News

13 Jul, 2020
A cult hit Aussie hot sauce brand has raised over $300,000 from fans in an equity crowdfunding round
Business Insider Australia

Fan favourite Australian hot sauce brand Bunsters has shot straight out of the gate in a round of equity crowdfunding, landing over $300,000 in the first week from fans of the brand – before the raise was even made public.

Bunsters, which was founded by Renae Bunster in 2015 to launch the wonderfully-named ‘Shit the Bed Hot Sauce’, currently pulls down over a million dollars a year in revenue, a significant chunk of which comes from overseas markets like the United States. ‘Shit The Bed’ regularly tops the hot sauce sale charts on Amazon in US.

The company has also managed to maintain growth through the coronavirus pandemic. Sales in March this year were double what they were in March 2019.

Bunster attributes that success to the fact ‘Shit the Bed’ was built as a direct-to-consumer product from the get-go – and not just because of its name, which would be unlikely to appear among other condiments on a shelf at Coles. “When COVID happened, we were ready to go,” she said.

The equity raise, which is handled by Birchal – the equity crowdfunding “sister platform” to Pozible – was initially launched privately to fans of the product. They ponied up $300,000 within a week, blitzing the initial goal of $100,000.

The reason for the capital raise is twofold, according to Bunster. Firstly, it is money to bolster production of the company’s core hot sauce product. “If we get a phone call from a big overseas market right now saying, ‘We want to put your hot sauce in our 10,000 stores’, we don’t have the money sitting there ready to be able to do that,” she said.

Secondly, Bunster wants to expand the company’s product range, with the same ethos of Australian-made with Australian ingredients. “What I did with hot sauce, by making delicious hot sauce with 13 different veggies in it, I’m gonna do that for other condiments.”

Bunster says the crowdfunding route – which she already pursued for the first production of ‘Shit the Bed’ back in 2015 – is preferable to seeking venture capital, as it lets her maintain control over the product. The success of the first crowdfunding effort and the eagerness of hot sauce fans to get on board convinced her that it would be effective for the latest round.

“The only other way to get the kind of money we’re after is to go to high net wealth investors or private equity and potentially lose a bit of control of the company,” Bunster said.

Going global

As anyone who has dipped their toe into the world of online hot sauce fanaticism will tell you, achieving cult status in such a crowded and competitive field can be daunting. One way to get on the map is to have your sauce appear on “Hot Ones”.

“Hot Ones” is a web series produced by online foodie magazine First We Feast and Complex Media, featuring host Sean Evans interviewing celebrities as they eat chicken wings drenched in progressively hotter sauces. Having their tastebuds torched by increasingly nuclear sauces while being asked probing questions leads interview subjects to be more candid, or so the thinking goes.

Bunster, who said she had been lobbying to get on the show for some time (“I’d been hassling him about it for two years”) said being featured “opened doors” for the product, especially in the US.

“It’s like you’ve been called up to play on a national sports team,” she said. “It’s actually quite difficult to get your hot sauce onto that show.”

“Your sauce has to be made out of all whole ingredients and it has to be really tasty,” she explained. “You’re not allowed to use extracts. You can’t be using xanthan gum for thickness.”

“The guy who picks the hot sauces is like a god in the hot sauce industry and he only accepts the best.”

13 Jul, 2020
Woolworths takes lion's share in online groceries
Financial Review

Woolworths has taken the lion's share of growth in the online grocery market and now has more than double the share of arch rival Coles.

Woolworths accounted for about 57.4 per cent of online grocery sales in the year ending March 2020, according to figures released on Wednesday by Roy Morgan, well above its estimated 33 per cent share of the total fresh food and grocery market.

Coles' share of online grocery sales was estimated to be 26.1 per cent, slightly below its 26.6 per cent share of the total market, Roy Morgan said.

The market share estimates are based on surveys of consumer shopping habits and spending, rather than credit card data, but they suggest Woolworths is well positioned to win the online war as more consumers shift their weekly grocery shop from stores to e-commerce.

"Over the last three years, and particularly in the last 18 months, we've seen a really substantial increase in online [food] expenditure," Roy Morgan chief executive Michele Levine said.

"It really looks like the lion's share of that increase has gone to Woolworths.

"They're [Woolworths and Coles] are both growing but Woolies started growing sooner and is in a higher position ... it almost looks as if the major growth in the market has been either driven by Woolworths or picked up by Woolworths."

Woolworths is expected to have taken more online market share during the pandemic, despite having to ration services. Woolworths' online food sales rose 26 per cent in the March quarter, while Coles' online sales rose 14 per cent.

Promiscuous shoppers

Australian consumers are notoriously promiscuous when it comes to grocery shopping – Roy Morgan's research found about 25 per cent of brick and mortar customers shop at Woolworths, Coles and Aldi in any four week period.

"There's very little loyalty. It's always been a very fickle market," Ms Levine said.

"Despite having things like Flybuys and Everyday Rewards to make people loyal, people simply have both cards and shop for convenience. They're really not distinguishing one from another."

However online grocery shoppers appear to favour one retailer, possibly because of the time it takes to set up grocery lists and account details.

Ms Levine believes subscription-based schemes designed to reduce delivery costs will make online shoppers even more loyal.

"Loyalty is behavioural – I always do the same thing – and emotional – I love this store," she said. "I think the behavioural loyalty will probably increase."

13 Jul, 2020
Treasury not giving up on US despite profit plunge
Financial Review

Treasury Wine Estates' new chief executive, Tim Ford, has pitched the US as a growth engine amid market questions about problems bedevilling the region.

Mr Ford, speaking on an investor conference call following a disappointing business update, maintained there were growth opportunities in the US for Treasury, the maker of Penfolds. It could be a "profit engine for this business", he said.

 

Treasury Wine Estates chief executive Tim Ford is guiding the company through challenging times on multiple fronts. 

Some analysts were dubious, David Errington, from Bank of America, sought signs of confidence from management given that for almost 20 years, for Treasury the US has been a place where "the dog always eats your homework".

"There comes a time where you just end up shooting your dog," Mr Errington said on Thursday.

Mr Ford said costs were being cut out of the business. "The brands and the portfolio that will form that future shape of the US business are all growing significantly ahead of the market in the channel ... that we should be and have been performing very well in over this period of the pandemic," he said.

"The shape that I see in the future of our business is a much lower-volume business than what we have today. A business that has a similar [underlying earnings] level to what we have today, which then gets us much, much closer to our stated ambition around margin structures in the US."

He was speaking as Treasury predicted 2020 financial year earnings before interest, tax, depreciation, the agriculture accounting standard SGARA and material items (EBITS) would land between $530 million and $540 million.

That is a drop of 21 per cent compared to a year earlier for Treasury, whose other brands include Wolf Blass and 19 Crimes, which is promoted by rapper Snoop Dogg.

The result reflected the "impact of the COVID-19 pandemic" in the year’s second half, it said.

Sales decline around the globe

Treasury sells wine in more than 70 countries and the result included declines of 37 per cent in the Americas, 14 per cent in Asia, 16 per cent in Australia-New Zealand and 18 per cent in Europe, the Middle East and Africa.

The company had in January warned a downturn in the US business had prompted a downgrade of its full-year forecasts and a softer-than-expected first-half profit.

At the time, it cut expectations of EBITS growing from 15 per cent to 20 per cent to growth of 5 per cent to 10 per cent. But in late February, as COVID-19 wreaked havoc on global markets, Treasury joined a chorus line of companies dumping guidance.

The company, which employs 3400 people, said earlier this year that problems included a proliferation of private-label wine entering the US market, depleting margins.

Analysts on Thursday extrapolated that US second-half earnings had been heavily crunched. Treasury said the US had "continued to experience the challenging wine market conditions … including the market oversupply that has driven continued acceleration in private-label growth".

