News

16 Aug, 2019
Growing taste for premium wine lifts Treasury profit by 16 per cent
The Sydney Morning Herald

Australia's biggest wine company Treasury Wine Estates will invest up to $180 million to expand its luxury winemaking facilities in the Barossa Valley, as it sharpens its emphasis on prestige wines.

Increased demand for luxury wine at home and abroad helped push Treasury's net profit up 16 per cent to $419.5 million for fiscal 2019, as sales revenue surged 17 per cent to $2.83 billion.

Treasury's result sent its stock price up 2.2 per cent to close at $17.45 on a day when the S&P/ASX200 Index dropped 2.9 per cent after big falls on the US market. Treasury shares have now climbed almost 20 per cent since early June, when it was trading at around $14.50.

Treasury boss Michael Clarke said the wine company had followed a consistent strategy which delivered results, as he also rebuked critics, "naysayers" and short-sellers.

"We've told people what we're going to do, we've told people how we're going to do it and we've got on with it and we've done it and we've delivered and we've delivered every single time," he told The Age and The Sydney Morning Herald.

"This is not luck. This is strategic thinking, strategic planning and great execution, and a heavy dose of hard work by our team. Our team works bloody hard and we deliver," he said.

This is not luck. This is strategic thinking, strategic planning and great execution and a heavy dose of hard work by our team.

Michael Clarke, Treasury Wine Estates chief executive

Mr Clarke described said a report from the Hong Kong-based equities research firm GMT Research was a "garbage report".

"The disappointing thing about a garbage report like that is we believe it's been requested by short-sellers who are trying to exit their short positions. And they get someone outside of Australia who's not under the jurisdiction of the Australian Stock Exchange to write the report," he said.

"I personally spoke to ASIC [Australian Securities and Investments Commission] and we've reported it and we want it investigated, we've got nothing to hide," he said.

The report claimed Treasury "may have inflated profits by up to 50 per cent over the last two years through the use of acquisition accounting to write down inventories and establish other liabilities". Treasury labelled the claims in the report as false and misleading.

Asked about the Barossa Valley investment, Mr Clarke said that given Treasury's portfolio of wines and growth plans it needed more winemaking capacity, describing it as a "once-in-a lifetime" investment.

Treasury's Australian managing director Angus McPherson said the company was "going to build the single best, most luxury, state-of-the art premium winemaking facility in Australia and potentially one of the best in the world. And that investment increases our capacity by over one-third".

All geographic regions where Treasury sells wine delivered growth in sales volumes, net sales revenue and net sales revenue per case. The biggest jump in sales was in Asia, where revenue grew 37 per cent in fiscal 2019 to $749 million, ensuring that sales in Asia overtook sales in Australia and New Zealand. In the Americas sales jumped 18 per cent to $1.13 billion.

Treasury reported EBITS (earnings before interest, tax and the agricultural accounting standard SGARA) up 25 per cent to $662.7 million, in line with guidance.

In Asia EBITS rose 43 per cent to $293.5 million, with a margin of 39.2 per cent. The Australia and New Zealand region reported EBITS growth of 15 per cent to $156.5 million.

Treasury declared a fully franked final dividend of 20 cents per share, payable on October 4 and up 18 per cent on last year.

In a note to clients, UBS analyst Ben Gilbert said Treasury had recorded a "good result, in line with UBS and guidance. Cash-conversion the highlight at about 76 per cent".

In a note to clients Morgans analyst Belinda Moore said Treasury had now delivered a five year EBITS compound annual growth rate of 30 per cent "underpinned by its premiumisation strategy. Asia was the standout and was better than we expected".

16 Aug, 2019
‘A lot of great work’: JB Hi-Fi CEO shares highlights from FY19
Inside Retail Australia

JB HI-FI Group improved annual net profit and group sales for the seventh year in a row in FY19, despite the challenging retail environment felt by many during the election cycle.

This improved result was felt across JB HI-FI’s Australian and New Zealand business, as well as homewares retailer The Good Guys, which cumulatively saw NPAT up 7.1 per cent to $249.8 million, and sales reach $7.1 billion – 3.5 per cent higher than FY18. 

Murray also pointed to a strong online showing – which grew at 23 per cent year-on-year, now making up 5.5 per cent of total sales – though maintained that the company’s physical stores remained incredibly important to its overall health. 

“We’ve been doing a lot of great work. I think 23 per cent growth over a number of years is pretty solid growth,” Murray told Inside Retail

“What’s most important to me is that we’re growing online, but doing it in a way that doesn’t damage the store network.

“We’re not trying to have one at the expense of the other. You get the same price in-store, you get the same price online. I want to make sure that customers get a great outcome shopping at JB whichever channel they shop in.”

Additionally, while the business isn’t rolling out as many stores as it has previously, it is looking at each new opportunity as a chance to learn. For example, the big-box retailer opened its first small-scale stores in Sydney’s Virgin and Jetstar domestic terminals.

The lesson learned? The JB HI-FI formula works just as well when shrunk down.

“We can run a 75sqm store and make money. [That is] an incredibly small footprint store relative to our normal stores,” Murray said. 

“Obviously, for us that is interesting, because if you can make a 75sqm store work, and a 1200sqm store work, what are the options in between?”

Murray stopped short of saying JB HI-FI would invest into further smaller-format stores, as has been seen by the likes of Coles, Woolworths and Ikea, but told Inside Retail it is something the management team thinks about often.

“We need to make sure that all of our stores remain productive, and that we find the right store size for the right location,” Murray said. 

Turnaround in NZ

While JB HI-FI has almost 200 stores in Australia, it holds a comparatively slim market share in New Zealand at only 14 stores. However, Murray maintains that the electronics retailer is in fourth position in its only overseas business, and holds some of the highest-turnover stores in the New Zealand market.

“You have two strong competitors in Noel Leeming and Harvey Norman, and they’re turning over [approximately] $700 million each. Our presence is smaller, so therefore our market presence is smaller,” Murray said.

“The best decision we made [in New Zealand] was putting Cherie Kerrison as managing director. That’s been terrific. I think the results we’ve achieved since she started in October have been really pleasing.

“We’re a year into a [multi-year] turnaround program, so we’ll see how we go,” Murray said.

Despite the improving performance from the New Zealand side of the business, Murray said JB HI-FI has no plans to expand into other international markets.

16 Aug, 2019
Jobless rate steady even as extra 41,100 people find work
SOURCE:
The Age
The Age

Australia's jobless rate was steady in July at 5.2 per cent, even after another 41,100 people found work across the country.

The Australian Bureau of Statistics reported on Thursday that 34,500 full-time jobs were created during the month in a result that surprised analysts. Over the past year, 255,600 people have found full-time work while another 77,000 have secured part-time employment.

