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The boss of retail powerhouse Wesfarmers, Rob Scott, says there is no doubt consumers are finding it tougher today than six months ago, and is bracing for an even more difficult half with rising costs continuing to pressure both consumers and businesses.

The head of the Perth-based conglomerate, which owns Bunnings, Kmart and Officeworks, told investors at its Sydney strategy day that “the honeymoon is very much over” after the past few years of government handouts and ultra-low interest rates.

“Household costs in terms of mortgage rates, power costs, the costs of doing business in businesses are going up, which will lead to potentially more inflation,” he told The Australian Financial Review. “What that means is that consumers are being more value conscious.”

Mr Scott said shoppers were trading down to cheaper products, and population growth accelerating out of COVID-19 was positive for many of Wesfarmers’ businesses, which range from Priceline-parent Australian Pharmaceutical Industries, to chemicals and fertilisers.

On Tuesday, Wesfarmers skipped making a higher offer for listed Botox clinics operator Silk Laser Australia. API had offered $3.15 cash per share for Silk but was topped by Hong Kong’s EC Healthcare with a proposed a $3.35 a share offer. API is separately in talks with InstantScripts, according to Street Talk, with a possible deal to be struck as soon as next week.

Bunnings, Wesfarmers’ biggest earner generating $17.8 billion in sales and $2.2 billion in earnings, signalled opportunities in pets and the rollout of its commercial power tools business, Tool Kit Depot. Its Beaumont Tiles has expansion plans into Western Australia over the next five years.

Hardware chain boss Mike Schneider said Tool Kit Depot was playing a more important role in building business-to-business relationships. “We see big opportunities for growth in this area,” he told investors.

Mr Schneider said maintaining Bunnings’ low-costs was pivotal, with a nod to trials using robots to optimise stock replenishment with overnight scanning and electronic shelf labelling.

Its expansion into pet care will help drive sales at Bunnings, while sales of hardware were flattening. There is strong growth in the commercial business which constituted about 37 per cent of group sales, he said.

Across the economy, hardware industry sales in March went backwards, according to Australian Bureau of Statistics data.

Anko overseas

The boss of Wesfarmers’ discount chain Kmart, Ian Bailey, told investors the retailer was targeting European expansion for its home brand Anko. In Canada, Kmart launched Anko with Hudson Bay Company and a store-in-store concept with Zellers, which includes apparel, toys, pets and home.

Mr Bailey is targeting Gen Z and beauty as key areas of growth for Kmart: “Beauty is a category where we see a strong consumer demand for value, especially amongst younger customers.”

Its slimmer network of Target stores is now profitable. Overall, Mr Bailey said input costs such as cotton are falling, but currency was the big unknown. With power and wages bills increasing, productivity measures such as better rostering were important.

Wesfarmers’ net capital expenditure for the 2023 financial year will be between $1.1 billion and $1.2 billion. Mr Scott believes Wesfarmers has more growth opportunities across the portfolio today than in the past two decades.

“Understandably, there’s a lot of focus on the consumer given we have a number of retail businesses, but sometimes what people overlook is that we’ve invested over a billion dollars in a new lithium business that is going to start generating cash flows for our shareholders next calendar year. That’s a really exciting opportunity for our group,” he said.

Before the strategy day, JPMorgan analyst Bryan Raymond downgraded his earnings per share forecasts for next financial year and 2025 by 2.9 per cent and 2.5 per cent, following commodity price updates for its WA lithium project Mount Holland and the exit from Coles. He has a $47 target price and an “underweight” rating.

Korean food manufacturer CJ Foods is making its first foray into the Australian market with an investment of $10 million in local manufacturing and an office.

The company is set to launch its Bibigo brand in Woolworths stores nationwide, with Mandu dumplings the first product to hit the shelves. 

The company’s decision to launch in Australia follows its success in the US, where Bibigo generated $1.8 billion in sales last year. 

