Effect of External Factors on Treasury Wine Estates

Question: Discuss about the Effect of External Factors on Treasury Wine Estates. Answer: Introduction Treasury Wine Estates (TWE) is a wine making company headquartered in Southbank, Melbourne it was the wine making division of Fosters Group until a demerger in 2011. It principally operates in four regions globally; Australia and New Zealand, the Americas, Asia and Europe with over 3500 employees and 70 plus wine brands. The company posted a net profit tax of $179.4 million for the year 2016 this was more than double for the previous year (Treasury Wine Estate, 2017). External factors such as politics, economics, social, technology, environmental and legal cases (PESTEL) affect business operations. Political Factors Political factors arise from how the government is involved in the economy, government policy, trade deals, tax policy are some of the political issues that lead businesses to adjust their business strategies to stay profitable. A free trade agreement(FTA) between China and Australia will see tariffs of between 14%-30% on Australian bottled and bulk wine be phased out in four years (ABC News, 2014). The FTA deal boosted TWEs sales and profits in China and their profits have been growing steadily, US$20.6 million in 2014 jumping to US$46.5 million in 2015 and growing by 75.6 % in 2016 (Reuters, 2017, ABC, 2016). Social Factors Social factors are the shared beliefs and attitudes of people. They include population growth, age groups, health consciousness and career attitudes. Marketing departments need to have a good understanding of the social factors to understand consumer behaviors and trends. TWE through the launch of Blossom Hill, 19 Crimes and the Gentlemans collection are targeting male and female millennials aged 18-34 years. Millennials have high disposable incomes and their Friday night drinking culture makes them a lucrative target. TWE group believes this age group to have a potential of about 76million and about 16 million in impulse buying (The Australian, 2016, off license News, 2015). Technological Factors Technology in the 21st century is a must have for any business that wants to be profitable. Technological advances are important in improving quality of goods, reducing costs and improving work conditions of employees. In their Napa Valley vineyards TWE has employed an array of high tech devices to help in managing their crops. The vineyard has weather and plant sensors; a pulse pod can measure precise rainfall, color of the grapes these data is collected and is used to make accurate predictions about plants on the ground. Another great innovation used at these vine yards is the use of drones fitted with high definition cameras that allow farmers to clearly identify pests and sick plants. Early identification gives enough time to take measures that reduce losses (Kolodny, 2017). Environmental Factors Environmental factors in business started being of great concern during the last 15 years. Climate change is a global phenomenon and TWE had to change its business model to accommodate these changes. Viticulture practices were modified such as delaying ripening times to protect the vines from damage (The Weekly Times, 2016). Conclusion External business factors are important in shaping the business model of a business to attain profitability. References ABC News. 2016. Treasury Wine Estate calls on better government cooperation to boost exports to China. [ONLINE] Available at: https://www.abc.net.au/news/rural/rural-news/2016-02-19/treasury-wine-interim-profits/7183520. [Accessed 22 April 2017]. ABC News. 2014. How the China free trade agreement will affect Australian farmers. [ONLINE] Available at: https://www.abc.net.au/news/2014-11-18/nrn-faces-of-the-china-free-trade-agreement/5896412. [Accessed 22 April 2017]. Lora Kolodony. 2017. Uncorking innovation with Treasury Wine Estate in Napa. [ONLINE] Available at: https://techcrunch.com/2017/02/10/uncorking-innovation-with-treasury-wine-estates-in-napa. [Accessed 22 April 2017]. Off license News. 2015. Treasury Wine Estates target male millennials with Gentlemans collection launch. [ONLINE] Available at: https://offlicencenews.co.uk/news/fullstory.php/aid/15270/Treasury_Wine_Estates_targets_male_millenials_with_Gentleman_s_Collection_launch.html. [Accesses 22 April 2017]. Reuters. 2017. Australias Treasury wine posts record half-year profits in US, China demand. [ONLINE] Available at: https://www.reuters.com/article/us-twe-au-results-idUSKBN15S2IK. [Accessed 22 April 2017]. The Australian. 2016. Treasury Wine Estate Targets young women. [ONLINE] Available at: https://www.theaustralian.com.au/business/companies/treasury-wine-estates-targets-young-women/news-story/9543200c929d841b527d0eb34c4cd69d. [Accessed 22 April 2017]. The Weekly Times. 2016. Treasury Wines has changed its business to manage the risks of climate change. [ONLINE] Available at: https://www.weeklytimesnow.com.au/agribusiness/horticulture/treasury-wines-has-changed-its-business-to-manage-the-risks-of-climate-change/news-story/96fae8195a2fba4cf0602eabbf82cbf3. [Accessed 22 April 2017]. Treasury Wine Estates. 2017. About. [ONLINE] Available at: https://www.tweglobal.com/. [Accessed 22 April 2017].