The jobless rate fell in NSW, to 4.4 per cent, after jumping in June, while there was a steep fall in Tasmania, from 6.8 per cent to 6 per cent.

It was steady in Victoria at 4.8 per cent but rose sharply in South Australia to 6.9 per cent.

But on the more stable trend measure, national unemployment lifted to 5.3 per cent - its highest level in a year.

And underutilisation actually increased through the month to reach 13.6 per cent in a sign that there remains plenty of slack in the jobs market.

The figures came as global sharemarkets fell sharply on concerns about the world economy.

The S&P/ASX 200 was down 2.1 per cent, or $38 billion, shortly before midday after a terrible lead-in from the United States. Overnight, the Dow Jones Industrial Average index shed 3 per cent after a key economic indicator suggested the US is facing a recession.

The price of long-term government debt is now lower than short-term debt, a development called an inverted yield curve, as investors believe the economy is likely to deteriorate. The yield curve has inverted ahead of every recession in the past 50 years.

Concerns over the American economy plus poor indicators out of China and Germany, and growing fears about the impact of Brexit on the European economy were all cited as reasons for the sell-off.

Opposition Leader Anthony Albanese said the government had no plan to deal with the troubles facing the economy, instead thinking it could "put its feet up" for the next three years.

He said the issues facing households, the retail sector and the gyrations on global markets all pointed to economic trouble.

"It's not okay on the economy, it's not okay on the people who are falling behind," he said.

But Reserve Bank deputy governor Guy Debelle, in a speech on the major risks facing the domestic economy delivered in Sydney on Thursday morning, said stabilising house prices and a boost from the Morrison government's tax cuts were likely to help strengthen families' bottom lines and the overall economy.

He said while household consumption had been muted over the past 12 months, there were some positive signs ahead.

12 Aug, 2019
Mooove over – Made by Cow is muscling its way into the milk market
https://insidefmcg.com.au/wp-content/uploads/2019/08/Made-by-Cow-8.jpg

Australian milk company Made by Cow, is making itself known in the local milk market and beyond, with its safe to drink raw milk proving a hit with consumers.

The company revealed its patented cold pressed method at a launch event in Sydney on Thursday, which uses world-first technology to allow raw cow’s milk to be consumed safely without resorting to heat pasteurisation, which they say can deplete milk’s natural nutrients.

The breakthrough method, which was approved by the New South Wales Food Authority in 2016, sees the milk bottled straight from the farm and immediately placed under cold high pressure.

The milk has been available to consumers for some time at Harris Farm Markets and health food stores, but chief executive Wade Porter is keen to scale up the business.

“We realized that we really needed to invest in our operation,” Porter told Inside FMCG. “It’s taken us 18 months to get the business operational to deliver scale.”

“Now we’re out seeing all of the retailers nationally. The response has been really encouraging. They can see some real excitement about a premium milk brain that’s truly differentiated. There’s no one like us in the category.”

The business currently works with a single Jersey herd on the New South Wales South Coast and Porter said they will hand select more farms when the capacity requires it.

With many customers turning their back on cow’s milk in favour of plant-based milk in recent years for their individual dietary preferences or requirements, Made by Cow will need to work hard to win back these consumers.

Porter believes that their raw cold pressed milk is better for digestion than the standard pasteurised milk on shelves.

“Highly educated consumers are seeking out plant milks because they think they are more nutritional but they are actually full of emulsifiers, vegetable gum and binders, because it separates so aggressively, and there’s so much data coming out that these emulsifiers and agents are the worst thing for your gut,” he said.

“We really believe that the enzymes that naturally occur in cow’s milk, that we’ve been able to keep in tact, we believe that they play a role in digestion. Also our milk is high in A2 protein, being Jersey.”

Due to the unique bottling method, Made by Cow milk enjoys a longer shelf life than standard milk, lasting for about six weeks.

The company said several countries have already reached out to discuss the patent technology.

 

7 Aug, 2019
Campbell’s confirms KKR as new owners of Arnott’s
Inside FMCG

US food giant Campbell Soup Company has confirmed the sale of Australian biscuit company Arnott’s along with the rest of its international division. 

Campbell’s announced on Friday that it signed a definitive agreement with global investment firm KKR for US$2.2 billion (AU$3.14 billion), subject to customary purchase price adjustments. 

In late July, sources told the Australian Financial Review that a deal had been done but the companies remained silent on the sale until Friday. 

Combined with the recent sale of Danish snacks company Kelsen Group to a Ferrero affiliated firm for $300 million, the FMCG giant managed to offload its entire Campbell International division for an aggregate price of US$2.5 billion.

Campbell and KKR will enter into a long-term licensing arrangement for the exclusive rights to use certain Campbell brands, including Campbell’s, Swanson, V8, Prego, Chunky and Campbell’s Real Stock, in Australia, New Zealand, Malaysia and select markets in Asia, Europe, the Middle East and Africa. 

It is understood that the initial licensing agreement for these brands is for 15 years, after which KKR and Campbell have the opportunity to extend it for an additional 10 years.

David Lang, member at KKR, said, Campbell International represents a “unique portfolio of iconic brands that are known and loved by consumers in Australia and across the world”. 

“We are privileged and excited to have the opportunity to invest in and grow Arnott’s as an independent business in Australia, in addition to further developing Campbell’s trusted brands across the broader Asian market. This is a milestone investment for KKR, and we look forward to working closely with the Campbell International management team to seek out new and exciting opportunities,” Lang said on Friday. 

Arnott’s, the company behind Aussie favourites such as Tim Tam, Mint Slice and Shapes, was acquired by Campbell in 1997. Arnott’s and Campbell’s International operations had combined net sales of around US$885 million in the latest 12 months and employ approximately 3,800 people between them.

Campbell’s president and CEO Mark Clouse said the sale was a “thorough and complex process”.

“Our approach has resulted in agreements that we believe generate the greatest value from our international assets. By applying almost $3 billion of divestiture net proceeds to reduce debt, Campbell’s balance sheet will be stronger and capable of supporting our plan to grow our focused and differentiated portfolio,” Clouse said in a statement on Friday. 

Campbell’s announced plans to sell its international division in August last year, in an effort to clear debts and focus on its core North American businesses.

The company also sold its Campbell Fresh operations in June 2019, generating proceeds of approximately US$565 million.

7 Aug, 2019
Naked Wines to rebrand and focus on online following Majestic sale
Inside FMCG

UK specialist wine retailer Majestic Wine has been sold to US investment firm Fortress for £95 million.

