Millennials and China wreck under $10 bottled wine market

afr.com:

The volume of wine produced by Treasury Wine Estates’ portfolio of premium brands will “decline materially” over the next three years even as earnings rise more than a third amid a major restructure.

That’s the view of equities analysts at Macquarie, who have raised their earnings forecasts for the company despite a slide of more than 10 per cent in Treasury Wine’s share price over the past 12 months.

The analysis, in a note to clients which concluded that Treasury’s experience in successfully restructuring its North American division bodes well for its premium brands strategy, comes amid an exodus of customers from the low-end bottled wine that made up much of Australia’s exports.

While higher living costs are reducing the amount of wine purchased, production costs are increase, Macquarie’s analysts said. “This has significantly impacted the economics of commercial wine, in an already highly competitive market, with little ability to take price,” the note reads.

Tyrrell’s Wines boss Bruce Tyrell is thankful the company exited from low-end red wine two decades ago. He says there is too much cheap red wine across the industry still looking for a home. Edwina Pickles

And it is not only Treasury feeling the squeeze. Australian Vintage, the ASX-listed owner of the Tempus Two, Nepenthe and Barossa Valley Wine Co brands, has embarked on a strategic review with investment bank E&P Corporate Advisory following a tough mid-June trading update which showed demand was declining in the low-priced segment. Accolade Wines, owned by private equity giant Carlyle Group, is restructuring as it grapples with high debt levels, putting some assets on the market.

Treasury Wines has announced plans to shut its large production facility at