Recent Australian data on liquor demand fuels the debate about the structural and cyclical factors. Per capita liquor consumption fell 6% between FY23 and FY24 and we see another -6% for FY25. This sounds sobering. However, the industry is still coming down from its COVID-19 binge and sustaining the long-term structural decline seen over the past 20 years. The silver lining is the magnitude of the decline in liquor markets is likely to ease. Beer volumes have turned positive on-premise. We expect retail liquor to return to growth in the December 2025 quarter. The real opportunity in the liquor industry is to tap into the trend towards premiumisation and RTDs, where Endeavour and Coles both under-index.

The much-anticipated announcement by the US Government of reciprocal tariffs creates an environment of uncertainty. For Australian consumer companies, there could be a silver lining through lower cost of goods on products sourced from China or other low-cost countries. Breville and Lovisa face some challenges given their US operations, but also stand to benefit from lower sourcing costs. Treasury Wines will face tariffs on a small part of its business importing wines from NZ and Australia, but its US business could benefit from higher prices on French & Italian wines competing with its domestic US premium portfolio.

We have produced a chart pack with category forecasts for the Australian liquor industry reset (see PDF report). This liquor outlook provides two insights – 1) The weakness in sales is more a function of the COVID-19 spike in demand than a structural concern. 2) The recalibration of liquor demand differs across categories, with wine and RTDs likely to see better demand from affordability and drinking preference. The data includes actual consumption trends for Australian households to the end of FY23.

Treasury Wine’s recent US investor tour provided a reinforcement of its direction, rather than any change. The company is clearly focused on premium wine growth, with an increased emphasis on new product development and a desire for bolt-on acquisitions. The reality for the company will be very low volume growth and a continued mix shift leading to modest revenue growth. Marketing investment may rise once EBITS margins targets are hit in our view. We expect 16% EBITS growth in FY23e and 11% in FY24e.

We initiate coverage of Treasury Wine Estates. After a tough 18 months, we expect stabilisation in earnings the shift to a “divisional” model that separates Penfolds will put the spotlight on that segment. The loss of earnings from China is painful, but the reallocation to other markets is likely. The company has scaled back its Americas business to focus on premium wines. The simplification of Treasury and focus on its core brands should support both sales and margins.