The sale, which includes the Majestic Wines website, bricks and mortar stores, headquarters and French divisions, will allow Majestic Wines to focus on its online-only subscription service Naked Wines, which it acquired in 2015. 

The company plans to rebrand Naked Wines and list it as a standalone plc on the London Stock Exchange.

“I am delighted that we have managed to secure an independent future for both Naked and Majestic Retail and Commercial, allowing both companies to pursue growth by focusing on their unique propositions,” Rowan Gormley, CEO of Majestic Wine, said.

“I would like to thank all staff, customers and suppliers for their loyalty during this process. We look forward to the future and continuing to focus on what we do best… sharing our spectacular wines from our hundreds of talented winemakers with our customers!” 

Reuters reported that Majestic has been struggling with competition from discounters and online rivals.

“We want to keep investing in our stores, in our people and our product – everything you can feel, touch and sip,” Majestic Wine’s managing director Joshua Lincoln said 

“After all, you cannot taste wine online.”

The UK wine business expects the sale to be completed by the fourth quarter of 2019, with the finances to clear the group’s debt and investment in Naked Wines.

Majestic Wines will also return £3.8m to the shareholders with a special dividend of 5.2p per share.

In April 2019, bankers at Rothschild dealt with several private equity firms on behalf of the retailer to buy its British bricks-and-mortar business which includes around 200 stores. 

Gormley, told investors in March that Majestic Wine would present a transformation plan in June.

 

7 Aug, 2019
Kaufland sets its sights on Queensland
Inside FMCG

German retail giant Kaufland is powering ahead with its Australian expansion, with its latest store planned for Toowoomba in southern Queensland. 

Kaufland Australia submitted a development application on Friday to Toowoomba Regional Council for a 4,000 sqm full-service supermarket on the corner of Anzac Avenue and Carrel Drive at Harristown, located southwest of Toowoomba city centre.

“German retailer Kaufland is making its first foray into the Toowoomba region,” a spokesperson for Kaufland Australia told Inside FMCG on Tuesday.

“The proposed development at 353-359 Anzac Avenue will have a strong focus on fresh food, as well as local produce, known brands and a high-quality private label range.”

The retailer said its “customer centric model” is driven by “simplicity, quality, variety and price” and aims to increase choice, provide a premium level of service and promote fair competition throughout the state and the rest of Australia.

Up to now, Kaufland which is owned by the fourth largest retailer in the world, Schwarz Group, has been focusing its efforts on Victoria and South Australia. 

Retail expert Professor Gary Mortimer suspects the retailer is already in negotiations with more councils and real estate developers in New South Wales and Queensland but is keeping its cards close to its chest until sites are approved so as not to invite competition from other retailers. 

“Kaufland is very strong on price. It’s Aldi on steroids,” Mortimer told Inside FMCG

“Unlike Aldi, Kaufland will have a bigger range of national and global brands, as well as good range of own brand products.”

Mortimer doesn’t believe a smaller retailers like IGA and Foodworks, who have previously voiced concern about the retailer's entry into the market, are under threat but says “discount department stores like Kmart, Big W and Target” will suffer.

“For incumbent retailers – supermarkets and discount department stores – it will present a challenge,” Mortimer told Inside FMCG.

While no decision has been made on the application yet, it’s clear that the retailer’s expansion plans are gaining momentum.

In March, Kaufland Australia recieved planning approvel for its first three stores in Victoria at Chirnside Park, Dandenong and Epping as well as its Melbourne headquarters and Australia’s largest distribution centre to be located at Mickleham.

The following month, the retailer was granted development approval to build its first South Australian store in Prospect, an inner northern suburb of greater Adelaide.

Mortimer was positive about the impact the new store could have on the area. 

“I think it’s great for Toowoomba. It will create jobs not just in store, but during the building process,” he said. 

The retailer told Inside FMCG it is committed to “long term, sustainable investment in the Toowoomba region” and will continue to partner with all stakeholders and the wider community to ensure “the best outcome possible”. 

In March, the retailer revealed an initial investment of $450 million into the Australian project. It is expected the retailer will open its first stores in 2021. 

 

7 Aug, 2019
Tesco to cut 4500 jobs in Metro restructure
Inside FMCG

Supermarket giant Tesco has announced that around 4500 jobs are at risk as it seeks to ‘simplify’ store operations and reduce administrative processes at 153 Metro stores.

Tesco said its plans will help it to run a more sustainable business which it says will be better for customers as there will be more time to focus on customer service. 

Tesco Metro was originally designed for larger weekly shops but with nearly 70 per cent of shoppers treating it like a convenience store, the retailer said it needs to change how it operates.

“In a challenging, evolving retail environment, with increasing cost pressures, we have to continue to review the way we run our stores to ensure we reflect the way our customers are shopping and do so in the most efficient way. We do not take any decision which impacts colleagues lightly, but have to make sure we remain relevant for customers and operate a sustainable business now and in the future,” Jason Tarry, Tesco UK & ROI CEO, said. 

“We are also making some small changes in 134 of our 1,750 Express stores, where customer footfall is lower. Changes in these stores will include a slight reduction in opening hours during quieter trading periods at the start and end of the day, and simplifying stock routines.”

Tesco said it expects these changes will lead to an “overall reduction of around 4,500 colleagues”.

The supermarket said its priority is to support affected colleagues and find alternative roles within the network for as many as possible.

6 Aug, 2019
Menulog grows footprint, revenue in Australia
Inside Retail Australia

London-based food company Just Eat posted its half-year results on Wednesday, including the latest results from its Australian subsidiary Menulog.

The takeaway food platform, which launched its own delivery service in 2018 (previously it only catered to restaurants that could ‘self deliver’), reported a 29 per cent increase in revenue on a constant currency basis in the first half to £27.3 million. 

Orders increased more than 10 per cent year on year. Underlying EBITDA, however, fell into the red, with the company reporting a £2.1 million loss in the first half, compared to a £4.3 million profit in the prior corresponding period. 

According to Just Eat, this was due to the cost of rolling out of its new delivery service. It had signed up 5700 restaurants to the service by the end of June and now covers 70 per cent of the addressable population in Australia.

“We’ve been working at pace and made good progress in the first half of the year to become the preferred food delivery app for our customers, with a broader choice of restaurants, a better user experience and a more personalised and impactful approach to communication,” Just Eat interim chief executive Peter Duffy said. 

“Australia has returned to top line growth with our delivery operations achieving gross profitability. These are strong foundations for Just Eat to build on, as the business continues to drive forward.”

The company reported a 28 per cent year on year increase in restaurant partners. It now has seven of the top nine international chains operating in Australia on its platform. 

