Is boom time around the corner for Treasury Wine Estates? - Comment

The oft-used trope when talking about tariff wars is that nobody wins. Amidst the maelstrom of the current trade rows, however, we think we may have found a potential victor in Treasury Wine Estates. And, goodness knows, the group has paid its dues in recent years.

Let us scene-set first and rewind to November 2020. Almost overnight, Treasury saw China, until then the company’s main growth driver, disappear when the country’s ministry of commerce (MOFCOM) implemented anti-dumping tariffs on wine imports from Australia, with immediate effect.

For Treasury, the impact was not only swift but also devastating – and was felt for the better part of three years.

Fast forward to March last year, and as tensions between the two countries eased – sparked initially by Covid-related comments made by the Australian Government – MOFCOM removed the tariffs, a move hailed at the time by group CEO Tim Ford as “terrific news”.

The outcome for Treasury was equally swift, this time in the right direction.

Which brings us to today, and while all in Treasury’s garden looks rosy, things could be about to get much rosier. The reason? Tariffs.

The company’s structure comprises three business units: Penfolds, Treasury Americas and Premium Brands. What this means is that, putting aside its Penfolds powerhouse for a moment, a sizable chunk of Treasury’s operations comprise wine produced in Australia heading to the US and wine produced in the US heading to, among others, Australia.

Then, there’s the Penfold’s business, which has evolved through a multi-country-of-origin strategy to be well-placed to benefit from domestic sales (note also the group’s majority-stake purchase in Ningxia Stone & Moon Winery in China late last year).

Since the start of this year, and the accession of Donald Trump to the US presidency, all the tariff-related headlines have concerned Canada, China, Mexico and the European Union. The only reference to Australia – so far – has been as a result of the President’s approach to aluminium and steel imports into the US from everywhere.

And, while Australia’s inclusion in the tariffs on the two materials is not ideal, as Prime Minister Anthony Albanese flagged last week: “Australian steel and aluminium exports to the US represent less than 0.2% of the total value of our exports. Neither is in the top ten of what Australia sells to the US.” Little need for reciprocal measures, then.

For Australian wine generally, then, President Trump’s love of tariffs – and his targets to date – present a potentially positive opportunity for growth in the US market. For Treasury specifically, with domestic operations inside the US augmenting its Australian business, that opportunity could see last year’s sales uptick soar even higher in the months ahead.