Treasury's $750 million deal is part of a huge global change in drinking habits

Photo: Johannes Simon/ Getty.

A year ago Treasury Wine Estate, Australia’s biggest wine group, was writing down its assets after a global fall in the market for commercial wines.

A glut left the company holding large amounts of bulk wine with no customers in sight.

Since then Treasury, a 2011 spin off from the Foster’s beer business, has been concentrating on fewer, but more prestigious, labels and cutting costs across the group.

Among more than 80 labels are well-known Australian brands including Penfolds, of Grange fame, Wolf Blass, Rosemount and T’Gallant, as well as Napa Valley’s historic Beringer and the cult boutique winery Stag’s Leap, as well as wineries in Argentina, France and Italy.

Underpinning a strategy to concentrate on premium wines, is that demand for luxury and so-called “masstige” wine (quality mass appeal) is increasing.

The world is getting a taste for finer wines.

This is where the acquisition of Diageo Wine’s US and UK operations for $US552 million ($AU760 million) comes in.

With the purchase comes a range of luxury and masstige wine labels including Napa Valley wineries Beaulieu Vineyards, Sterling Vineyards, Acacia, and Provenance and Hewitt.

And the resurrection of the business is being helped by improving fundamentals in the global wine, especially for premium wine producers.

One executive at an international alcohol company told Business Insider that “in the US and the UK markets, brand Australia has been damaged” by a flood of cheap, and not necessarily good, wine in recent years, often made to target a price point.

Treasury’s move into more premium brands is a sign of the local industry’s understanding of the need to reposition in the market.

And the decade-long wine glut is finally easing. Demand for wine and supply of wine, as this chart shows, have finally met:

And global wine consumption per person is increasing in emerging wine consuming regions such as China, Canada and the US currently making up for a reduction per head in Italy and France.

Here’s how the value of Australian wine has grown in China

The strong fall in Australian bottled wine sold in China in 2014 was driven by government austerity measures. But this has quickly recovered, especially for premium wines.

In August, the company announced a return to profit. Statutory net profit for the full year was $77.6 million, an improvement of $178.5 million on the previous $101 million loss.

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