Active customers fell by 10 per cent compared to the same period of 2018 due to a smaller EatNow platform – a subsidiary brand, which is set to be retired later this year. Average order value also fell 2 per cent, from £23.49 during the first half of 2018 to £23.03.

“Effective action taken by our teams in a period of transition resulted in significantly improved performance in the first half of the year and has seen us reclaim market share,” the parent company wrote in a note to investors. 

6 Aug, 2019
US slaps 10 per cent tariff on extra $US300bn of Chinese goods
The Australian Business Review

President Trump said that the US would impose 10pc tariffs on an additional $US300 billion ($440bn) in Chinese goods and products beginning on Sept. 1, after trade talks this week failed to yield any significant results.

In a series of tweets, Mr Trump, who received a briefing from his trade team Thursday, said that negotiators still planned to resume their discussions, as scheduled next month, and expressed his interest in reaching “a comprehensive Trade Deal” with China.

However, he said that China’s promise to increase its purchase of US agricultural products, as well as its promise to stop the sale of fentanyl to the US have fallen short.

Unlike previous rounds of tariffs, which have focused largely on industrial goods, the $US300bn tranche is set to include a host of consumer products, from electronics and cellphones to apparel.

The tariffs would include Apple‘s iPhones unless such phones are granted an exemption or otherwise excluded from the final list. Mr Trump said in July that Chinese-made parts for Apple’s Mac pro computers won’t get exemptions.

The tariffs would also affect practically all the groups of products not hit previously, with the exception of select categories, such as medicines.

Stocks, bond yields and oil prices dropped following Mr Trump’s announcement. The Dow Jones Industrial Average erased a rebound of more than 300 points, oil dropped 6 per cent and the yield on the benchmark 10-year US Treasury note plumbed fresh 2019 lows. The blue-chip index dropped 60 points, or 0.2 per cent, to 26800. The S&P 500 fell 0.4 per cent and the technology-heavy Nasdaq Composite slid 0.4 per cent.

US Trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin met this week with Chinese Vice Premier Liu He in Shanghai after a monthslong freeze in trade discussions.

Apart from small steps, however, expectations were low for making significant progress in resolving a trade dispute that has rattled global markets and seen both sides slap punitive tariffs on about half the more than $US600bn in goods they trade.

Speaking to the Fox Business Network earlier Thursday, Mr Trump’s China trade adviser Peter Navarro indicated that the president sees an economic benefit to tariffs.

“Tariffs are good. Tariffs are raising revenues,” he said. “They’re helping defend our steel and aluminum industries. They’re helping us get China to the negotiating — do you think China would be at the negotiating table right now?”

 

 

6 Aug, 2019
Gerry Harvey rebuffs David Jones retail recession call, points to management instability
The Australian Business Review

Gerry Harvey has dismissed suggestions that the retailing sector is in recession following the claims by South Africa’s Woolworths Holdings and argued problems with its David Jones operation might be more to do with its management.

The David Jones owner said its business in Australia was under “unprecedented economic pressures" declaring Australian retail was in recession.

But Mr Harvey, chairman of Gerry Harvey Holdings, told The Australian “I’ve been saying that retailing is flat but it is not in recession”.

He said the reason department stores such as David Jones and Myer were struggling might have to do with instability in management.

“Both have had a succession of changes which have seen a succession of CEOs,’’ he said “It is obviously having an impact’’.

Mr Harvey said there was no doubt that the internet was having an effect but he questioned whether the correct strategy was to increase online presence given internet retailers were struggling to make money.

“There is no evidence that any make money out of online operation,’’ he said.

The comments came after up-market retailer David Jones cast a pall over the nation’s retail sector on the eve of reporting season after its owner, South Africa’s Woolworths Holdings, declared Australian retail is in recession as it slashed $437 million in value from the chain.

The David Jones owner warned its business in Australia was under “unprecedented economic pressures”, with more than $1.1 billion in carrying value now torched in five years.

The decision to book a second round of impairments against David Jones and slash its carrying value from $2.1 billion when it was bought in 2014 to $965m now will send shockwaves through the investment community and raise fears that other publicly listed retail chains — such as department store rival Myer — might soon follow with their own dire warnings and impairments.

With reporting season about to kick off, the timing is awful for the $320bn retail sector, which is already struggling with the worst retail conditions since the Global Financial Crisis, which could trigger a fresh round of profit warnings from Australia’s biggest companies.

However the Australian Retail Association questioned the “recession” tag.

“It’s not as buoyant as it should be. It’s pretty tough out there but to call it a recession across the country, I’m a bit concerned about that,” ARA executive director Russel Zimmerman told 2GB radio.

Mr Zimmerman admitted that the industry was under some stress, but reports suggested there would be an upturn in sales in the second half of the year.

He said David Jones was “working on getting themselves in a position that’s right for the future”, and that Westfield and Myer were doing the same.

Woolworths Holdings has generally been reserved in its commentary on the Australian economy, but last night it provided a blunt and candid view of the state of the retail sector.

“This writedown reflects sustained and unprecedented economic pressures and structural changes in the Australian market. The retail sector in Australia is currently in recession and the Australian economy has slowed to its weakest level since the Global Financial Crisis in 2009,’’ a Woolworths Holdings spokesman said last night.

If retailers like David Jones expected a healthy bump in sales from the recent fall in interest rates and quick rebates from the federal government’s promised tax cuts they have failed to materialise. All eyes will now turn to key retailers such as Super Retail Group, Coles, Woolworths, Wesfarmers, Harvey Norman and Myer when they report their latest financial performance over the next six weeks and provide a greater analysis of the retail sector as it stumbles in the face of stagnant wage growth, the rising cost of living and tight household budgets.

Yesterday National Australia Bank released its latest Online Retail Sales Index, which showed a 1.6 per cent contraction in sales for June, driven by a 7 per cent slump in sales for homewares and appliances, with year-on-year sales barely positive at just 0.5 per cent growth.

Just last month Macquarie Wealth Management warned its clients in a detailed report that the retail sector remained weak and the outlook for household income growth challenging, with unemployment expected to remain above 5 per cent until 2021.

Unibail-Rodamco-Westfield, which owns the former Westfield international empire, told investors yesterday that the industry backdrop remained challenging and it expected that to remain the case for at least another two years, as it warned of tough times, especially in Britain.

Yesterday South Africa’s Woolworths Holdings said the tough retail and economic conditions would see it write down the value of its up-market department store David Jones by $437.4m. In a statement to its local stock exchange it said it was forecasting a loss for fiscal 2019 with an impairment charge of $437m recognised for the year. It said a strategic review of the David Jones store portfolio had identified onerous leases resulting in an additional provision of $22.4m in the period.

