Treasury Wines confident in “affordable luxury” in face of inflation

Treasury Wine Estates, the Australia-based wine manufacturer, believes its category will remain strong even as consumers reduce their discretionary spending, aided by long-term shifts towards premiumisaton and the product’s status as an “affordable luxury”.

Why it matters

Periods of economic stress do not have the same impact on every industry. While shoppers may cut back on big-ticket purchases or out-of-home experiences, for example, they often are willing to spend a little more on spoiling themselves in more modest, affordable ways.

Premiumisation and “buy better”

• Tim Ford, Treasury Wines’ CEO, said on an earnings call that the wine sector was not “entirely immune to periods of tightening discretionary consumer spending.”
• However, he suggested several factors are working in its favour, including the fact the category has continued to “premiumise” around the world.
• “Fueled by the emergence of the powerful ‘buy better’ trend with younger consumers in particular, engaging more actively with wine at higher price points than ever before,” he said.
• That habit was visible during the pandemic, when wine consumption rose in Treasury Wines’ key markets, and remains a feature of the sector.
• “We have not seen any significant change in consumer behavior in our markets around the world or trading down in pricepoints that would indicate any shift away from this multi-year trend,” said Ford.

Past downturns offer cause for optimism

• Looking more broadly, Ford noted the wine category “has also proven to be resilient through past periods of economic tightening.”
• One source of this strength, he noted, was that the product is regarded as “an affordable luxury by many consumers, particularly luxury and premium consumers.”
• Moreover, at-home consumption often rises in periods of fiscal difficulty, and this behaviour has remained “at elevated levels” since the onset of the COVID-19 pandemic.

Trusted brands matter

• Treasury Wines’ leading wines include 19 Crimes, Pepperjack, Wynns and Squealing Pig, and Ford suggested having trusted brands was important.
• “Consumers will become, we believe, increasingly discerning in the way they spend their disposable income,” he said.
• “We expect the trusted, well-known and growing brands - like many of those in our portfolio - will continue to perform well in this environment,” added Ford.

Continued advertising support

Advertising and promotion (A&P) will play a central role in the company’s strategy as it seeks to tap into opportunities across its international operations. “We'll continue to invest strongly behind our brands in the form of increased A&P to capture opportunities and build on the current momentum we are experiencing in many markets, which will drive continued topline growth,” Ford said.

Sourced from Seeking Alpha