By Stuart Condie

SYDNEY--Australia's Treasury Wine Estates is firming plans for permanent production of its storied Penfolds brand in China with the acquisition of a vineyard in the country's premier wine region.

Founded in 1844, Penfolds is primarily produced in Australia but features releases from grapes grown in France and California, the latter from imported Australian vine cuttings.

The success of the first China-produced Penfolds in 2022, when punishing tariffs had wiped out demand for Australian imports, persuaded Treasury to embark on plans for a local home for the brand.

Treasury on Tuesday said that it would pay 130 million yuan, equivalent to $17.9 million, for a 75% stake in Ningxia Stone & Moon Winery in northwestern China. The ASX-listed company plans to use its 106 acres of planted luxury vineyards in its local Penfolds. It can purchase the remainder of the business after five years.

"The successful evolution of Penfolds to becoming a multi-country of origin brand has been a significant execution highlight in recent years, with the China-sourced portfolio having resonated particularly strongly with Chinese consumers," Treasury CEO Tim Ford said.

"We look forward to continuing that momentum through this important long-term investment."

Treasury wants to make the Stone & Moon site, which has the capacity for expansion and a cellar door, a destination for wine aficionados. That mirrors its approach elsewhere, including at its Napa-based Beaulieu Vineyard, which produces Georges de Latour Cabernet Sauvignon.

"Treasury Wine Estates intends to evolve the site in the future to create a local brand home for Penfolds, building on its strength as one of the leading luxury wine brands in China," it said.

Treasury has already enjoyed success by tapping affluent global drinkers' taste for locally produced tipples, pivoting toward higher-margin luxury wines to drive earnings growth over coming years.

Treasury bought California's Frank Family Vineyards in 2021 and Daou Vineyards in 2023. The brands helped the group grow earnings by 13% in the last fiscal year.

The introduction of locally produced Penfolds could represent an important workaround if China was ever to reimpose tariffs such as those that wiped out Australian wine imports when they were introduced in 2020.

The tariffs, which were imposed amid a dispute sparked by political tensions and only recently scrapped, cut imports by 99% and forced Australian producers to offload thousands of bottles of expensive wine elsewhere at huge discounts.

Accolade Wines, which owns mid priced brands such as Hardys, was saddled with debt as sales dwindled and this year sold itself to a consortium led by private-equity firm Bain Capital. Treasury's share price fell almost 50% and remains rangebound, almost 40% down over the past five years.

Treasury expects to close the acquisition in the June half.

Write to Stuart Condie at stuart.condie@wsj.com

(END) Dow Jones Newswires

December 09, 2024 19:13 ET (00:13 GMT)

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