Under the watch of Woolworths Holdings chief executive Ian Moir, who led the purchase of David Jones five years ago, its value has been slashed, with the company booking an impairment of $712m against David Jones in 2018 as the poor retail conditions hit its performance.

The latest impairment means a total of more than $1.1 billion in value has been stripped from David Jones in two years.

Woolworths Holdings said the latest impairment was a result of the “economic headwinds” and the “accelerated structural changes affecting the Australian retail sector”, as well as the performance of the business, which fell short of expectations.

“Operationally, our strategic initiatives position David Jones for the retail environment of the future. Our digital and online offering is expanding rapidly. We remain focused on reducing costs and reducing store space across our footprint,’’ a Woolworths Holdings spokesman said.

David Jones’ sales performance and profitability have been dented by the downturn in retail conditions as well as the massive refurbishment of its flagship Elizabeth Street store in Sydney, which disrupted the business.

“The Elizabeth Street Flagship store refurbishment is on track, with key womenswear floors opening this month, and the exclusivity of our Country Road Group brands within David Jones will take effect from September adding to the extensive collection of new, exclusive brands signed to David Jones this year, in line with our focus on delivering an exclusive offering. These initiatives align us closely with the changing needs and preferences of our customers.”

In July Woolworths told the stock exchange in South Africa that David Jones had suffered a third consecutive year of shrinking like-for-like store sales. The company said like-for-like sales for the 52 weeks had slipped 0.1 per cent.

The up-market retailer also moved to trim its costs, and last month David Jones triggered 120 redundancies across its stores and headquarters.

1 Aug, 2019
Marley Spoon posts first profit in Australia
Australian Financial Review

KEY POINTS

  • Marley Spoon grew sales in Australia by 47 per cent in the June quarter compared with a year ago.
  • It has about to begin deliveries in Tasmania.
  • The company listed on the ASX in 2018 after raising $70 million.

Marley Spoon's Australian managing director Rolf Weber said while reaching profitability in Australia was an important milestone, it was ''about bang on'' with where the company hoped it would be, when it set out four years ago as one of the pioneers in home meal kit deliveries.

 

Marley Spoon made it into the black in the June quarter in Australia, which was an important milestone for CEO Fabian Siegel (left) and Australian managing director Rolf Weber . Louie Douvis

Mr Weber said the momentum was running the right way in the business and Marley Spoon was steadily expanding and building its customer base without being ultra-aggressive.

"We don't think this is a kind of winner-takes-all market,'' Mr Weber said.

It was now growing in a sustainable and consistent manner, and generating higher sales per customer. It has 172,000 customers globally across its operations in Australia, Europe and the United States.

1 Aug, 2019
Woolies become halal food people
The Australian Business Review

Woolworths will be the first Australian supermarket to develop and sell its own private label halal-certified product.

It is part of the retailer’s wider strategy to grow its range of ethnic and international groceries that are in demand from an increasingly diverse multicultural community.

Led by Woolworths head of supermarkets Claire Peters, the supermarket chain will look to develop other private label products and bring new brands that fit into the ethnic foods category, as well as devote more shelf space to these groceries in stores where a large ethnic community lives within its catchment zone.

The new Woolworths halal brand developed in-house is called Al-Sadiq, which in Arabic means truthful, and was created with the advice and certification from the Islamic Council of Queensland, which Woolworths believes will help it gain the confidence and trust of Muslim shoppers that rely on the credentials of halal food.

Woolworths director of buying Peter McNamara told The Australian the Al-Sadiq private label would first cover chicken products but could be extended to include other fresh and packaged grocery items if there was support from local communities.

The Al-Sadiq brand will initially be sold in about 20 Woolworths supermarkets where there are strong Muslim communities nearby, such as Bankstown, western Sydney, where around one in three shoppers are identified as halal eaters. The range will start selling in May or June.

It is the first step in a major strategic push by Woolworths to better curate the brands its 1000-plus stores nationwide carry, as changing demographics and growing multicultural populations look for ethnic foods and brands they enjoyed in their homelands such as China, Malaysia, India, South Africa and the Middle East.

Mr McNamara said the evolution of the Woolworths private label halal brand began when the chain wanted to be able to provide to its shoppers a consistent and quality offer.

“We have identified over a period of time that the opportunity to better serve what is an increasingly diverse clientele across particularly Sydney and Melbourne, and other parts of Australia as well, and when it comes to halal it is religiously sensitive,” he said.

“So when our fresh poultry team went looking to source product we found it difficult to find the quality and consistency and certification confidence for that style of product.’’

The creation of its own private label brand for halal goes to the heart of why the chains such as Woolworths and Coles have embraced in-house branding, as it puts the supermarket in charge of quality and supply while also generating fatter margins.

And it now joins hands with another trend running through the community that retailers are certainly taking notice of — the rich and growing multicultural flavour of many Australian cities, suburbs and towns.

“Woolworths has a strategy of trying to better serve our customers, and one of the macro trends, which has been in Australia for a while but has certainly accelerated at the moment, is the diverse nature of the population,’’ Mr McNamara said. “And we have done a lot of work strategically, a lot of customer work.’’

Woolworths will not rely solely on private labels to fill this gap, sourcing branded products that are already favoured by these customers and bought at specialty shops or local markets.

Woolworths is rolling out more branded Asian foods, both packaged and fresh, to its supermarkets and has even started to offer pork cut and prepared in ways that appeal to Asian customers and are better suited to Asian cooking.

Mr McNamara said some Woolworths stores would have more shelf space assigned to international or ethnic groceries, a strategy fleshed out by Ms Peters last year when she addressed the Australian Food and Grocery Council conference in Melbourne.

“What we are seeing happening over time in Woolworths is curating the range better to suit that store … and when it comes to ethnic or international it is about identifying those stores where clearly there is a concentration of customers of different backgrounds and we can better serve them,” Mr McNamara said.

“We have started with Asian because that is the biggest opportunity for us, but we have a road map that includes areas like Indian foods, Middle Eastern, halal, South African, kosher and we are doing some of that work today but in a lot of those areas we think we can do a better job.

“As we better tailor our stores we will not just modify the range but we will also play with what we call the macro space, the total available space or footage in that particular store.

“So if over time people are buying less DVDs, printer cartridges or dog food or whatever it is, we will look at that store’s data and see how best to optimise our space … so, yes, we will give international and ethnic foods more space if they require more space.’’

Eli Greenblat

SENIOR BUSINESS REPORTER

Eli Greenblat has written for The Age, Sydney Morning Herald and Australian Financial Review covering a range of sectors across the economy and stockmarket. He has covered corporate rounds such as telecommunica... 

