TWE Considering Penfolds Demerger, Reducing its Commercial Biz

Dear Client: 

Last night Treasury Wine Estates walked analysts and shareholders through a few outcomes of the company’s recent strategic review. 

“The review was on how we best focus on accelerating our premiumization strategy and manage our commercial business differently moving forward, given the increasing impact the trends in the commercial tier are having on our business, especially in the United States,” chief Mike Clarke explained on a call last night.

For starters, it’s considering a demerger of its Penfolds business into a separate company listed on the Australian stock exchange. 

The demerger would “facilitate the creation of incremental long-term value” by having one team dedicated to driving the Penfolds portfolio “while a separate team focuses on accelerating the mix-shift towards luxury in ‘New TWE’ while also reducing and right-sizing the commercial portfolio,” per announcement. 

“Penfolds accounts for approximately 10% of our volume, but well over half of our earnings, with unique resources and a differentiated execution focus compared to the remainder of our business,” according to Mike. 

“A potential demerger would enhance New TWE’s and Penfolds’ ability to pursue their own strategic priorities and deliver a stronger long-term growth profile under separate teams and ownership structures, in addition to enabling investors to more appropriately assess the fundamental value of the brand and its assets,” he added.  

Mike emphasized on the call that the decision has not been officially made to demerge Penfolds. That being said, he did say it’s a “relatively easy part of the business to demerge” and would “create incremental long-term value for shareholders.” 

If the demerger moves forward, it should be completed by the end of calendar 2021.

REDUCING COMMERCIAL BIZ. TWE also outlined a range of initiatives to reduce the size and scale of its commercial wine business, particularly in the US, including:

  • Adjusting operating model and organizational structure and drive improved engagement and performance with customers
  • Restructuring the supply chain
  • Accelerated reduction of lower margin commercial tier brands
  • Divestiture and/or deletion of selected brands and production assets 

The remaining commercial wine business will “comprise a smaller portfolio of profitable and differentiated brands,” according to coo Tim Ford. The initiatives will be implemented over the next 12-18 months. 

The idea is to “accelerate the separate focus on the luxury versus commercial portfolios,” he explained. 

CONSIDERING A SALE? It’s been suggested on previous earnings that TWE should just divest its US business altogether. 

When asked whether they considered selling parts of the US business, Tim said: “I think the announcement today clearly states my intention, which is to right-size the US business…and able to focus around our luxury and masstige portfolio that is growing today by going through the tasks and the initiatives” previously outlined. 

Recall, current TWE chief Mike Clarke is set to retire in the first quarter of fiscal 2021, and Tim will take his place [see WSD 10-20-2019]. 

COVID-19 IMPACT UPDATE. TWE also provided an update on how COVID-19 has impacted its business. 

In China, TWE staff recently returned to work. Q3 depletions and shipments were “significantly impacted” in the region and will likely remain at “subdued levels,” according to Tim.  

In other regions, the company saw strong retail depletions growth trends towards the end of its third quarter. TWE notes growth skewed towards the lower margins commercial and masstige portfolios. 

“In the short term these are unusual and very challenging times with consumers trading down,” said Mike. “Therefore, TWE is not in a position to provide detailed numbers or detailed timelines at this stage as it is unclear how trading will play out in the short term.” 

PLUS, A CLASS ACTION LAWSUIT. The company is also facing a shareholder class action lawsuit recently filed in the Victorian Supreme Court, which alleges the company engaged in misleading or deceptive conduct and breached its continuous disclosure obligations to the market, largely due to its performance in the US market, reports the Brisbane Times. 

You may recall, TWE released its first half earnings results two weeks ahead of schedule thanks to the fact they missed the mark on their previous guidance driven by underperformance in the US [see WSD 01-28-2020]. 

“Treasury Wine Estates has strong corporate governance practices and procedures in place that were used in our market update. TWE intends to vigorously defend the action,” said a company spokeswoman. 


Last week, the Kentucky House and Senate passed a bill to allow in-state and out-of-state distillers, wineries, and breweries to ship directly to Kentucky residents [see WSD 03-30-2020]. The bill officially passed and will become effective 90 days after the legislature adjourns, according to the Distilled Spirits Council. 

“Direct-to-consumer shipment can be a complement to the three-tier system in meeting this consumer-driven demand,” says DISCUS vp of state government relations Jay Hibbard, applauding the bill’s sponsors and supporters. “This group of legislators recognized the need to adapt to today’s evolving markets and moved this bill across the finish line.”

In Virginia, the state Alcohol Beverage Control Authority announced an addendum to its Distillery Store Agreements on Monday, allowing in-state distilleries to ship directly to consumers. 

“Allowing Virginia’s distillers to deliver their spirits products to consumers will help alleviate some of the economic turmoil these small businesses now face,” says DISCUS vp of state government relations David Wojnar. 

The addendum will remain in place as long as the ABC stores are recognized as essential businesses. 


GRAIN & BARREL SPIRITS LAUNCHES STRAIGHT RYE WHISKEY. Grain & Barrel Spirits has launched Chicken Cock Kentucky Straight Rye Whiskey in select markets. This is the brand’s first rye in more than 70 years, per a release. It is made in partnership with Bardstown Bourbon Company as part of its collaborative distilling program. The new Straight Rye Whiskey is available online and in select markets at a suggested retail price of $70. 

CHAPPELLET VINEYARD PROMOTES MITCH BOYD TO DIRECTOR OF SALES. Chappellet Vineyard has promoted Mitch Boyd to director of sales. In his new role, Mitch will manage Chappellet’s in-house sales team, and guide a sales program that spans all 50 states and eleven countries. He joined Chappellet in 2015 as the winery’s Central US sales manager, and was promoted to national sales manager in 2017. 

WE REGRET TO REPORT that Lester Eber passed away peacefully April 5, 2020 at the age of 82 from complications of COVID-19. Lester worked for more than a decade for Southern Glazer’s Wine & Spirits as a lobbyist in Albany and served as a Governmental Affairs and Compliance Administrator. He is survived by his wife, Ellen, his children, David and Wendy, grandchildren, Georgina, Henry, Brice and step grandchildren, Alexis and Ethan. A memorial service may be held at a later date due to COVID-19, per Lester’s obituary.  

BREAKTHRU PLEDGES $500,000 TO COVID-19 RELIEF EFFORTS. Breakthru Beverage Group has pledged $500,000 to partner with local nonprofit organizations, restaurants and restaurant groups to purchase meals for front-line responders battling the COVID-19 outbreak and vulnerable populations affected by it, per a release. 

WX BRANDS WILL DONATE 10% OF PURCHASES TO CHARITY. WX Brands announced it will donate 10% of all qualifying purchases from its online wine shopping destination, Revel Wine, to Jose Andres’ World Central Kitchen (WCK) from April 8 through April 30. WCK is delivering fresh meals to communities in need, putting restaurants back to work, feeding frontline healthcare workers, and identifying where the gaps in food accessibility lie. 

Until tomorrow,

“Think with your whole body.” – Taisen Deshimaru

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