What are the Stocks to Benefit from Global Wine Export Growth in 2025?

In this article, we explore three stocks that stand to benefit from the expected global growth in wine exports in 2025. As the Australian wine industry recovers from the lifting of Chinese tariffs, export activity has surged, creating renewed opportunities for growth across key international markets. The resurgence of exports to China, coupled with strategic diversification into other fast-growing economies in the Asia-Pacific region, presents an exciting landscape for investors. We examine the companies poised to leverage these market trends and capitalize on the premiumization shift in the global wine industry, positioning themselves for long-term growth. In a significant development for the Australian wine industry, the removal of Chinese restrictions on bottled wine has catalysed a strong recovery in exports. Following the lifting of tariffs in late March, we have seen exports to China surge to $392 million in the three months to June—more than seven times the value of exports to China over the entire 2021-2023 period combined. On a volume basis, exports soared from 1 million litres in FY23 to a remarkable 33 million litres in FY24. The reopening of the Chinese market presents substantial opportunities for premium Australian wines, particularly in the high-end segment where Chinese demand remains robust. As China resumes its position as a key destination for Australian winemakers, the Department of Agriculture forecasts total wine exports to grow by 5% in FY2025, reaching $2.4 billion. However, while the reopening of this lucrative market is encouraging, we recognize that challenges remain in reaching the peak pre-tariff export value of $1.1 billion, which was achieved in FY20. The Chinese wine import market has contracted sharply in recent years, driven by declining wine consumption at business events and growing competition from other alcoholic beverages, particularly spirits. In a more competitive and smaller Chinese market, Australian exporters will face increased pressure to stand out against global winemakers. Challenges in the Chinese Market Our analysis indicates that the path to fully recovering our previous market position in China will not be straightforward. One of the major challenges is the reduction in China’s overall wine import market, which has more than halved since its peak. Consumption patterns have shifted, with fewer corporate and business events contributing to wine demand, and Chinese consumers increasingly gravitating towards spirits. Furthermore, competition from global wine producers, particularly from France, Chile, and South Africa, has intensified. These countries are well-established in China, and Australian winemakers will need to differentiate their offerings based on quality, regional distinctiveness, and branding. We believe that premium wines from renowned regions such as the Barossa Valley, Margaret River, and Coonawarra are well-positioned to tap into the premium segment of the market but rebuilding our lost market share will require targeted efforts and time. While China remains a critical growth market, traditional export destinations—such as the US, European Union (EU), and the UK—will continue to play a vital role for Australian winemakers, especially for lower-priced wines produced in inland regions. However, these markets are also facing challenges of their own. Economic pressures, rising inflation, and stagnant wage growth are reducing disposable incomes in these regions, prompting many consumers to shift away from wine towards other beverages, such as craft beers and spirits. Despite these headwinds, we see potential for Australian wines to maintain a solid presence, particularly in the value-for-money segment. In the US and UK, demand for wines that balance quality with affordability remains strong, and we expect these traditional markets to provide continued support for Australia’s broader wine export portfolio. Nonetheless, Australian producers will need to stay agile and adapt to evolving consumer preferences. Expanding Opportunities in the Asia-Pacific Region Given the challenges facing both the Chinese and traditional markets, we believe diversification into other fast-growing economies within the Asia-Pacific region will be critical for sustained growth. Australian wine exports to the Asia-Pacific region, excluding China, have steadily increased, with the share rising from 17% in June 2020 to 33% by June 2024. The rising middle class in countries such as Thailand, Vietnam, and Indonesia represents a substantial opportunity for Australian wine. These economies are experiencing robust growth, and with increasing disposable incomes, demand for premium and luxury products—including wine—is set to expand. Due to geographical proximity and established business relationships, Australian winemakers are well-positioned to capitalize on this demand. We expect to see continued growth in these markets as they develop a deeper appreciation for premium Australian wines, particularly those that emphasize organic, biodynamic, and niche varieties. The Premiumization Trend One of the most prominent global trends we’ve observed is the shift toward premiumization in the wine industry. Consumers around the world are drinking less wine overall, but they are willing to spend more on higher-quality products. This trend is expected to drive higher export prices for Australian wines, with the average export price projected to rise to $3.77 per litre in FY24–25. We believe that this trend presents a significant opportunity for Australian winemakers. The increasing global demand for premium wines aligns well with Australia’s strength in producing high-quality, distinctively regional wines. In particular, wine regions such as New South Wales and Victoria are increasing their focus on producing premium varieties, positioning themselves to meet this growing demand. As consumers continue to prioritize quality over quantity, Australian winemakers will be well-positioned to benefit from this trend, provided they maintain a clear focus on quality and innovation. Outlook for Australian Wine Exports in 2025 and Beyond Looking ahead, we expect the Australian wine export sector to experience steady growth, driven by a combination of the reopening of the Chinese