The Treasury Wine Estates Ltd (ASX: TWE) share price is on watch with news that there is a review of the tariffs on Australian wine into China.
Investors may remember that China put tariffs on Australian wine a few years ago following a falling out over COVID-19.
Wine tariff review
TWE said China will commence its review and it’s expected to take up to five months.
The company said it has worked hard at continuing to build its industry and customer relationships through its “ongoing multi-country of origin products”, including the first Chinese sourced and produced Penfolds wine.
Treasury Wine Estates believes it’s well placed to rebuild its business in China if the tariffs are removed at the end of the review period.
TWE’s action plan
If the tariffs are removed, there are a number of things that the company would do. If the company can grow profit, then this would be a useful boost for the TWE share price.
It would continue its existing multi-country of origin portfolio growth strategy, led by the Penfolds’ French, US and Chinese portfolios.
TWE would invest in sales and marketing within China, and re-build its distribution for the Penfolds Australian entry level portfolios and the Treasury premium brands Australian priority portfolios in China.
Treasury Wine Estates would reallocate a portion of Penfolds Luxury and Icon tiers from other global markets, to progressively re-build distribution in China while maintaining “strong momentum” of growth in those other markets.
The company also said that there would be incremental sourcing for Penfolds Luxury and Icon tiers to meet existing and future demand, noting that the age of release of these wines will be between three and five years.
Finally, TWE said that it will continue to apply its “globally standardised” margin structure to Penfolds sales globally, to ensure “long-term health and price integrity.”
If the tariffs are removed, the above measures will be implemented “sustainably” and with the aim of growing the business in China, but not at the expense of the long-term growth opportunity in other key markets.
Final thoughts on the TWE share price
If the tariffs are removed, which is certainly not a guarantee at this stage, and stay off for the long-term then I’d expect the company to benefit significantly because of how large the market is there. There are a lot of middle class (and wealthier) people in China.
The Treasury Wine Estates share price could be a longer-term opportunity if the market doesn’t react too positively immediately to this news. This could be the catalyst the company needs.
