue; that’s an increase of 13ppts.
TWE said it will now look to develop this ongoing premiumisation strategy with a range of initiatives that are designed to deliver greater operational and strategic flexibility to enable continued growth of its Premium and Luxury portfolios. These include:
Adjusting TPB’s operating model and organisational structure to align with the future scale of the business, in order to reduce fixed costs and increase focus on priority brands
Undertaking a review of the Commercial wine supply chain, particularly in Australia, with a focus on improving operational flexibility and reducing total network cost to improve cost of goods sold
Exploring divestiture and/or rationalisation of selected assets, either individually or in combination.
TWE’s Chief Executive Officer, Tim Ford said: “We continually and proactively assess our business performance, our structure and our cost base to make sure we’re in the best position to continue to deliver on our premiumisation and growth strategy. With changing consumer preferences and a tightening economic environment in most major markets, we’re taking the opportunity to make changes in our business now, so we have increased flexibility in the future to continue to grow our Premium and Luxury portfolios.”
TWE also delivered a performance outlook for FY23, saying that each division – Penfolds, Treasury Americas and TPB – is performing in line with expectations. Penfolds, in particular, continues to deliver strong momentum in building distribution and consumer demand across a number of key global markets.
Overall TWE said it is expecting to delvier EBITS of between $580m to $590m, representing growth of approximately 11 per cent to 13 per cent on FY22.