TWE urged to bring back discounts

(TheLand) - TREASURY Wine Estates (TWE) is under severe pressure to reverse a new strategy of spurning aggressive promotions and discounts with big liquor chains run by Coles and Woolworths because of the risk of further damage to profits in the next few months.

TWE, owner of brands including Penfolds, Lindeman's, Wolf Blass and Rosemount, had almost $600 million wiped from its market capitalisation on Thursday after revealing a $40 million profit downgrade.

The downgrade stemmed from a sharp slump in sales in Australia during December, and a fall-off in sales to China as government-imposed austerity measures hurt demand.

The shares stabilised on Friday to close steady at $3.64, after Thursday's horror 20 per cent slump.

Citi analyst Gino Rossi says Treasury will have no choice but to revert to its previous model of being part of the aggressive promotions and discounts to generate better sales and to secure prime spots in stores and in advertising catalogues.

He said: "Treasury's attempts to wind back promotions won't work as the wine segment remains too competitive.''

Mr Rossi says Treasury, which is being run by interim chief executive Warwick Every-Burns, who put in place a new management team in late November, "will likely revert to its old play-book" in the Australian market. He expects it will steer away from its new approach of being very disciplined on price because of the risk of losing even more sales.

He says the poor December results from Treasury in Australia weren't the start of anything more sinister in the Treasury portfolio but were purely a result of the management ­decision to pass up retailer's ­promotional programs.Promotional spend

It had come at a big cost, but he believes they can regain lost market share by reinstating its usual ­promotional spend.