And within this industry, wine is a sector that has known a tremendous growth and complete changes. The wine market is globalizing and democratizing itself. Several wine critics such as Robert Parker Jr or James Suckling have now attained huge public recognition. In traditionally beer-drinking countries such as the US, Canada, Australia, and Northern Europe the demand is shifting and wine now becomes the preferred alcoholic drink. In emerging countries, especially in Asia the demand for wine is exploding. The world of wine obviously reckons this shift in demand, which can be illustrated by the fact that the #1 wine fair in the world, vinexpo, is now held every second year in Hong-Kong, and every second year in Bordeaux, France. Moreover in every country of the world, the public is becoming more and more educated with the demand shifting from average wines towards fine (expensive) wines. We are here talking about general trends in the global public, and therefore it has been historically observed that wine stocks follow their own logic and are not correlated to the markets: the stocks of wine producing companies will not go down if the overall stock market goes down.
The new consumers like wines with new tastes compared to what was traditionally drank before. Tastes adapted to their spicy cuisines. Meeting this changing demand has been a problem for traditional producers with long historical background and subject to tight regulations intended to keep the traditional production methods intact. The historical French regions of Bordeaux and Bourgogne who were dominating the wine markets a few decades ago have had been particularly hit, and we saw in the past decade the emergence, and now dominance, of the New World wines. Australia is at the cross-road of the West and Asia, it has good soils and climates, and no outdated regulation to comply with. Moreover Australia has a fairly sizeable percentage of its population with origins from southern Europe countries where winemaking is a tradition so finding skilled staff is not a problem. Australia is very well positioned to exploit this recent revolution in the global wine markets. And the Aussies actually played very well. Coming from nearly negligible wine production volumes in the early 90s, Australia has developed during the past 15 years an extremely modern wine industry which production volumes now among the largest of the world of wine.
Now what about looking at stocks and stock picking? Treasury Wine Estates (TWE) is an extremely big player in the Australian wine industry, but they are now very active in other New World wine countries. Treasury Wine Estates (TWE) was created by the demerger from Foster’s wine production arm in May 2011. The company stock of Treasury Wine Estates (TWE) is traded on the Australian Stock Exchange (ASX) as well as the US markets (PNK). It is moreover one of the very few listed winery companies, ie a wine producer stock can be traded on-exchange. You can describe Treasury Wine Estates as a best-of-breed company operating in a flourishing industry: New World wines and especially Australian wines.
The profitability of this company is outstanding and its stock produced extremely good returns since the public listing. The reason is that they have a good business model and strong growth. Treasury Wine Estates (TWE) pursues a very aggressive growth rate, buying wine estates around the globe and integrating them in their organization in a very efficient way. Their know-how usually increases the quality of the wine produced in the newly acquired estates. Their critical mass gives economies of scale to bring down the production costs and marketing and distribution channels to sell more wine bottles at higher prices.
All this is summed up in the share price evolution that you can see in the graph below drawn since the public listing of the company in May 2011 (+68%), you can click on the picture to be redirected to Google finance's page for the stock.