1 Aug, 2019
Marley Spoon posts first profit in Australia
Inside FMCG

Australian drinks company Lion has opened the first Little Creatures venue and microbrewery in the US.

Located in San Francisco’s Mission Bay, the new microbrewery has 36 taps with beers brewed exclusively on site, alongside the popular beer range imported from Australia.

Little Creatures Mission Bay will capitalise on a growing sporting presence in the area, as it is located near Oracle Park, home of the San Francisco Giants baseball team and near the soon to open Chase Center, home of the basketball team Golden State Warriors.

The new micro-brewery offers fresh beer from “tank to tap” on display for patrons, with bright beer tanks connected to the beer founts.

“San Francisco has an array of great craft brewers and passionate beer consumers so it’s the perfect launch pad for introducing Little Creatures to the US,” Luke Higgins, Lion’s commercial operations director, said.

Higgins said the craft beer market in the US is a good market to be in as it’s showing signs of a very positive future. Craft beer sales were up 4 per cent in volume in 2018 and retail sales up 7 per cent for the year to $27.6 billion.

“We’re looking forward to seeing Little Creatures Mission Bay become part of the craft beer community on the west coast of the US and we’re excited to see it already creating a buzz. The new venue will be all about introducing the famous Little Creatures beers and hospitality to a new part of the world and ensure the locals over here enjoy it as much as we know the Little Creatures global community does.”

Little Creatures has venues in several international markets including London, Hong Kong, Singapore and Auckland, and has also partnered with venues in Beijing, Shanghai and Taipei.

30 Jul, 2019
Why Arnott's $3 billion sale could spell the end of Orange Slices
The Sydney Morning Herald

A sale of Arnott's to investment powerhouse KKR could see a number of the much-loved biscuit maker's products discontinued in an effort to increase the company's value.

On Wednesday, storied private equity firm KKR emerged as the winning bidder for Campbell Soup Co's international brands division, which includes Arnott's after it bought the company in 1997.

With the deal, said to be worth around $3.15 billion, expected to be finalised in the next few days, questions remain as to what the US multinational plans to do next with the iconic Aussie business.

Generally, KKR's strategy involves purchasing companies, making changes to improve their bottom line, then selling them off again at a profit, either through a direct sale or a listing.

Brendan Wykes, a partner at Holding Redlich who's an expert in private equity transactions, told The Age and The Sydney Morning Herald he expects KKR will run the "usual mantra".

"I imagine they’ll do what most private equity firms do, which is look to realise their investment in around two to five years," he said.

"KKR will look to improve the earnings of the business, and as they’re likely funding this deal with debt, they’ll seek to pay down as much of that debt as possible in the meantime."

Professor Daniel Samson, manufacturing and business operations expert at The University of Melbourne, agrees this will be likely KKR’s plan for Arnott’s. But he says its strategy will probably also involve getting rid of some "lazy assets".

"One way to increase a company’s value it to lower its operating costs, which might involve reducing the number of different products it sells," he said.

Cutting down on biscuits?

Arnott’s has an extensive range of biscuits which it sells in both stand-alone and variety packs. Some of the less popular choices, such as Orange Slices or Milk Arrowroots, could get the chop, Professor Samson reckons.

"Like all businesses, Arnott’s has some big selling products and some very niche products, so one way to make the business more profitable would be to combine or eliminate the more niche options," Mr Samson said.

Orange Slice biscuits are loved by some, but are not Arnott's bestsellers.

 

Other cost-reducing methods could involve streamlining management or raising efficiency for the company's resources, Mr Samson said.

Arnott's employs around 2400 Australians across its offices and manufacturing plants and posted a profit of $76.5 million in the 2018 financial year, up 14 per cent from the year prior.

One way to increase a company’s value it to lower its operating costs, which might involve reducing the number of different products it sells.

University of Melbourne academic Professor Daniel Samson

KKR's local portfolio already includes a number of Australian companies, such as accounting software firm MYOB which it purchased for $2 billion earlier this year, and pubs and restaurants group Australian Venue Co.

The US private equity giant also owns stakes in laser hair removal business Laser Clinics Australia, healthcare business GenesisCare and lender Pepper Group, which it reportedly plans to list on the sharemarket later this year.

Mr Wykes says KKR could also look to acquire other businesses in a similar sector to Arnott’s, with the eventual goal of rolling them up together and listing them “when the time is right”.

In that case, Arnott’s would go back into Australian hands, with retail investors able to get a bite of the popular brand.

'How degrading'

Despite Arnott’s being foreign-owned since the late 1990s, some customers have reacted negatively to the news of KKR's acquisition, with some lamenting that yet another ‘Australian’ brand was moving into US hands.

"Fancy Tim Tams belonging to anyone but Australia," one biscuit fan noted on Facebook.

"How degrading for us."

This short-term backlash should be expected, according to behavioural economics expert Bri Williams, who said disruption of a nostalgic Australian brand like Tim Tams would likely evoke emotional responses from customers.

"In the short term, customers will probably be resistant due to that sense of nostalgia. Brands we perceive to be Australian we hold close to our heart, even if in the background they’re owned by multinationals," Ms Williams said.

"But before long consumption habits will prevail and customers will likely fall back into their old routines and revert to those family favourites."

Main thing is the private equiteers don't change the recipe.

A drastic change to product formulation, such as its recipe or size, could stoke real opposition from shoppers, Ms Williams warns.

Companies such as Cadbury and Glad have attest to that.

In 2015 Glad was forced to backflip on a controversial redesign of its cling-wrap box, which moved the serrated cutter from the base of the box to the lid. The backlash was so fierce the company said it would make changes as "soon as humanly possible".

Cadbury copped similar flak earlier this year after announcing it would shrink the size of its chocolate blocks to 180 grams, from 200 grams previously.

"Product changes are not typically received very well, and if handled incorrectly can incite some serious backlash from customers," Ms Williams said.

"But for most customers, it will be business as usual."

Local representatives for KKR did not respond to requests for further information on the deal, and its plans for Arnott's.

30 Jul, 2019
IPO hopeful Retail Zoo to upsize Boost Juice, Betty's Burgers
Financial Review

Boost Juice owner Retail Zoo is planning to more than double its footprint over the next few years by opening as many as 280 Boost and Betty's Burgers stores in Australia and more than 1000 overseas.

The company, which is owned by private equity firm Bain Capital and Boost Juice founder Janine and her husband Jeff Allis, has about 650 stores worldwide under the Boost, Betty’s Burgers, Salsa's Fresh Mex and CIBO Espresso brands.