The positive news was retail channels had grown 15 per cent, compared to the previous corresponding period, in volumes and values since March. But Treasury flagged that the higher-margin, luxury wine market had been hit, with key sales channels – on-premise, cellar doors and global travel retail – "closed for a significant proportion" of the second half.

That mimics a problem faced by prestige beef giant AACo. With high-end restaurants closed, AACo diverted product to channels such as supermarkets.

China green shoots

Treasury cited some positive signs in China, where the virus erupted.

Depletions – a measure of sales – in April and May were up 1 per cent compared to the previous corresponding period. That improved on declines of more than 50 per cent in February and March, Treasury said.

But the company added a caveat by saying "gatherings and social occasions, which drive consumption of luxury wine, [were] yet to fully recover to previous levels".

Jun Bei Liu, a portfolio manager at Tribeca Investment Partners, which has a small stake in Treasury, said one bright spot from Thursday's results was the Asian markets.

"It’s showing early signs of recovery," Ms Liu said.

Treasury shares closed down 2.9 per cent to $10.95 on Thursday and Ms Liu said the overall downgrade was expected yet disappointing. Weakness lay in US results and questions for investors remained about Treasury’s restructure there, she said.

Another wildcard lay in Treasury being caught up in potential China-Australia trade tensions, although Ms Liu said any such impact would probably be short term.

The company also said the hot growing season meant the Australian vintage intake was 30 per cent lower than the previous year.

It expected the cost of goods sold per case of wine would rise by 3 per cent in 2021, or $50 million.

The company stuck with the possibility of spinning off its Penfolds brand, a move that has divided analysts. "Optionality exists as to the best operating model to extract that value, including a potential demerger by the end of calendar year 2021," Treasury said.

The company's audited results are due in August. Treasury declined to provide any estimates for next year's earnings.

"While it is right to remain cautious on the near-term outlook, given uncertainty remains around the timing and pace of recovery in our key markets, we remain optimistic around our return to both margin and profit growth," Mr Ford said.

13 Jul, 2020
7-Eleven CEO Angus McKay: innovating a convenient future
Inside FMCG

Angus McKay, 7-Eleven Australia CEO, chatted with Inside Franchise Business Executive in a Q&A about the new kiosk model, delivery, defining customer service and supporting franchisees through the pandemic.

7-Eleven is introducing a new format store in Brisbane. Tell us about it.

This is the second in the country. It’s an on-premise store, part of someone else’s property. The notion is to use larger businesses where the employee base is captive and looking for convenience. We’re on an industrial site in Melbourne. This [Brisbane] is more of an office block site that we’re testing.

It’s a fraction of the size of a standard store, one wall is eight to 10m long, it has a reduced but complete range. The two stores are very different based on the people in the location. The commonality is cold beverages, fresh sandwiches, bakery. The distinctions include whether or not to include a coffee machine.

We work with the site owner on an employee offer. It’s not about exclusivity. The industrial site has cafes but they are a drive away. At the office building the cafes are plentiful in the area. But if you only have half an hour for a lunch break, the 7-Eleven store is convenient.

I’m happy to go head to head with any other business but it’s about what the customer wants.

The notion of convenience is different. It was a corner milk bar when I grew up. That requires walking or driving to it. That notion is very old-fashioned. Every consumer defines convenience differently.

If you want a coffee, you might want it delivered. Time is precious so how do we help customers do things faster and simpler. That’s where we start.

Of course we’re not going to keep doing it unless we can make money out of it.

How does this fit into the growth strategy?

It’s too early to say it will conquer the world, but I can see how it could.

We have to decide if this model is corporate or franchised. The store needs to be serviced, and you can’t put product on the shelves at 6am. Someone has to do that. So maybe corporate support to service a few stores in an area is the solution. Or it could be an addendum to an additional franchisee store. That’s what were trying to work out. We’re picking up the bills until then.

How is franchise recruitment affected by the current crisis?

Up until the end of February we were flying, enquiries were fantastic. In March it was as if a vacuum cleaner came on and everyone stopped talking. In April some [franchise buyers] started to withdraw around credit availability, some asking themselves, ‘Do I really want to open a business now?’ Some credit is harder to get.

However enquiries are returning now and we’re seeing the pipeline opening up again.

Last August there was an expectation of 15 stores across Queensland and WA over two years, as part of a steady 20-30 store annual growth. What’s the latest?

This last fiscal year, we didn’t deviate substantially from our opening plans. We’re preserving cash but have not materially changed gross store opening numbers. Queensland has dominated store openings, in this fiscal year it will be Victoria, and those plans are well set.

Covid-19 has been a speedbump for us, but it’s not a monumental one. Business has travelled well.

What we now have to look at is what stores should we be closing based on economic circumstances. There’s no traffic in the cities. Suburban stores have traded very well, city stores are hurting.

What are the particular elements of the 7-Eleven franchise system that have helped franchisees during the pandemic?

In the first place, in the first week, other than Coles and Woolworths everybody stopped.

We were all concerned, ‘Can I go out, will I catch it?’.

Franchisees wanted to know what it meant for them. Sales stopped but we underwrite the profit contribution, and that really stood the test of time.

All franchisees, even if they didn’t use the assistance, valued it, knowing it was there.

The fact that we didn’t change it or turn it off, we did what we were supposed to do was a huge comfort as they try to rebalance their business.

Part two of this, as we worked with different stores, we treated every store uniquely.

Where a business might have had more distress, we would work through with banks, tailor the roster, in a couple of cases, close temporarily or reduce hours. We tried to have quite a bespoke approach.

Now we’re into another phase, some stores are well into recovery, what are we doing to help them shine?

In Victoria we have a whole lot in lockdown, we have to go back to the well again. We have to consider if they can play in stage 3 again – from a store perspective, what is the gross profit level, rebalance labour, get stock levels right.

In the 7-Eleven model, the fixed costs, rent and utilities, we take care of.

The support staff, field managers, would be sharing the franchisees’ burden. How do you help them through this?

Everybody is impacted but particularly on the frontline those serving customers, and those supporting those serving customers.

We make sure they have the tools, are clear on priorities, we’ve been diverting other resources from the business to supplement the staff, and making sure we look after their welfare from both a physical and mental safety perspective.

They’ve been doing a brilliant job.

7-Eleven has maintained its innovative streak – can you give us an update, it’s been three months since delivery was first trialled?

Delivery is now in Sydney and Melbourne and steadily growing.

We are learning what people want delivered from 7-Eleven. You can see when AFL started, because everyone wants chips and Coke – we can work out from when the orders were placed the time of kick-off.

That goes back to the notion of what convenience is. What do customers want as a delivery service? Is it delivery now or in two hours? We can look at high rise versus suburban customers. We’re mining the data to understand.

There’s no doubt it has a place in our future, as does the kiosk.

We’re learning all the time.

When it comes to product, you can do as much market intelligence as you like but you have to put it on the shelves and see how it trades. We’ve introduced a whole lot of plant-based product, and it’s gone nuts.

Our catering trial was part of our continuous innovation, it is currently paused as we enhance our e-commerce capabilities.

Our cashless cardless store at our Richmond office has been a tremendous success. Customers love it and it has highlighted its potential. The store is currently closed due to Covid-19 work from home requirements, but the technology is being used in the microformat trial store. We’re continuing to learn more as consumers interact with the technology.

It has a place in our future. We will be looking at how we might be able to roll it out in addition to traditional style point of sale technology in future.

With the fuel app, major enhancements will roll out at the end of the calendar year.

What’s been learned during the pandemic that will shape a future 7-Eleven?

We’ve learned that speed counts. You’ve got to be nimble.

You’ve got to be clear around priorities. We have three: customer safety, employee safety and employment security, and network viability. Everything lines up behind these priorities.

You have to think how you can start to accelerate what’s moving, digital is moving quickly, now it’s going even faster. How can you take a few more risks? Our consumers are happy to give something a go.

The biggest lesson is how you look after each other. In our world, we’re only as good as the people who operate our stores. If they felt we didn’t have their back, we couldn’t have done it.

