Following in the footsteps of global players like LVHM and DBR Lafite, Penfolds owner Treasury Wine Estates is putting down roots in China’s wine industry.

The Australian giant has agreed to buy 75 percent of Stone & Moon Winery in the Ningxia region. We've come up with things you don't know about the $18 million dollar deal, which will be finalized next year.

The big picture

This deal gives TWE a stronger foothold for rebuilding market share after China's decision in March to end tariffs of up to 218 percent on Australian wine.

While consumers are currently cautious about spending, and the wine industry has faced slumps in wine imports, production and sales in recent years, this market is simply too big for TWE to ignore.

This is especially true given past success.Australia sent $750 million worth of wine to China in 2019; TWE, thanks mostly to Penfolds, represented at least 30 to 40 percent of that and also led this year's mass return of Australia wine.

In short, Penfolds is the biggest New World wine name in China and the Stone & Moon deal will build goodwill with the government, trade and consumers while allowing TWE to tap growing interest in local wines.

The experience

TWE already has Ningxia experience, including a Cabernet Sauvignon-Marselan called One by Penfolds launched in 2022, with sourcing from wineries across the region.And last year it launched CWT (China Winemaking Trial) 521, a blend of Cabernet Sauvignon from Yunnan and Marselan from Ningxia, including from Stone & Moon.

CWT521 snuck into the Top 100 Wines of China – it ranked number 99 – compiled by critic Shuai Zekun for James Suckling.

The winery

Stone & Moon was established in 2017 and has 43 hectares of vineyards with a Francocentric focus that includes Chardonnay, Cabernet Sauvignon, Malbec, Marselan, Merlot and Syrah.

These vineyards are paired with a well-equipped well-organized winery that has an annual production capacity of 300 tons.

While Stone & Moon is young, the wines are earning good reviews, with two in last year's Top 100 Wines of China at numbers 41 and 59 respectively.

This mix of grape varieties, facilities and wine quality – not to mention a cellar door and event spaces – is right up Penfolds' alley. And with Ningxia's focus on wine, and heavy official growth targets, scaling should not be a problem.

The personalities

Stone & Moon is headed by Kang Xuanhao, who comes from a family invested in tourism in Shaanxi province and aims to make Stone & Moon a wine destination. The chief consultant is Bordeaux-based Nicolas Billot-Grima, involved in China projects since the mid-1980s, including in Shandong, Yunnan, Xinjiang and Hebei.

Chilean Maria Teresa Romero Ponce handled daily winemaking and viticultural duties during the tough days of the Covid era before leaving last year and Argentinian Federico Agustin Carabajal has since come on board.

A big question is how Stephanie Dutton, Penfolds' senior winemaker in charge of vintages outside of Australia, will combine the company's focus on house style with the potential at Stone & Moon.

The neighbors

One curiosity is that Stone & Moon's next-door neighbor, Xige Estate, has been called… the Penfolds of China.

Xige is led by Zhang Yanzhi, whose distribution company Easy Cellar gained fame by popularizing Penfolds Max in China almost a decade ago.

That history, plus Xige's large production capacity, portfolio of everything from entry-level to $400 premium wines (a kind of Rawson's-Retreat-to-Grange strategy) and numbered N series of labels that reminds some of Penfolds' bin series also inspire comparisons.

This should make for interesting comparative tastings in the future!

The subregion

Stone & Moon is based in the Qingtongxia sub-region, which arguably has Ningxia's best grapes but lacks the marketing power of the nearby Yinchuan sub-region, home of the most active wine association and well-known wineries like Chandon, Helan Qingxue, Kanaan and Legacy Peak.

Penfolds' presence will help Qingtongxia compete against other regions for consumer attention

The region

With a climate some compare to Mendoza, Ningxia tends toward big ripe wines, featuring Bordeaux varieties and barrel aging.

That style is associated with the glory days of China's wine market a dozen years ago, when Penfolds ascended, but is a tougher sell today as the gifting and entertaining sales of those times have declined. Consumers increasingly drink for pleasure, as opposed to status, and white wines and lighter reds are growing in popularity.

Does this mean Penfolds would struggle to sell big Ningxia reds?Probably not, given its reputation.But hopes this will create a wave of demand the other 100-plus Ningxia wineries can ride is far from a given.

The goodwill

After finger-pointing between Australia and China during the tariff era, TWE's media release for the Ningxia deal quotes CEO Tom King as being "thankful for the support of the national and local governments, our local partners, industry organisations, and the wine community".

The release specifies the China Alcoholic Drinks Association, the group that spearheaded the tariff investigation, and acknowledges TWE's "long-term, multifaceted strategic co-operation with CADA… to build China's fast-growing wine industry capability".

These sentiments will create goodwill with the government and trade, even though TWE is putting down roots more than a decade after Pernod Ricard, LVMH and DBR Lafite.

Local wineries can benefit by seeing how Penfolds works its magic.And Ningxia also has special significance.The central government in Beijing supports the region's wine industry and President Xi Jinping has a history there, dating to the 1990s when he visited for poverty-alleviation missions, including areas now home to vineyards.

The national trend

This investment also fits the concept ofguochao, or "national trend", the pride of Chinese consumers in local products, from fashion brands to food and drink to high tech. Despite the wine industry's general struggles, there is still a growing number of aficionados of local wines.

Chief winemaker Peter Gago stressed this angle during the Penfolds 2024 Collection Launch in Beijing in August, noting CWT521's inclusion at tastings in other nations.

"We are showing [wine] journalists around the world your wine," said Gago.

And earlier this year, Tom King said the release of One by Penfolds and CWT521 allowed the company "to become a global ambassador for Chinese luxury wine".

The global plan

Finally, this investment supports TWE's "multi-country of origin" mission and means Penfolds has production bases on four continents, including Australia, Europe (France), North America (United States) and Asia (China). Where next: South America or Africa?

At the end of the day, $18m feels like small change given TWE spent $900m for California's Daou winery this year. Yes,it's an apples and oranges comparison, but is meant to stress Stone & Moon is a reasonable cost of doing business in a market that once imported hundreds of milions of dollars of TWE wine per year.

Now it's a matter of seeing how much this move will help move TWE toward those lofty numbers.