The multi-brand food company is considering a $400 million trade sale or float and has been on a roadshow speaking to investors about its ambitious growth plans after appointing  Citi, UBS and Goldman Sachs as lead managers for a potential initial public offering later this year.

Chief executive Nishad Alani, a former Starbucks and Skylark executive who took the helm two years ago, says the company has racked up consistent double-digit sales and store growth over the past seven years and he expects the rate of growth to continue as it opens new stores, expands into new territories overseas and builds its delivery business.

"We see tremendous growth opportunities both in store counts and sales and also looking at international as an opportunity for both those [Boost and Betty's] brands," Mr Alani told The Australian Financial Review.

Retail Zoo has 19 company-owned Betty's Burgers stores, which account for about 30 per cent of network sales of $400 million, and will open the 20th store next week.

Mr Alani sees scope for 100 Betty's Burger stores in Australia and plans to open at least 10 a year over the next few years in shopping centres, beachside and high street locations, offering new stores to franchisees once the chain reaches 50 to 60.

"We feel confident we can get to 100 stores in Australia and once Betty's goes international I'd be looking at 1000 stores potentially," he said.

Boost is Retail Zoo's biggest brand and accounts for about 50 per cent of annual sales. Retail Zoo has been opening about 25 Boost stores a year for the past seven years and has 317 in Australia, 90 per cent of which are franchised, and 235 in 14 countries overseas operated by master franchisees.

"We've identified several hundred sites we could be in but we'll be very selective and measured in how we open Boost [stores] – we don't want to run into competition or cannibalisation amongst existing franchisees," he said.

"For us to hit our profit targets doesn't require us to be opening stores on top of each other."

Retail Zoo is also looking at taking the Boost brand into new markets such as the US, China, Japan and Germany and has been in discussions with potential joint venture partners.

At the same time, the company plans to take advantage of strong demand for food deliveries by partnering with new overseas providers such as DoorDash as well as existing players Uber Eats, Menulog and Deliveroo to lift deliveries from around 14 per cent of sales to about 20 per cent.

Retail Zoo has overcome some of the pitfalls of the booming delivery market by establishing separate waiting areas for delivery drivers and dine-in customers in Betty's Burgers stores and charging franchisees significantly lower royalties on delivery sales to protect franchisee profits.

"It's important that delivery is incremental and doesn't cannibalise the business," he said.

Mr Alani declined to discuss a potential IPO, but the company is expected to ramp-up marketing to investors after profit-reporting season, with a view to listing before Christmas.

Based on forecast earnings before interest tax depreciation and amortisation of around $33 million and network sales around $400 million, the company is likely to be valued at between $330 million and $460 million – double its valuation when Bain Capital bought a 70 per cent stake in 2014.

The franchise sector is on the nose with investors and regulators following allegations of poor treatment of franchisees by franchise owners and underpayment of staff.

However, Mr Alani said franchisee profitability was a focus for the company, which has a team of 20 franchise consultants who work with franchisees to improve returns and systems in place to ensure compliance with health, safety and employment rules.

Mr Alani said there were no complaints from franchisees during the recent Senate inquiry and the company had been proactive in auditing franchisees for potential wages underpayment, launching system-wide audits in 2014.

"It's a great model when it's done in a very socially responsible and ethical manner - that's something we pride ourselves on," he said.

30 Jul, 2019
Pressure on Coles to up milk prices after Woolworths and Aldi add 10 cents
Inside FMCG

An Australian dairy industry advocacy body is calling on Coles to increase its milk prices following moves by Aldi and Woolworths this week to increase the price per litre by a further 10 cents to reflect an increase in 
farmgate prices.

Dairy Connect CEO Shaughn Morgan welcomed the price increases but told Inside FMCGthat it is “important” that Coles makes the move too.

“We’ve got to make sure that increase flows down to the dairy farmer,” Morgan said.

“The farmgate price is below cost of production. It is vital for the sustainability of the Australian dairy industry that dairy farmers receive a farmgate price that is above the cost of production.”

Morgan said the impact of the drought and soaring energy costs is making it especially difficult for dairy farmers.

Rabobank’s latest Global Dairy Quarterly stated competition for milk among dairy companies was driving “record-high opening and forecast closing milk prices in 2019/20.”

On Wednesday Aldi announced a 10 cent per litre increase to the retail price of its entire fresh milk range as a direct result of the recent increase in the farm gate milk prices agreed between its milk suppliers and dairy farmers.

The discount grocer said that it will ensure that the full benefit of the increase is passed on to dairy farmers.

“We will continue to maintain the collection and distribution of 10 cents per litre implemented earlier this year and ensure that the proceeds are passed onto dairy farmers in full,” a spokesperson for Aldi told Inside FMCG.

“We do not take price increases lightly, however these movements are necessary for building a long term sustainable Australian dairy industry.”

In February, Woolworths was the first national supermarket to scrap $1 per litre pricing on milk, with Aldi and Coles later following suit.

A Woolworths spokesperson said the measure provided confidence “immediate relief” to dairy farmers given there had been little to no increase in farmgate prices for some time.

The Australian retailer was quick to follow Aldi’s move this time around, also increasing its retail price by 10 cents per litre as a result of the “ongoing whole-of-market cost pressures”.

“Since February we have seen farmgate prices increase significantly and they’re forecast to continue rising throughout the year,” the spokesperson said.

“As a result of these farmgate price movements, we have been paying our suppliers even more for milk and other dairy products across the category over recent months.”

From today, July 26, 1 litre Woolworths milk is selling for $1.29, the 2 litre milk is selling for $2.39, while the 3 litre is priced at $3.59.

30 Jul, 2019
Returning CEO partially funding Oliver’s Real Food recovery
Inside Retail

After a difficult year, which saw the business dissapointed by holiday trading performance, Oliver’s Real Food reported $161,000 in earnings before interest, tax, depreciation, amortisation and investment income (EBITDAI) in Q4 FY19. 

The business reported a net cash deficit of $331,000 in the June quarter, a “hangover” of the restructured management team’s overhead reduction program. The business said it has stemmed the cash burn moving forward. 

Cash reserves are expected to be at their lowest in August 2019, and as such Oliver’s founder and recently-returned chief executive Jason Gunn has offered a short-term draw-down facility as advance funds to keep the business afloat. 

“The transformation that has taken place in this business in the past four months is remarkable,” Gunn said. 

“We have been through a process of rebuilding the culture, restructuring the offering, and the team, ensuring we have everyone in the correct position with a clear understanding of their role in driving this business into the future.

“There has been a palpable, positive shift in energy at all levels of the business, with both the team and the customers responding positive shift in energy at all levels of the business, with both the team and the customers responding positively to that shift.”