What has been 7-Eleven’s experience with rents?

Our experience is the same as yours – we’ve seen the best and worst in businesses. With rent we’ve had some landlords turn round and say, ‘you’ve been a great tenant what do you need?’. Some others have dug the trench and won’t move.

That goes to the long term, we now have a point of view of who are partners, and who aren’t.

And in the stores, what people do behind the scenes, they are very generous. We’ve had an initiative to recognise local heroes, it’s wonderful stuff.

In hard times, that’s what makes the world turn.

13 Jul, 2020
Demand for groceries soars in Melbourne as citizens prepare to re-enter lockdown
Inside FMCG

Supermarket giants Woolworths and Coles have once again reinstated purchase limits at Victorian stores following a surge in demand for groceries, as resident of metropolitan Melbourne prepare to re-enter lockdown for another six weeks.

Both retailers prematurely lifted buying limits nationwide on Tuesday, but were forced to backtrack on the decision a day later due to elevated demand after the announcement from Victorian Premier Daniel Andrews.

Under the stage three rules, which will be re-introduced from 11.59pm on Wednesday, people can only leave their homes to get food and supplies, receive or provide care, exercise, and study or work if they can’t do so from home.

On Wednesday, Woolworths enforced a two item limit across 27 product categories at stores and online in Victoria, while a two pack limit on toilet roll remains in place at its stores nationwide.

Woolworths said the move “will help ensure more customers have fair access to fresh food and essentials” and assured customers that all of its supermarkets in Victoria will remain open throughout the stage three restrictions.

“We have more than enough stock flowing from our distribution centres into stores to support all our customers’ food and grocery needs. We encourage our customers to continue shopping as they usually would,” Woolworths said in a statement.

Coles also re-introduced limits on staple items at stores in Victoria. The retailer said limits do not currently apply to any other stores but stock levels will be monitored continually.

Coles chief executive Steven Cain said it was disappointing to reinstate limits, but that it was an important measure to help manage demand.

“Our thoughts are with the many Victorians who will now be required to isolate at home, and we will continue to work with the state government to provide whatever assistance they need,” Cain said.

“To help provide a safer shopping experience in our stores, we would ask that customers continue to treat our team members with respect, observe social distancing in stores, make use of the sanitising stations at the entrance, and plan their visit so they can be ‘speedy shoppers’.

With cases rising by the day in Victoria, the ‘big two’ have poured extra resources into their operations in the state.

On Monday, Coles announced that it is working with the Victorian Government to donate food and groceries to those who have been confined to their apartments as part of mandatory Covid safety measures in Melbourne.

Woolworths is working with Foodbank and FareShare to provide over 3000 residents in public housing towers in Melbourne with freshly cooked meals and essential food deliveries.

“We hope these meals and essentials will offer some relief to residents in these uncertain times,” Woolworths Victoria state manager, Andrew Hall said.

“FareShare’s Melbourne Kitchen is now cooking up every vegetable they have available and are so very thankful for the urgent orders we have placed to replenish this stock and allow more meals to be prepared. We want to reassure locals that we’ll be here to continue to support them with freshly cooked meals and essential food deliveries through this lockdown.”

13 Jul, 2020
Mars Wrigley launches Australian-made M&M’s following equipment upgrade at Ballarat site
Inside FMCG

Mars Wrigley Australia will produce M&M’S Pretzel at its chocolate factory in Ballarat, Victoria for the first time following an investment of over $300,000 in local manufacturing.

The investment has enabled an equipment upgrade at the Ballarat site, expanding manufacturing capability to create filled M&M’S and explore more Australian-made innovations.

Andrew Leakey, general manager Mars Wrigley Australia, said the latest upgrade is part of a broader AU$37 million investment commitment by Mars Wrigley Australia to future-proof and advance its local manufacturing capability.

“We are dedicated to continuing to support Australia’s manufacturing sector and invest and innovate in infrastructure, equipment and processes at our local factories to ensure they remain world class. This latest project is part of our long-term ambition to continue to drive and develop our core bitesize brands that we manufacture locally in Ballarat,” he said.

The Ballarat factory is a Regional Technical Hub for Mars Wrigley’s global brand development and innovation pipeline, and last November celebrated 40 years in operation.

Popular products such as Pods and M&M’S Honeycomb were invented in Ballarat by Australian Associates, and it is one of four Mars factories in the world that manufactures and exports Maltesers.

M&M’S Pretzel will be available at Coles supermarkets from July 13 and then at Woolworths stores from July 28.

The announcement from Mars coincides with World Chocolate Day (July 7) which sees brands worldwide celebrate their love for chocolate and introduce new creations to consumers.

Australian chocolate retailer Haigh’s Chocolates launched a limited-edition Milk Chocolate Caramel Marshmallow Bar at its stores and online.

The bar, which is sold in a pack of four, features vanilla marshmallow encased in caramel flavoured milk chocolate and a second layer of milk chocolate.

The bar will be available from July 7 until sold out.

7 Jul, 2020
How KitKat Chocolatory is helping the 84-year-old brand connect with Gen Z
Inside FMCG

Sydney’s first KitKat Chocolatory officially opens to the public on Monday, bringing an air of decadence to the classic chocolate bar which has delighted consumers for nearly 85 years.

The boutique store focuses primarily on customisation to bring unique products to guests, while showcasing local and international flavour innovations to broaden the customer experience.

Nestlé’s general manager of confectionery Chris O’Donnell told Inside FMCG that the goal was to “wow” consumers.

“The intention was to create a concept that really brought to life the creativity of KitKat and to bring something that was next level for the brand, but also really immersive for the consumer,” he said.

The Chocolatory concept was based on a pop-up KitKat Studio which opened for four weeks in Sydney back in 2015, O’Donnell explained. The first KitKat Chocolatory then opened in Melbourne and through that process the team identified the type of experience that consumers were looking for.

“As we started to look to Sydney, we really looked at how we could take that to the next level what could we bring to Sydney that would create a concept that would really wow consumers,” he said.

“We brought new ideas, new experiences, that bring to life not only that creativity but gives people a much more personal experience that you can’t get anywhere else in the world.”

The store offers a feast for the senses, with flowing chocolate, a wall of unusual flavours from around the world, a Chocolate Train with a rotation of unique flavours in single finger form, and a cafe serving up hot and cold chocolate and cookies.

Create Your Break allows visitors to design their own eight finger KitKat, from up to 30,000 possible combinations, to be created there and then by in-store chocolatiers, while the KitKat Tasting Table presents a selection of premium desserts that champion the classic bar in a variety of ways.

O’Donnell told Inside FMCG that creating a “next level” experience is essential to connect with today’s consumers.

“Connecting with consumers is becoming increasingly difficult, the marketing mix is changing, and for brands to really connect with consumers, they need to create a connection that’s more based on experience than it is based on you know the historical telling of advertising,” he said.

“For me, this was a critical part of the journey that KitKat has been on, which is about offering much more personalised, much more experience-based content, and bringing something to consumers that you just can’t get anywhere else.”

Supplementing the store, is KitKat’s e-commerce site which offers the same products and customisation to consumers online. O’Donnell said the online store has experienced “phenomenal growth” in recent months.

“There’s nothing like experiencing it firsthand yet, but for those who can’t come to the store that’s what online is there for. Our e-commerce platform over the last three to four months has experienced phenomenal growth, of up to 400 per cent. So if [consumers] are not in Sydney or Melbourne or can’t get into the store then that obviously gives the brand much more reach across Australia to provide people with personalisation and customisation at home,” he said.

O’Donnell is hopeful that the store will drive the confectionery giant’s pipeline of innovation.

“We can use this as an innovation incubator, we can trial new things relatively quickly. In retail, to develop a new product it might take six to 12 months, we can do it here in six to 12 hours. That allows us to test something and get an instant reaction from the consumer. That gives us really good insights on what could work in retail,” he said.

