Rawson’s Retreat advances | Will it cause a ‘Yellowtail effect’ in China?

By Jim Boyce | Will Rawson’s Retreat do in China what Yellowtail did in the United States a decade ago, namely, associate Australia with relatively inexpensive generic brands and make it harder to sell the diverse wines produced Down Under?

I asked David Lucas, the newish Greater China head of Wine Australia, last week in Shanghai. Before I get to his answer, a few comments about Treasury Wine Estates (TWE), its winery Penfolds, and that operation’s entry-level brand Rawson’s Retreat.

On Saturday, I watched the World Cup match between the Australian soccer and French diving teams—I joke, mes amies, I joke—then went to imported goods shop Jenny Wang. I found lots of Rawson’s Retreat there, marked down to a surprisingly low price of rmb46. This wasn’t old stock, either, but the likes of Shiraz-Cabernet 2016.

I went online and found it even cheaper in China—from rmb38 to rmb40. No doubt, there are even lower prices out there. [Update: A friend reports buying six bottles for rmb200 or rmb33 per bottle.]

For perspective, Dan Murphy’s, a sprawling liquor chain in Australia, sells the 2013 Rawson’s Shiraz-Cabernet for rmb38. I couldn’t find the 2016 at Dan’s, but did at First Choice Liquor, for a similar price. And Vintage Cellars had it for rmb48. In other words, more expensive than in China.

It’s not just Rawson’s Retreat, either. At the same World Cup party, a guest arrived with a Wolf Blass Red Label, a brand that, like Penfolds, is owned by TWE. She asked me to guess the price. I steadily lowered my picks to rmb60, at which point she revealed she paid just rmb25 per bottle.

Anyway, I’m hardly the first to notice this phenomenon. And my experiences fit neatly with a recent article by Australian Financial Review last month.

“Treasury Wine Estates is facing a supply glut of its own making in China, raising doubts over the sustainability of its rapid growth on the mainland as distributors report they are sitting on up to three years’ worth of low-end stock,” wrote Angus Grigg.

“The over-supply issues are mainly around Rawson’s Retreat, Wolf Blass and some of the cheaper Berringer products, resulting in deep discounting among wholesalers and retailers in China.

“Rawson’s is now cheaper on the mainland than in Australia, despite higher taxes and shipping charges, while some distributors are even giving it away for free, when bundled with premium Penfolds labels, in an effort to clear stock.”

Why would distributors put themselves in such a position? As Griggs writes, to get at the most desired premium Penfolds labels, which are bundled and sold with other Penfolds products or those from other TWE brands. See the full AFR story here.

That brings us to Lucas and a press conference held last week as part of the Wine Australia road show  (more on that event soon). Does he expect a Yellowtail-like effect in China due to this reported glut of Rawson’s Retreat?

“The imagery [of YellowTail] destabilized the Australian wine category [in the United States] a little bit but I don’t think there is the same problem [in China],” said Lucas.

“It probably takes out a bunch of the OEM labels,” he said, referring to some of those dodgier hard-to-track wines in China.

“It’s a big market,” he added. “Even Rawson’s Retreat is still quite an expensive bottle for many people: 32 to 35 [rmb] might not sound expensive but it’s quite a bit for many people. I hope TWE gets behind it.”

Lucas also said Yellowtail maker Casella should get behind its brands in a similar way.

Australia has long been an intriguing wine story in China. I wrote way back in 2009 about its flexibility in gaining traction in both the premium and bulk wine sectors. Perhaps now, when most trade people see China not as one market but as many, due to a wide range of cuisines, climates, income levels and more, there is room for a strong Australian presence across the board.

Of course, there are also potential downsides.

If Rawson’s Retreat takes sales from OEM brands, it might also take them from fellow Australian labels that lack the volume, marketing and financial firepower to compete with wine sold at a price only made possible by backing from the higher-end labels in Penfolds’ portfolio. No doubt there are worries about such potential cannibalization.

China’s wine market is also an early work in progress: few consumers regularly drink wine and average consumption is less than two bottles per year. That suggests many first impressions have yet to be made. Rawson’s Retreat at rmb35 might well define the Australian wine experience for some newcomers both in terms of taste and value. Other Australian labels, sold at a sustainable price, might pay the price for this down the line.

Then there are the distributors. Some sit on three years of entry-level TWE stock, according to the AFR report. Inventories need to be cleared, in part to raise cash for the next vintage. Further dumping of Rawson’s Retreat et al and, in turn, price drops seem likely. True, TWE could find new distribution partners, but that might simply accelerate the warehouse-emptying by current stock holders, out of necessity or spite or both.

In any case, the above points are “thinking out loud” since, as noted, the China market is a work in progress and making predictions about it are difficult. But Penfolds / TWE is no doubt an intriguing actor in the unfolding story of that market: it remains one of the few brands widely known by consumers, has a portfolio spanning inexpensive labels to the country’s best, constantly find itself warding off imitators, and operates on a scale that, for better or worse, will impact the future of Australia wine in China. It’ll be see interesting what the next chapter holds.

Note: Wine Australia sponsored my trip to Shanghai to attend its road show last week. More on that event soon.

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