Oliver’s did not provide updated earnings guidance for FY19, which it downgraded in February to a $1-4 million loss on sales revenue of $34-38 million. 

In a trading update posted in November 2018, the business was expecting to report $1-1.5 million in EBITDA on $40-43 million in revenue.

Moving into the new financial year, the brand is focused on delivering a break-even or better result in the first quarter of 2020 – traditionally Oliver’s softest trading quarter. 

The business underwent a drastic leadership shuffle in March when former-chief executive Greg Madigan resigned after only 10 months in the role. 

Gunn stepped back into the leadership role “invigorated, relaxed and ready”, while Nicholas Downer was named chairman, Steven Metter was named company secretary and Amanda Robson Gunn was named operations manager. 

The new leadership team said it will focus on returning confidence to employees, implementing cost control and returning the business to its pre-IPO formulae in an effort to increase turnover and profit.

23 Jul, 2019
China wine export volumes slide
Financial Review

Australia's wine export volumes to China slipped by 16 per cent in 2018-19 as local producers including Penfolds owner Treasury Wine Estates steered clear of selling low-priced commercial wines into the most important export market.

The deliberate shift to concentrating on higher priced wines meant the total value of Australian wine sales to China increased by 7 per cent to reach a record of $1.2 billion in the year ended June 30, industry body Wine Australia announced on Monday.

Wine Australia said US-bound exports reversed a two-year downward trend to generate a 2 per cent rise in exports by value to $432 million; the picture was more bleak in Australia's third largest export market, the UK, where exports slipped 3 per cent to $373 million and volumes fell 4 per cent to 236 million litres.

Wine Australia chief executive Andreas Clark said Australia had been the No.1 importer by value into China for the first five months of calendar 2019, ahead of France. It was now ranked No.2 behind France.

He said the drop in the UK should be put into context, with large companies having to deal with the uncertainty of Brexit and the logistics of shipping extra quantities into the UK as a mitigation strategy against supply disruption.

Treasury Wine Estates owns brands including Penfolds, Wolf Blass and Wynns, and is scheduled to report its full-year results on August 15. The company said on Monday that market commentary to the ASX, which it gave the last time a set of Wine Australia figures was released, had been a one-off and it wouldn't be doing it again.

A Treasury Wines spokeswoman said the company was now in blackout ahead of the results and the one-off update last time had been a deliberate move to ''reinforce caution on using the Wine Australia data as a direct read-out of Treasury Wine Estate performance''.

Wine Australia's Mr Clark said Brexit had brought some unusual challenges for Australian producers and large players had been on the front foot many months ago in getting extra product into the market to avoid being caught out by any sudden change in regulations.

"It’s important to retain perspective on the UK market,'' Mr Clark said.

He said research by IRI showed Australia was still the No.1 player in wine sales at a retail level in Britain, with 24 per cent market share in that segment for the year ended March 2019.

Australia has a market share of 30 per cent in the £5.01 ($8.87) to £6.00 per bottle segment in UK retail, where competition is extremely fierce.

A National Vintage Report out last week showed that the 2019 grape harvest in Australia came in at 1.73 million tonnes, 1 per cent below the 10-year average. This was a higher intake than many experts had been predicting after poor weather conditions in some key grape growing regions. Average grape prices increased for the fifth consecutive year to $664 per tonne, to hit the highest level since 2008.

The total value of Australian wine exports increased by 4 per cent to $2.86 billion for the year ended June 30. But total export volumes dropped 6 per cent to 801 million litres.

23 Jul, 2019
Coopers MD sees beer market boost from Carlton sale
Financial Review

The head of independent local brewer Coopers has welcomed the sale of Carlton and United Breweries (CUB) to Japanese giant Asahi, saying it would bring stability to his business that has been under pressure due to strong CUB sales tactics.

Coopers Brewery managing director Tim Cooper said Anheuser-Busch InBev's (ABI) sale of CUB to Asahi for $16 billion – announced on Friday afternoon –  could also help boost sales for his beers.

“We think that it will be good for the beer market in Australia in the sense that Asahi will most likely provide more stability for CUB," Mr Cooper told The Australian Financial Review on Sunday.

 

Coopers managing director Tim Cooper said the sale of Carlton and United Breweries would be good for the local beer industry.   Daniel Kalisz

“Under ABI, CUB was a more transactional player, which is probably not unusual looking at how ABI operate around the world."

This "transactional approach" was evidenced by CUB more actively pursuing keg contracts to get their beers on taps in pubs and buying more "forward stock weight", which refers to a beer's positioning and visibility in a retail outlet.

“Asahi, I believe, will take a longer-term view of the market and that should hopefully help us grow the whole beer market, because we have faced a decline since 2009 when the whole beer market was 1870 million litres and we’re down below 1700 million litres."

Mr Cooper said CUB had stepped up its sales tactics in the lead-up to the Asahi buyout, evidenced by Coopers sales volumes dropping 11 per cent last month as CUB marketed its beers hard.

He was not sure if the more aggressive sales strategy was to boost numbers so the business looked stronger before its sale, or if it was sales representatives pushing to hit their targets as the financial year came to a close.

CUB sale surprised the market

Belgian brewing giant ABI surprised the market when it announced its sale of CUB to Asahi, a week after it scrapped the initial public offering of its Asia Pacific business, which would have included CUB in the float and been the biggest IPO of the year. The transaction is expected to be finalised by the first quarter of 2020.

Asked if Asahi saw opportunities for synergies with its Schweppes soft drink business that it acquired in 2009, Asahi Beverages executive chairman Peter Margin said it was too early to tell.

“At this stage, it is too early for us to talk about the combined business going forward as the deal will be subject to regulatory approvals.

"The acquisition fits with our parent company’s strategy to establish a global platform, with presence outside Japan," Mr Margin said.

The sale presented an opportunity for Coopers, according to the managing director.

“As usual you would expect there to be management changes and some disarray internally for a period of time and we will aim to make sure that people are aware of our products and hopefully with a less transactional approach being taken by our opposition, then we will do better."

Mr Cooper said he didn't think the sale of CUB would pique interest in a possible takeover of Coopers, which successfully fended off an unsolicited takeover bid by Lion Nathan in 2005.

"I think the fact that we went through the hostile takeover bid in 2005 and we resisted that successfully means others know that we’re dogged in our approach in terms of maintaining our long-term credentials as independent and family owned."

CUB chief executive Peter Filipovic said he was “very excited to be joining Asahi”.

“We are a great Australian business, with iconic brands, world-class breweries and great people,” Mr Filipovic said on Sunday.

“These have made us the market leader in Australia and we look forward to growing the business and the beer category with Asahi.”

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