“We have some ideas coming out next year that we’ve tested in here. We’ll use this on an ongoing basis to help drive our pipeline of innovation.”

The Chocolatory has also allowed the brand to connect with younger shoppers that are not yet consumers of the brand, and has helped it reconnect with those consumers that have drifted away from the brand over the years.

“What we learned through the Chocolatory in Melbourne is that we had somewhere between 30-40 per cent of people coming into the store that hadn’t tried KitKat before, or weren’t regular consumers of KitKat. We then learned that those people who then experienced KitKat through the Chocolatory began buying back in retail, so it helped build our base business as well,” he said.

“There’s a circular economy of people who come in here, that then get the brand experience and then really start to engage with the brand.”

3 Jul, 2020
“A smart move”: Why Woolworths is expanding B2B offer
Inside FMCG

Woolworths has confirmed plans to launch a tailored online shopping site for early learning centres, education, disability and care services that buy food and groceries from the supermarket this year.

The new site, which was first reported by the Australian Financial Review, will improve the shopping experience for these organisations by giving them access to account management, centralised invoicing and consistent year-round prices. 

Many businesses currently shop for food and groceries either in-store or on the consumer website, a Woolworths spokesperson told Inside Retail

“We know we can improve their experience with a tailored online offering,” the spokesperson said. 

“A logical next step”

According to Louise Grimmer, a senior lecturer at University of Tasmania’s business school, the B2B market represents a significant expansion opportunity for B2C retailers, especially those with established online platforms and logistics networks.

“I think this is a smart move for Woolworths as retailers look for new markets in a post-COVID-19 world,” Grimmer told Inside Retail.  

She said the supermarket’s recent announcement of a $780 million investment into automated distribution centres, means it will be able to service a growing B2B channel fairly seamlessly.

“Coles has also been active in this space with their Ocado partnership and plans for highly automated fulfilment centres in Melbourne and Sydney,” she said. “Adding B2B to the business model for these large supermarkets is a logical next step.”

In addition to sweating existing digital and logistics investments, B2B expansion offers retailers an opportunity to make higher-margin sales. 

Michael Eidel, CEO of Openpay, which is providing the payment and invoicing software for Woolworths’ new B2B site, is seeing more enterprise retailers in Australia and the UK focusing on their trade divisions as margins shrink in B2C. 

Speaking with Inside Retail in February, when the partnership with Woolworths was announced, Eidel said he had spoken to other retailers looking to improve their B2B offers, but declined to name them.

“What I can say [is that] B2B will be a strategic element of our business going forward,” he said. “We think it can be a growth category over the next years.” 

Suppliers miss out on higher margins

As retailers look to grow their share of the lucrative B2B market, however, some are concerned they won’t pass on these higher margins to suppliers. 

Dr Geoffrey Annison, acting CEO of the Australian Food and Grocery Council, said Woolworths has asked suppliers to agree to the same terms for the new B2B site as are standard in its B2C supermarkets.

“When the supermarkets deal with the suppliers for the retail trade, [the] trading terms are based on understandings of promotion […] both in-store and outside store,” Annison explained. 

“They’re taking those prices over to a different model. And the question is whether that’s appropriate or not.”

This comes at a time when food prices in supermarkets have been decreasing, while manufacturing costs and wages have continued to rise, so suppliers are already feeling squeezed, Annison added. 

A Woolworths spokesperson said the retailer is working with its trading partners to ensure the new channel delivers value for suppliers as well as customers.

“We’ll continue engaging constructively with our suppliers to make this happen,” they said.

In addition to Woolworths, major retailers including Bunnings, Officeworks and Temple & Webster also cater to business customers in addition to individual shoppers. This reflects the type of B2C retail businesses that are best suited to expand into B2B, according to Grimmer. 

“Retailers with economies of scale with regards to products, and those that can offer a website that is easy to access, easy to use, is mobile-friendly, or even an app, and that includes all the information that buyers require to make that final decision will be the types of businesses that are better suited to B2B,” she said.

3 Jul, 2020
Kim Kardashian sells stake in KKW Beauty to Coty
Inside FMCG

Kim Kardashian has sold a 20 per cent stake of her KKW Beauty brand to beauty giant Coty. The deal, which is worth US$200 million, raises KKW Beauty’s valuation to US$1 billion. According to Coty, the company will oversee the portfolio’s development in skincare, haircare, personal care and nail products.

“This influence, combined with Coty’s leadership and deep expertise in prestige beauty will allow us to achieve the full potential of her brands,” said Peter Harf, chairman and CEO at Coty. 

“Partnering with an established organisation like Coty will be instrumental in the advancement of my brands as their global reach allows for faster expansion so people around the world are able to experience new launches first hand,” said Kim Kardashian West.

KKW Beauty was founded in 2017, offering beauty products ranging from lip gloss and foundation to perfume.

“This relationship will allow me to focus on the creative elements that I’m so passionate about while benefiting from the incredible resources of Coty, and launching my products around the world.”

Earlier this year, Coty acquired a majority stake in Kardashian West sister’s brand Kylie Cosmetics, which values the brand at US$1 billion as well. Last week, Kim Kardashian’s husband, Kanye West, closed a deal with the US apparel retailer Gap to launch the Yeezy Gap label.

3 Jul, 2020
Sales of non-alcoholic drinks have almost doubled at Dan Murphy’s and BWS in the last year, as Australians look for ways to moderate their drinking
Business Insider Australia

Beverage retailers Dan Murphy’s and BWS have seen sales of non-alcoholic drinks more than double in the last year, becoming one of the fastest growing categories.

Both companies are part of Woolworths subsidiary Endeavour Group. They reported sales in the non-alcoholic category increased 103% over the last twelve months. In particular, non-alcoholic beer, wine, cider, ready to drink and spirits sales spiked during Christmas and July, with an uptick also seen during March when Australia went into coronavirus lockdowns.

Adam Fry, General Manager of Buying & Merchandising at Endeavour Group, attributed the rise in non-alcoholic beverage consumption to shifting consumer trends.

“This is a reflection of a broader trend where consumers are choosing to moderate, with particular interest from customers in metro areas,” he said in a statement. “We expect this trend to continue.”

Among the company’s findings, non-alcoholic beer was the fastest-growing category.

“One of the reasons beer is so popular is that brewers have managed to create a product that replicates the flavour profile of the alcoholic version,” Fry added. “Winemakers and distillers are following suit and many have managed to perfect the art of creating alcohol-free beverages that taste great.”

The findings come as Dry July kicked off this week, which encourages people to cut out alcohol for a month while raising funds to fight cancer. This year, there was a little twist to the campaign, with the organisation launching “Dry(ish)” July so participants could opt cut their alcohol intake for 14 or 21 days because of the “challenging” start to the year.

Earlier this year, research from the Australian National University found Australians have been drinking more alcohol during the coronavirus pandemic.

Nearly one in four women who drank reported an increase in drinking during May 2020, compared to almost one in five men. The main reason respondents cited for their increased consumption was spending more time at home.

A number of Australian companies have been making non-alcoholic spirits and beer

Dan Murphy’s and BWS stock a number of Aussie brands that make non-alcoholic spirits and beer.

There’s Aboriginal-owned company Sobah, which produces non-alcoholic craft beer. The Queensland-based company was founded by Gamilaroi man Clinton Schultz together with his wife Lozen.

“Historically speaking, non-alcoholic beers have been known to be lacklustre, but with new technologies and brewing processes we can make non-alcoholic craft beer that tastes damn good,” Lozen said. “We use Australian bush tucker to create a range of beers with truly unique flavours.”

Then there’s Lindeman’s Wines, which make low-alcohol wine, and Sydney-based Lyre’s which produces non-alcoholic spirits. Lyre’s recently signed a “six-figure” deal to be stocked at Dan Murphy’s, which coincides with the company’s one year anniversary.