market, evolving global consumption trends, and strategic market diversification. Export Value Growth: We forecast that wine export values will increase by 5%, reaching approximately $2.5 billion by FY25, supported by the removal of Chinese tariffs and renewed demand. Volume Increase: Export volumes are expected to rise to 600 million litres, driven by heightened demand for premium wines across key markets, including China, the UK, and the US. Market Share: Australian wines are projected to capture an 11% share of the UK market and a 4% share of the US market by FY25, reflecting a focus on premium wine segments. To capitalize on these market trends, the Australian wine industry is investing in several strategic initiatives: Premium Varieties: We are seeing increased vineyard plantings of premium grape varieties, particularly in regions such as New South Wales and Victoria. These investments align with global consumer preferences for higher-quality wines. Market Development: The industry is pursuing targeted marketing strategies to strengthen regional branding and promote the unique attributes of Australian wines. In addition, efforts are underway to bolster domestic consumption. Overall, we believe the outlook for Australian wine exports is optimistic as we head into FY25 and beyond. The reopening of the Chinese market, combined with growing opportunities in the Asia-Pacific and premiumization trends, will be key drivers of growth. Here are three stocks to watch that could benefit from the anticipated growth in global wine exports as the Australian wine industry capitalizes on key market reopening. Treasury Wine Estates Ltd (ASX: TWE) Treasury Wine Estates Ltd (ASX: TWE) is positioned as a compelling long-term investment as of September 2024, driven by strong financial performance and a strategic focus on luxury brands. Despite a significant 61.1% decline in net profit primarily due to a non-cash impairment charge, the company reported a 13.1% increase in net sales revenue, amounting to $2.74 billion for FY24. Additionally, earnings before interest, tax, and material items rose by 12.8% to $658 million. The firm also increased dividends by 16% to 36 cents per share, underscoring its resilience and commitment to delivering shareholder value. CEO Tim Ford’s emphasis on luxury brands, particularly Penfolds and Treasury Americas, which contribute over 75% of Group EBITS, is expected to fuel long-term growth as these brands gain market traction. The recent removal of tariffs on Australian wine imports into China further boosts Treasury’s market potential. With over 70 brands and a presence in more than 70 countries, the company’s extensive distribution network enables it to capitalize on emerging consumer trends. Looking forward, management anticipates EBITS for FY25 to rise to between $780 million and $810 million, which, coupled with positive analyst projections, supports the view that Treasury Wine is well-positioned for sustainable growth. Australian Vintage Limited (ASX: AVG) We recognize that Australian Vintage Limited (ASX: AVG) is currently navigating a challenging landscape, as evidenced by its substantial decline in share price. As of late September 2024, AVG’s share price stands at approximately $0.16, reflecting a steep 67.19% drop from its 52-week high of $0.48 reached in April 2024. This downturn is mirrored in its financial metrics, with a reported total revenue of AU$260.59 million but a troubling net loss of AU$93.03 million, highlighting significant operational challenges. Furthermore, AVG has not distributed any dividends in the past year, maintaining a 0% dividend yield, which could deter income-focused investors. The company’s market capitalization has dwindled to around AU$54 million, and it has faced increasing volatility, with average weekly stock movements rising from 9% to 15% over the past year. Despite these hurdles, we maintain a cautiously optimistic outlook for Australian Vintage. Analysts suggest that the company may be undervalued, with projections indicating potential earnings growth exceeding 100% per year in the future, contingent upon improved operational efficiency and strategic manoeuvring within the competitive wine market. Recent management changes, including the appointment of an interim CEO following the dismissal of the previous CEO, could also affect investor confidence and operational continuity. While AVG’s current financial performance and management instability pose considerable risks, the potential for recovery and growth remains, making it a stock that warrants careful consideration for those willing to navigate its complexities. We encourage investors to closely monitor these factors as they evaluate AVG’s prospects in the coming months. Endeavour Group Ltd (ASX: EDV) We believe that Endeavour Group Ltd (ASX: EDV) presents a compelling investment opportunity to capitalize on the growth of the wine industry. As the operator of Australia’s largest retail drinks network, primarily through its Dan Murphy's and BWS brands, Endeavour commands a substantial share of the market, accounting for approximately half of all off-premises liquor sales in the country. This extensive reach positions the company advantageously amidst increasing consumer demand for wine and other alcoholic beverages. Additionally, Endeavour's diverse revenue streams, which include a significant portfolio of licensed hospitality venues and hotels, allow us to capture both retail and on-premises sales, creating resilience against economic fluctuations. Financially, Endeavour has demonstrated consistent revenue growth, recently reporting revenues of $12 billion, with projections indicating further growth to $12.5 billion by 2025. Although some analysts foresee a slowdown compared to historical rates, we maintain an optimistic outlook, underpinned by a current dividend yield of approximately 4.30%, which is appealing to income-focused investors in a cautious market. Our analysis of strategic initiatives, such as investments in wineries and innovation through its Pinnacle Drinks division, reveals that Endeavour is well-equipped to respond swiftly to changing consumer trends and preferences. With these strengths, we view Endeavour Group Ltd as a solid candidate for investors looking to benefit from the ongoing expansion of the Australian wine industry.