Treasury Wine Estates Ltd., the world’s second-biggest listed wine producer, is renting vineyards in California’s Napa and Australia’s Barossa valleys to get hold of grapes amid surging demand for high-end vintages.
Where owners weren’t prepared to sell up, the company was happy to lease wine country to meet market demand, David Dearie, chief executive officer of the Melbourne-based company, said in an interview in Sydney yesterday. Treasury’s brands include the Penfolds and Beringer labels.
“The big challenge right now is we’ve got more demand than we have supply for luxury wines,” he said. “A lot of people who own these fantastic properties don’t want to sell but they actually don’t want to farm it either, so we offer to lease it.”
Global wine output will slump to the lowest levels in 37 years after weather damage to grapes from France to Argentina destroyed harvests, the International Organization of Vine and Wine said last month. Rising sales of premium wine amid surging demand in China meant that Treasury was struggling to source enough grapes for its high-end vintages, Dearie said.
“As long as we can get our hands on that high quality fruit we know we’ve got the brands and the consumer demand for them,” he said.
With about a million wine producers in the world, the industry is ripe for consolidation, he said at a lunch event earlier. The top five wine-makers have 7.8 percent of the global market, compared with 48 percent for the leading brewers and 20 percent for spirits companies, according to data compiled by Bloomberg.
“There’s a real opportunity for consolidation,” he said. “We’ve a A$3.2 billion ($3.3 billion) market cap with about A$3.5 billion dollars worth of assets and zero debt, so expansion has to be a part of our future.”
Treasury Wine has bought 630 hectares (1,556 acres) of vineyards in South Australia state’s Barossa and Eden Valleys and Wrattonbully region as part of plans to improve its production of higher-end wines, the company said in a presentation this week.
It was also interested in running joint ventures in Chinese vineyards, he said in the interview.
“In the short term, it’s not a priority,” with the company focused on its existing operations in Australia, California and New Zealand, he said.
LVMH Moet Hennessy Louis Vuitton SA is planting a 66-acre vineyard in the country’s Ningxia province as part of a venture with a state-owned company to produce sparkling wine under its Chandon brand, the company said last year.
Treasury Wine shares fell 0.4 percent to A$5.06 in Sydney yesterday, while the broader S&P/ASX 200 index climbed 0.7 percent.