“The launch into Dan Murphy’s stores nationally marks an exciting and significant milestone for Lyre’s,” Mark Livings, CEO and co-founder of Lyre’s said in a statement. “This is a time when the sober-curious are seeking new non-alcoholic options, and this is happening in all corners of the country.”

29 Jun, 2020
Woolworths profit to fall despite record sales growth
Financial Review

Woolworths' record sales growth in the coronavirus pandemic has been overshadowed by a costs blow-out that will dent reported earnings about 20 per cent this year.

While Woolworths Supermarkets, BIG W, Dan Murphys and BWS bottle shops are enjoying bumper sales after a spike in demand at the pandemic's peak, the gains will be erased by higher-than-expected costs to repay underpaid staff, keep stores safe, automate its supply chain, and restructure its hotels and drinks business.

Chief executive Brad Banducci expects financial 2020 underlying earnings before interest and tax (EBIT) to fall between 1.2 per cent and 2.7 per cent to between $3.2 billion and $3.25 billion and flagged one-off costs of $591 million.

The new EBIT guidance is well below consensus forecasts around $3.33 billion and stems mainlyh from a 55 per cent profit drop in Endeavour Group, the hotel and drinks business Woolworths originally planned to split off and potentially float this year. That's now been deferred until late 2021.

Endeavour Group's hotels were closed for more than two months and the hotel business will fall into the red this year and continue to lose money until outlets are able to trade normally.

The one-off costs of $591 million include $176 million in redundancy costs to restructure its supply chain, $230 million to restructure Endeavour Group and $185 million to reimburse staff underpaid over the last nine years.

The EBIT guidance also includes incremental operating costs related to COVID-19 of close to $275 million – towards the top end of the $225 million to $275 million range flagged at the March-quarter sales results.

Woolworths shares slipped almost 1 per cent to $36.32 and are trading below their February all-time high of $43.60.

"Given how much of a spike in sales [they had] you'd have thought they'd have done a bit better," said one fund manager, who declined to be identified.

Mr Banducci said he was disappointed by the size of staff remediation payments and the fact Woolworths had had to revise remediation forecasts twice, but did not regret the extra security, cleaning and staff costs, which were necessary to make stores safe and meet additional demand.

"We’ve done the right thing. That’s the way we want to be judged and that’s the way we should be judged,” he said.

“We have lived through the crisis of our generation and we should be judged on how we’ve looked after our stakeholders - we feel we've got most of it right.”

"We hope by doing the right thing over time our customers will recognise and reward us for doing that," he said.

Woolworths revealed the total cost of its staff underpayments scandal had blown out an additional $75 million to $390 million after it identified underpayments to staff employed in its hotels division under the general hospitality industry award in 2018 and 2019.

Woolworths originally estimated the cost of remediation would be between $200 million and $300 million before tax and lifted its forecast to $315 million at the half-year results. It has now analysed two-thirds of all staff attendance records, suggesting remediation costs could rise further as more records are analysed.

Supply chain overhaul

Woolworths also unveiled plans to build an automated regional distribution centre (DC) and a semi-automated national distribution centre at Moorebank Logistics Park in Sydney at a cost of between $700 million and $780 million, or close to $1 billion including redundancy costs.

About 1350 jobs will be lost when three existing DCs in Minchinbury and Yennora in Sydney and Mulgrave in Melbourne are closed in 2025 and a net 650 new roles will be created when the two new DCs open at the end of 2023.

The planned sites, subject to NSW government planning approval, will enable Woolworths to increase its range by about one third, improve efficiency and do more localised ranging to better reflect customer demand.

The new facilities at Moorebank will incorporate and build on the automated technology at Woolworths' Melbourne South Regional Distribution Centre (MSRDC), which cost about $560 million.

Woolworths has signed an initial 20-year lease with Qube Holdings, which will invest around $420 million to $460 million to build the two new warehouses.

Analysts expressed concern about the size of the investment and the return on capital from the investment, which follows years of elevated capex spending.

"I've been very uncomfortable with the return metric Woolies has been generating on capex," said Bank of America analyst David Errington, citing the cost of Woolworths' regional centre in Melbourne.

However, one fund manager said the investment was a "no brainer" and Woolworths could save $200 million a year, including $135 million in wages.

"The only way to make productivity improvements is to automate more, it's something they need to do," the fund manager said.

Woolworths expects the new DCs to significantly reduce supply chain costs over time and deliver strong returns above cost of capital and said the investments would be not materially increase operating capex.

Mr Banducci said Woolworths was gradually cutting back on store hygiene, social distancing and security spending, but costs were likely to remain elevated into July.

"Given what's happened in Victoria we realise we have to be cautious in this regard," he said.

Sales in Australian supermarkets have risen 8.6 per cent so far in the June quarter after soaring 11.3 per cent in the March quarter because of panic hoarding.

As consumers start returning to shopping centres, Big W's sales have risen 27.8 per cent this quarter after growing 9.5 per cent in the third quarter. However, like rival Kmart, the discount department store chain is now facing shortages of winter stock particularly apparel.

While hotel trading remains restricted, Endeavour Drinks is benefiting from higher consumption of alcohol and sales have jumped 21.4 per cent this quarter.

29 Jun, 2020
The Australian economy is showing tentative signs of growth as shoppers return to stores and cafes
Business Insider Australia

The PM might have promised a tradie-led recovery, but right now it looks like the service sector is doing the heavy lifting.

On Tuesday, the economy bounced back into expansion after a months-long contraction, according to the Commonwealth Bank’s Flash PMI sector.

With a score of 50 denoting stagnation on the prior month, Australia tipped back into positive territory with a 52.6, indicating modest growth as businesses began reopening in May.

The recovery was led by the service industry, which reported growing business activity for the first time in five months. Meanwhile, manufacturing production and exports both continue to fall, albeit at slower rates.

Head of Australian economics Gareth Aird noted that while growth was still soft, he believed Australia had passed a “low point” with some encouraging signs emerging.

“Confidence has improved in both the manufacturing and services sectors and the lift in both input and output prices is welcome as it suggests we are more likely to be in a period of disinflation rather than deflation,” he said in the research issued to Business Insider Australia.

That’s despite companies reporting they were still reducing their workforces for the fifth month running, as they continue to operate below normal capacity.

“The further decline in employment was disappointing, but given the lagging relationship between employment and output, it is not surprising. We should see headcount lift from here,” Aird said.

The view appears to be shared by Australian businesses. Taking a 12-month view, sentiment hit its highest level in nine months – long before the term COVID-19 was even coined.

It comes as Australians begin loosening the old purse strings. Separate CBA analysis shows spending last week was again on the rise. In fact, the country is actually spending more than normal, as Australians find a newfound appreciation for some businesses that were shut during March and April.

Compared to this time last year, the country is spending 13% more on personal care services like beauty, hair and massage parlours.

Meanwhile, the country is still splurging nearly 20% more on food, 24% on groceries, and 9% at cafes and restaurants. To wash it down, there’s been a 19% surge in spending on alcohol – although that’s been unsurprisingly concentrated at bottle shops, while pubs and clubs continue to decline.

While recreation and transport spending has followed it downward, Australians are spending 42% more on household items like furnishings and 7% more on clothes.

Is it enough to rescue the economy? Hardly, with Australia still headed for a sharp recession and unemployment continuing to rise.

But it’s an indicator things are beginning to slowly turn around.

29 Jun, 2020
New customers should stick around, says Metcash boss
SOURCE:
The Age
The Age

The chief executive of supermarket and hardware wholesaler Metcash hopes customers who switched to its retailers during the COVID-19 crisis would remain loyal and believes the pandemic would provide enduring positives.

Jeff Adams told The Age and The Sydney Morning Herald a number of shoppers had changed their shopping habits to favour independent supermarkets and hardware stores during the pandemic.

"It's very difficult to change people's shopping behaviours, but an event like COVID may have changed them," he said. "So, to then change them back is equally as difficult."

"You would think out of that, customers would stick."

