What happened to the Treasury Wine Estates share price?
Shares of Treasury Wine Estates [ASX:TWE] gained over 3% yesterday, after they announced they would be creating a French wine portfolio.
Why did TWE shares rise?
China can be a tough market, yet Treasury Wine Estates has done really well in selling Australian wine to the Chinese. According to wineaustralia.com, China overtook the US in 2016 and is now the biggest buyer of Australian wine.
The fact is both Australia and France are the big wine players in China. France holds about 45% of the market, while Australia has over half of that amount, around 23%. In Asia, French wine has a reputation for quality. The ‘made in France’ label is first choice for Asians.
Now TWE is planning to expand their share in the Chinese market by competing with French wineries. They are planning to make French wine, yet they are doing this without owning a single chateau in France.
The owner of Penfold’s is planning on getting the ‘made in France’ label by taking advantage of globalisation. The wine will be planned in Melbourne, the grapes will be outsourced from France, executed in Napa, and then shipped to North Asia. The wine should be hitting Asia by mid-2017.
What now for Treasury Wine Estates?
TWE is one of the world’s largest wine companies listed on the ASX, with 70+ wine brands sold in over 70 countries.
Not owning or investing in any chateaus in France reduces the risk on this play, yet investors need to decide if the new line will effectively take on some of France’s share of the Chinese wine market.
By Selva Freigedo