“It was a very profitable market,” he said.
It is a sentiment expressed by the boss of Western Australian producer Howard Park Wines, Jeff Burch.
“You might be able to replace the volume but you won’t replace the margin,” Mr Burch said.
Shoe leather
He said Howard Park executives had made three to four trips a year to China to visit customers and build up distributor relationships over 15 years.
“That’s a lot of shoe leather. It’s all gone up in smoke now,” he said on Tuesday.
The company was established in 1986 and said exports to China represented between $3 million to $4 million. He expects there will be a large amount of blowback on the entire Australian wine industry, right down to grapegrowers
“Everyone’s going to have to take a little bit of pain,” he said.
Howard Park had been increasing investment in offshore markets including the United Kingdom and the United States.
Mr Burch said the best thing Australian consumers could do in the lead-up to Christmas was buy white wine from high-quality Australian producers and steer clear of varieties such as sauvignon blanc made by New Zealand companies, which have become extremely popular.
Most of the spotlight on the China wine tariff hit has been on the maker of Penfolds and Wolf Blass, Treasury Wine Estates, because it represents about 40 per cent of Australia’s annual $1.3 billion exports to China. Analysts valued its China business at $4 billion.
Treasury Wines shares slipped a further 2.2 per cent on Tuesday to $8.40, taking the total drop in the past three trading days to almost 20 per cent. Treasury chief executive Tim Ford has spoken to customers in China after the abrupt imposition of provisional tariffs of 169 per cent on the company’s wines, which make it unviable to sell in China.
Margin impacts
The company aims to ship more to the US, Japan, South Korea, Taiwan, Vietnam and Thailand, and increase allocations of high-end flagship wines such as Penfolds Grange and Bin 389 to Australia.
UBS analyst Aryan Norozi said Treasury Wines shares might now be at a point where the bad news has all been factored in. He has a 12-month price target of $9.20 and said the ”risk-reward” equation was now in balance.
There would be margin impacts as supply by all players was diverted to other markets, but there could also be an eventual thawing in Australia-China relations.
Phil Sexton, the general manager of Giant Steps winery in Victoria’s Yarra Valley, said the China tariffs were a big hit to the Australian industry. Giant Steps had spent 20 years building up a China export business, although it was only small. “It’s frustrating, it’s disappointing,” he said.
Giant Steps is also selling into markets such as Japan and South Korea. Mr Sexton said there was a sense of deja vu as the Australian wine producers were again forced to invest in other markets and build up sales.
Fresh drive
Accolade Wines, the second-largest wine group in Australia behind Treasury Wines, was slow to penetrate into the China market, and that has proved to be a blessing.
Accolade, owned by US private equity giant Carlyle Group, sells brands including Hardys, Grant Burge, St Hallett and Petaluma, and generates about 3 to 4 per cent of its revenues from exports to China. Most of its sales are in Australia, Europe and the United States.
It hired former Treasury Wines executive Robert Foye, now chief executive of Accolade, to spearhead a fresh drive into China. Accolade declined to comment on Tuesday.
Mr Foye spent five years at Treasury Wines until 2019. He was central to its robust profit growth over several years in China, and was seen as a likely future chief executive of Treasury Wines before a sudden exit.