On Monday, Metcash revealed its full-year accounts, posting a 2 per cent rise in revenue to $14.9 billion and underlying profit after tax of $209.7 million, broadly in line with analyst expectations.

A $237.4 million impairment from the loss of the 7-Eleven supply contract drove the $3 billion retailer to a statutory loss of $45.9 million, although it said overall earnings would have improved by $12 million if not for the loss of a separate contract with Drakes supermarkets and the impact of onerous leases.

Metcash supplies IGA, Mitre 10, Home Timber & Hardware and Cellarbrations bottle shops, all of which were beneficiaries of a coronavirus-driven bump in sales.

The company's supermarkets division reported underlying sales growth for the first time in eight years.

Supermarket wholesale sales, excluding tobacco and the Drakes contract, increased 6.3 per cent, and total food sales grew 3.5 per cent to $9.1 billion for the year. In the second half of the financial year, sales grew 8 per cent as customers preferred the more remotely located independents over major supermarkets in larger shopping centres.

Costs were higher, however, with food margins dipping 0.2 per cent. Mr Adams said the business had incurred extra costs as it added extra capacity in its supply network during the panic buying peak.

With Victoria reporting a steady increase in cases over the last week, concerns are mounting over a potential second wave of COVID-19 infections. Mr Adams said he had spoken to the state teams overseeing the stores in Melbourne's outbreak areas, but said he was not overly concerned about a fresh bout of panic buying.

"Obviously, we'd all be concerned about [a second wave], but from a business perspective we're prepared, we've got plans in place, and it did come about we think that we'd be in a good position," he said.

Despite a 1.8 per cent jump in sales across the second half of the year, Metcash's hardware division reported a 1.3 per cent decline in sales for the full-year, down to $2.08 billion. Liquor sales also declined, down 0.3 per cent to $3.68 billion.

Metcash's full-year runs from May to April, making it one of the first large companies to report its full-year results following the COVID-19 crisis. However, the results do not reflect the continued jump in sales through May, which the company said had been very strong.

For the first seven weeks of the 2021 financial year, supermarket sales ex-tobacco and Drakes spiked 16.7 per cent, hardware sales grew 9.4 per cent and liquor sales were up 5.5 per cent.

"Honestly, we thought it would drop off after we got through that spike, but it never did. So there's clearly been a change in behaviour," Mr Adams said.

Metcash also revealed it was in the final stage of negotiations with national tools retailer Total Tools to acquire 70 per cent of the business for $57 million. Total Tools operates 81 stores across the country and reported $555 million in revenue for the 2019 calendar year.

The acquisition, which is subject to regulatory approval, will look to further strengthen Metcash's position in the hardware market. Metcash maintains an option to acquire the remaining 30 per cent of the business in the next three years.

Metcash shares rose 1.1 per cent to $2.86 after dropping earlier in the day. Citi analyst Bryan Raymond said the trading update for the last two months was strong and company appeared to be winning share in the grocery market. However, the earnings decline was a downside.

"Metcash is delivering strong sales growth but is yet to see this translate to meaningful earnings growth," he said. "We expect the trading update and Total Tools acquisition would drive modest earnings upgrades for the 2020-21 financial year."

Metcash will pay a final dividend of 6.5¢ on August 5, marking a full-year payout of 12.5¢.

29 Jun, 2020
Familiar face takes the reins at Quadrant's Darrell Lea
Financial Review

First it was donuts and cakes and a near $1 billion exit for Australian private equity bigwig Pacific Equity Partners.

Now well known FMCG executive James Ajaka has popped up at iconic chocolate maker Darrell Lea for another buyout heavyweight, Quadrant Private Equity.

 

Darrell Lea is best known for products like its red liquorice, milk chocolate orange balls, and Rocklea Road.  Jessica Hromas

 

It is understood Quadrant has hired Ajaka as chief executive officer at The RiteBite Group - its snacking company that is home to Darrell Lea and a host of other brands.

Ajaka started at The RiteBite Group on June 1, taking the reins from former boss Tim York who left at the end of May.

Ajaka has been tasked with streamlining process, smoothening out manufacturing, identifying new products and the like. It's the same sort of task he had at PEP's Allied Pinnacle, which was the combination of a few corporate carve-outs in the food sector.

The question is whether he can make The RiteBite Group sing for Quadrant and its investors, in the same way he did Allied Pinnacle.

His time at Allied Pinnacle ended in a $950 million buyout to a Japanese strategic buyer, Nisshin Foods.

The appointment comes two years after Quadrant picked up Darrell Lea for around $200 million. That deal marked an impressive turnaround for the chocolate business by the Quinn family, who maintained a shareholding.

Quadrant has since added a bunch of other brands to Darrell Lea and created The RiteBite Group last year, as a holding company.

29 Jun, 2020
Metcash reports $14.9bn in revenue in FY20, leans into hardware with Total Tools acquisition
Inside FMCG

Metcash announced its FY20 results on Monday, including a 2.9 per cent year-on-year increase in group revenue to $13 billion. After taking charge-through sales into account, revenue totalled $14.9 billion.

Food and liquor sales both saw positive growth in FY20, despite the liquor category being adversely impacted by COVID-19 restrictions in March and April.

Food sales, including charge-through sales, increased 3.5 per cent to $9.1 billion, with supermarket sales increasing 3.8 per cent to $7.5 billion. This figure excludes Drakes sales, which Metcash stopped supplying from October 1, 2019. Convenience sales increased 2 per cent, mainly due to tobacco sales.

Total supermarket sales for the 10 months to February, which excludes the COVID-19-related bump in March and April, were up 0.2 per cent on the prior year. The IGA network saw 5.6 per cent like-for-like sales growth, with one net new store opening in the year.

Liquor sales increased 0.3 per cent to $3.7 billion. For the 10 months to February, liquor sales increased by 2.2 per cent.

Hardware sales decreased by 1.3 per cent year on year to $2.1 billion, due to a slowdown in construction activity which impacted trade sales and the loss of a large HTH customer in the first half of FY19.

Sales were down 2.8 per cent for the 10 months to February, but turned around in March and April thanks to a surge in demand for DIY products, such as paint.

The group reported a statutory loss after tax of $56.8 million, which includes the impact of the AASB16 leasing standard and a $242.4 million impairment to goodwill and other assets declared in the first half.

Underlying EBIT for the group, not including the new leasing standard, the impact of the loss of the Drakes business and lower contribution from lease resolutions, was $324.2 million, a roughly $12 million improvement from FY19.

The wholesale distributor said it is in a strong financial position after a recent equity raising and has seen continue sales growth in the first seven weeks of trading in FY21.

Metcash to expand hardware arm with $57m Total Tools acquisition

The business is looking to increase its presence in the hardware market after seeing sales in this part of the business return to positive growth in the second half of FY20, thanks to a spike in DIY during COVID-19.

The wholesale distributor said it is in the final stage of negotiations to acquire 70 per cent of Total Tools, a national franchise targeting tradespeople, for approximately $57 million.

Under the proposal, Metcash would provide Total Tools with a $35 million debt facility to support its growth plans and the potential future acquisition of interests in a select number of stores. Over time, Metcash would look to have a mix of store ownership, including both independently owned and joint-venture retail stores.

The deal, which is for Total Tools’ franchisor operations and one company-owned store, would give Metcash a clear pathway to acquire the remaining 30 per cent stake in Total Tools within the next three years.

Metcash said the acquisition is in alignment with its strategy to be the leading supplier to independents in all three areas in which it operates – food, liquor and hardware – and supports Total Tools’vision to remain a leading professional tool retail network.

Metcash’s hardware arm, which includes the Mitre 10 and Home Timber & Hardware chains, currently accounts for 14 per cent of group sales revenue. Food, including the IGA supermarket network, accounts for 61 per cent, and liquor for 25 per cent.

Total Tools has been operating for over 30 years and currently has 81 bannered stores nationwide. In the 2019 calendar year, it had sales of approximately $555 million.

The acquisition is subject to negotiation of final binding transaction documentation, which will be undertaken under a period of exclusivity, and approval by the competition watchdog, which recently gave the green light to Bunnings’ acquisition of tradie chain, Adelaide Tools.

29 Jun, 2020
Metcash to expand hardware arm with $57m Total Tools acquisition
Inside Retail

Metcash is looking to increase its presence in the hardware market after seeing sales in this part of the business return to positive growth in the second half of FY20, thanks to a spike in DIY during COVID-19.

The wholesale distributor said on Monday that it is in the final stage of negotiations to acquire 70 per cent of Total Tools, a national franchise targeting tradespeople, for approximately $57 million.

Under the proposal, Metcash would provide Total Tools with a $35 million debt facility to support its growth plans and the potential future acquisition of interests in a select number of stores. Over time, Metcash would look to have a mix of store ownership, including both independently owned and joint-venture retail stores.

The deal, which is for Total Tools’ franchisor operations and one company-owned store, would give Metcash a clear pathway to acquire the remaining 30 per cent stake in Total Tools within the next three years.

Metcash said the acquisition is in alignment with its strategy to be the leading supplier to independents in all three areas in which it operates – food, liquor and hardware – and supports Total Tools’vision to remain a leading professional tool retail network.

Metcash’s hardware arm, which includes the Mitre 10 and Home Timber & Hardware chains, currently accounts for 14 per cent of group sales revenue. Food, including the IGA supermarket network, accounts for 61 per cent, and liquor for 25 per cent.

Total Tools has been operating for over 30 years and currently has 81 bannered stores nationwide. In the 2019 calendar year, it had sales of approximately $555 million.

The acquisition is subject to negotiation of final binding transaction documentation, which will be undertaken under a period of exclusivity, and approval by the competition watchdog, which recently gave the green light to Bunnings’ acquisition of tradie chain, Adelaide Tools.

$14.9 billion in revenue in FY20

Metcash also announced its FY20 results on Monday, including a 2.9 per cent year-on-year increase in group revenue to $13 billion. After taking charge-through sales into account, revenue totalled $14.9 billion.

Food and liquor sales both saw positive growth in FY20, despite the liquor category being adversely impacted by COVID-19 restrictions in March and April.

Food sales, including charge-through sales, increased 3.5 per cent to $9.1 billion, with supermarket sales increasing 3.8 per cent to $7.5 billion. This figure excludes Drakes sales, which Metcash stopped supplying from October 1, 2019. Convenience sales increased 2 per cent, mainly due to tobacco sales.

Total supermarket sales for the 10 months to February, which excludes the COVID-19-related bump in March and April, were up 0.2 per cent on the prior year. The IGA network saw 5.6 per cent like-for-like sales growth, with one net new store opening in the year.

Liquor sales increased 0.3 per cent to $3.7 billion. For the 10 months to February, liquor sales increased by 2.2 per cent.

Hardware sales decreased by 1.3 per cent year on year to $2.1 billion, due to a slowdown in construction activity which impacted trade sales and the loss of a large HTH customer in the first half of FY19.

Sales were down 2.8 per cent for the 10 months to February, but turned around in March and April thanks to a surge in demand for DIY products, such as paint.

The group reported a statutory loss after tax of $56.8 million, which includes the impact of the AASB16 leasing standard and a $242.4 million impairment to goodwill and other assets declared in the first half.

Underlying EBIT for the group, not including the new leasing standard, the impact of the loss of the Drakes business and lower contribution from lease resolutions, was $324.2 million, a roughly $12 million improvement from FY19.

The wholesale distributor said it is in a strong financial position after a recent equity raising and has seen continue sales growth in the first seven weeks of trading in FY21.

29 Jun, 2020
Woolworths profit to fall despite record sales growth
Financial Review

Woolworths' record sales growth in the coronavirus pandemic has been overshadowed by a costs blow-out that will dent reported earnings about 20 per cent this year.

While Woolworths Supermarkets, BIG W, Dan Murphys and BWS bottle shops are enjoying bumper sales after a spike in demand at the pandemic's peak, the gains will be erased by higher-than-expected costs to repay underpaid staff, keep stores safe, automate its supply chain, and restructure its hotels and drinks business.

Chief executive Brad Banducci expects financial 2020 underlying earnings before interest and tax (EBIT) to fall between 1.2 per cent and 2.7 per cent to between $3.2 billion and $3.25 billion and flagged one-off costs of $591 million.

The new EBIT guidance is well below consensus forecasts around $3.33 billion and stems mainlyh from a 55 per cent profit drop in Endeavour Group, the hotel and drinks business Woolworths originally planned to split off and potentially float this year. That's now been deferred until late 2021.

Endeavour Group's hotels were closed for more than two months and the hotel business will fall into the red this year and continue to lose money until outlets are able to trade normally.

The one-off costs of $591 million include $176 million in redundancy costs to restructure its supply chain, $230 million to restructure Endeavour Group and $185 million to reimburse staff underpaid over the last nine years.

The EBIT guidance also includes incremental operating costs related to COVID-19 of close to $275 million – towards the top end of the $225 million to $275 million range flagged at the March-quarter sales results.

Woolworths shares slipped almost 1 per cent to $36.32 and are trading below their February all-time high of $43.60.

"Given how much of a spike in sales [they had] you'd have thought they'd have done a bit better," said one fund manager, who declined to be identified.

Mr Banducci said he was disappointed by the size of staff remediation payments and the fact Woolworths had had to revise remediation forecasts twice, but did not regret the extra security, cleaning and staff costs, which were necessary to make stores safe and meet additional demand.

"We’ve done the right thing. That’s the way we want to be judged and that’s the way we should be judged,” he said.

“We have lived through the crisis of our generation and we should be judged on how we’ve looked after our stakeholders - we feel we've got most of it right.”

"We hope by doing the right thing over time our customers will recognise and reward us for doing that," he said.

Woolworths revealed the total cost of its staff underpayments scandal had blown out an additional $75 million to $390 million after it identified underpayments to staff employed in its hotels division under the general hospitality industry award in 2018 and 2019.

Woolworths originally estimated the cost of remediation would be between $200 million and $300 million before tax and lifted its forecast to $315 million at the half-year results. It has now analysed two-thirds of all staff attendance records, suggesting remediation costs could rise further as more records are analysed.

Supply chain overhaul

Woolworths also unveiled plans to build an automated regional distribution centre (DC) and a semi-automated national distribution centre at Moorebank Logistics Park in Sydney at a cost of between $700 million and $780 million, or close to $1 billion including redundancy costs.

About 1350 jobs will be lost when three existing DCs in Minchinbury and Yennora in Sydney and Mulgrave in Melbourne are closed in 2025 and a net 650 new roles will be created when the two new DCs open at the end of 2023.

The planned sites, subject to NSW government planning approval, will enable Woolworths to increase its range by about one third, improve efficiency and do more localised ranging to better reflect customer demand.

The new facilities at Moorebank will incorporate and build on the automated technology at Woolworths' Melbourne South Regional Distribution Centre (MSRDC), which cost about $560 million.

Woolworths has signed an initial 20-year lease with Qube Holdings, which will invest around $420 million to $460 million to build the two new warehouses.

Analysts expressed concern about the size of the investment and the return on capital from the investment, which follows years of elevated capex spending.

"I've been very uncomfortable with the return metric Woolies has been generating on capex," said Bank of America analyst David Errington, citing the cost of Woolworths' regional centre in Melbourne.

However, one fund manager said the investment was a "no brainer" and Woolworths could save $200 million a year, including $135 million in wages.

"The only way to make productivity improvements is to automate more, it's something they need to do," the fund manager said.

Woolworths expects the new DCs to significantly reduce supply chain costs over time and deliver strong returns above cost of capital and said the investments would be not materially increase operating capex.Mr Banducci said Woolworths was gradually cutting back on store hygiene, social distancing and security spending, but costs were likely to remain elevated into July.

"Given what's happened in Victoria we realise we have to be cautious in this regard," he said.

Sales in Australian supermarkets have risen 8.6 per cent so far in the June quarter after soaring 11.3 per cent in the March quarter because of panic hoarding.

As consumers start returning to shopping centres, Big W's sales have risen 27.8 per cent this quarter after growing 9.5 per cent in the third quarter. However, like rival Kmart, the discount department store chain is now facing shortages of winter stock particularly apparel.

While hotel trading remains restricted, Endeavour Drinks is benefiting from higher consumption of alcohol and sales have jumped 21.4 per cent this quarter.

29 Jun, 2020
Aussie winemakers aim to triple exports to $10b pushing into new markets
The Sydney Morning Herald

Australia's winemakers needs diversified export markets to lower the risks from global political tensions and changes in consumer demand, with a new strategy paper setting a target for the industry to more than triple exports to $10 billion a year by 2050.

"Vision 2050", a report to be released on Wednesday by industry group Australian Grape and Wine, sets a series of ambitious goals for the next 30 years that see the wine sector and tourism associated with it contributing more than $100 billion a year to the Australian economy by 2050.

Higher profitability will not come through increased plantings, but from producing more premium wines and others that appeal to consumers around the world, the industry plan says, forecasting that total Australian production will be maintained around its long-term average.

"Exports are key to the profitability of the sector. While the largest markets of China, North America and the United Kingdom will remain highly important customers, a diversified markets strategy will provide growth opportunities in Europe, India, Southeast Asia and Africa," it says.

In 2019 Australia exported 814 million litres of wine valued at about $2.8 billion, with the domestic market measured at $3.5 billion with 496 million litres sold.

The blueprint follows a challenging six to 12 months for the industry, including the recent COVID-19 lockdowns which shut vineyard restaurants, cut tourism and slashed revenue. The coronavirus followed a vintage where some vineyards suffered "smoke taint" as smoke from bushfires damaged grapes, forcing them to abandon about 60,000 tonnes of grapes.

I'd rather miss a high target than achieve a low one...Setting high targets is great, because at least there's a benchmark for everyone to try and reach.

Zonzo Estate's Rod Micallef

The report emphasises the need to keep developing multiple export markets, a point made recently by various industries in the wake of ongoing trade tensions between Australia and China.

"A key consideration will be to minimise the risk associated with over-reliance on one or two key markets. Diversifying markets also reduces the potential impact of external economic shocks arising from geopolitical tensions, exchange rate fluctuations and changing demand patterns," it says.

"We've got to make sure that our offering is something that people want. The quality is already good, but it's telling people how good it is, and it's out-competing in some of those key export markets," he said.

"We're not just an elite industry, we've got great value for money, we've got great quality and we can match it with the best in the world," he said.

Mr Battaglene said there were also opportunities to capitalise on the increasing health awareness of people, by marketing wines that were low or no-alcohol products.Rod Micallef, owner of Zonzo Estate in the Yarra Valley, backed the $10 billion a year export target.

"We set goals for ourselves, to increase our business by 18 per cent every year," he said.

"In my business we always set high targets. I'd rather miss a high target than achieve a low one...Setting high targets is great, because at least there's a benchmark for everyone to try and reach," he said.

22 Jun, 2020
Fable makes supermarket debut with Woolworths
Inside FMCG

Plant-based meat company Fable is making its bricks-and-mortar debut with its ‘Braised Beef’ product hitting 600 Woolworths stores, just six months after the brand launched.

Founded by former fine dining chef and mycologist Jim Fuller, organic mushroom farmer Chris McLoghlin and former Shoes of Prey co-founder, Michael Fox, Fable uses shiitake mushrooms, to give the product an umami flavour and ‘meaty’ texture.

Since its launch in December, the product has been given the seal of approval by celebrity Chef Heston Blumenthal, who has used it in his Michelin Star restaurants and has backed the product with a quote on the packaging which reads, “A delicious, versatile, natural slow cooked meat alternative.”

Michael Fox, co-founder and CEO of Fable, told Inside FMCG that the brand strategy was to roll out into food service first, as a way for consumers to experience the finished product before bringing it to retail, but with restaurants shut down due to COVID, the business was forced to pivot.

“We were fortunate that we were already selling well through Marley Spoon. Their sales shot up with people having food delivered at home so we picked up business there. We still had our 1 kg food service packs of stock though so we pivoted into e-commerce,” Fox said.

“We couldn’t do an always-on model as frozen and refrigerated direct-to-consumer logistics in Australia is really difficult, particularly if you don’t yet have scale. So we ran with a pop up model partnering and supporting the local restaurants we’d started working with who were pivoting into home delivery and take away.”

Fable pop ups ran across Brisbane, Sydney and Melbourne, with #Stayhome Date Night Hampers and Dinner and Doodles events to entice consumers to sample the product while in lockdown.

“They performed really well and are something we’ll look to do more of,” Fox told Inside FMCG.

According to a Barclay’s report, one in three Australians are actively look to cut down on meat consumption and the category is predicted to be worth upwards of $140 billion by 2030.

Woolworths will be hoping the product can draw consumers looking for more premium plant-based options. But education on how best to cook and serve the product, is an important part of the success of any plant-based meat brand.

“We’ve created recipes which we share on our website and Instagram but we’ve been thrilled to see just how generous people are with sharing their own recipes they’ve created at home. This has all happened organically simply because people love cooking with the product,” he said.

With restaurants reopening, Fable is set to launch into around 80 new venues across Australia, including Soul Burger, Ribs & Burgers and Burger Urger, Fox said.

“When people see what chefs at these amazing venues have created with Fable we hope they’ll want to try cooking with it at home,” he added.

18 Jun, 2020
David Jones, Just Group and Myer named in payment terms probe
SOURCE:
Ragtrader
Ragtrader

The Australian Small Business and Family Enterprise Ombudsman (ASBFEO) Kate Carnell wants federal legislation requiring small businesses to be paid in 30 days.

It comes amid a fresh wave of big businesses using the COVID-19 crisis as an excuse for poor payment times, she claimed. 

It’s a key recommendation made in ASBFEO’s final report regarding its Supply Chain Financing, which reflects a recent surge in larger businesses pushing out payment times to their small business suppliers.

“Large businesses extending or in some cases, suspending payments to small businesses are on notice that this behaviour is unacceptable,” Carnell said.

“There’s no denying businesses of all shapes and sizes are enduring extraordinary challenges as a result of the Coronavirus crisis, but small businesses are being hit hardest.

“Many small businesses have been forced to close their doors and a lot may not survive the coming months, even with significant support from the government. That’s why it is more important than ever to ensure small businesses are paid on time.

“We know that if small businesses are paid on time, the whole economy benefits. On the flip side, a lack of cash flow is the leading cause of insolvency.

“Legislation requiring SMEs to be paid in 30 days is the only way to drive meaningful cultural change in business payment performance across the economy.

“If Australia were to go down this path, it would not be alone. Just recently, legislation was tabled in the UK that stipulates a uniform 30-day statutory limit for payment of invoices and provides for enforcement of financial penalties for late payments.

The Supply Chain Financing Review calls out several household-name businesses that have engaged in poor payment practices.

“Myer, David Jones, Just Group, Sussan Group, Carlton United Brewery and CIMIC are named in the report as having payment policies that are damaging to their small business suppliers.

“Our Review has revealed the voluntary Supplier Payment Code is not effective. There is no compliance monitoring and it is actually unenforceable. This is consistent with similar systems internationally.

“While we support the Payment Times Reporting Framework as a useful tool, it’s unlikely to result in the systemic change that is needed.

“When used appropriately, supply chain finance is a legitimate and effective product that can be used to free-up cash flow for small and family businesses. In fact, it may be particularly useful to small businesses that need to be paid faster as they navigate their way through the COVID-19 crisis.

“However it is critical that harm inflicted on small businesses as a result of misuse of these products be urgently addressed.”

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