Data from the Ministry of Home Affairs & Census 2021 reveals that Australia’s Korean migrant community doubled during the past 10 years, creating a “fertile environment” for the company’s expansion.

As part of the CJ Group – a leading South Korean conglomerate valued at $48.8 billion – CJ Foods holds a strong presence in various segments of the food industry and engages in food processing, distribution, and food service while venturing into music, sports, and entertainment, including cinemas.

The company is also known for its diverse portfolio of food brands and a wide range of authentic Korean food, such as dumplings, sauces, marinades, and ready-to-eat meals. 

Notable brands under the CJ Group include Annie Chun’s, offering Asian-inspired food products; the Tous Les Jours cafe chain, known for its freshly baked goods and pastries; Cheiljemyunso, a Korean rice cake brand; and Haechandle, a leading Korean condiment brand.

Rising interest rates, inflation and supply chain concerns have all played a part in the collapse of innovative dairy startup Made by Cow, the company revealed over the weekend.

Back in 2016, Made by Cow became the first company to gain regulatory approval to legally sell unpasteurised or raw milk in Australia, after years of working on the concept.

The milk, which retailed for $7.95 for a 1.5 litre bottle, was made using a ‘cold pressure’ method to kill harmful bacteria and therefore make it safe to sell to consumers.

The sale of unpasteurised milk has long been prohibited in Australia, however, Made by Cow said its process ensured an “equal level of safety as heat pasteurisation”.

Made by Cow soon gained national exposure, with its milk products eventually stocked across selected Coles and Woolworths stores, as well as hundreds of independent grocers and health-food stores. According to the company, its milk was being sold by more than 1000 stockists.

In 2016, the company also told SmartCompany it would be paying dairy farmers 50 per cent more per litre of milk than major dairy processors.

However, CEO Wade Porter took to social media this week to explain, “with a heavy heart”, that the business will be closing.

Kate Conneely and Scott Kershaw from KordaMentha were appointed to oversee the voluntary administration of CBH Fresh Pty Ltd, trading as Made by Cow, on March 25.

According to a notice on its website, the company has already ceased operations. The first meeting of creditors is due to be held on Tuesday, June 6, in Sydney.

According to reports, the company’s shareholders include ROC Capital, Light Warrier Investments and Bega.

Customers thanked for “believing in us”

Porter said the Made by Cow team is proud of the company’s journey over the past seven years, and until recently had been “on a strong trajectory with our business growing upwards of 50% year-on-year”, with a customer base in the “thousands”.

The current “economic uncertainty” has changed that, he said.

“In this climate of uncertainty, growing interest rates and inflation, the business has faced economic uncertainty and supply chain challenges and, as a result, the very tough decision has been made to cease production,” Porter said in the post shared on Instagram and Facebook.

Porter paid tribute to the distributors and retailers who he said were instrumental in the company’s ability to scale, as well as Made by Cow’s employees, who he described as committed and dedicated.

“We know that you will continue to be ‘legen-dairy’ in all that you do,” he said, referencing one of the company’s values.

Finally, Porter thanked the brand’s customers for “believing in us”.

“We started as an unknown dairy brand trying to do something different and have grown into a brand so many of you love,” he said.

“Our morning coffee will never be the same, but it’s sure been good while it lasted.

Cost pressures

Made by Cow revealed it was facing increasing production, freight and labour costs last September, deciding at the time to increase its own prices in response.

“Rising prices have been affecting everyone recently, and unfortunately our business has been impacted too,” the brand told its Instagram followers at the time.

“This was a hard decision, but something we had to do to not only remain a sustainable business, but to also ensure we pay a fair and premium price to our dairy farmers.

“We are a 100 per cent Australian-owned and operated business, so by supporting us you’re also supporting the Australian dairy industry.

“For those of you that can stick with us, we thank you for your continued support.”

Online liquor retailer Hairydog Group has acquired Boozebud and is set to optimise its combined potential to “transform the online liquor retail domain”.

Boozebud – which sold a range of beer, wine and spirits products online – collapsed earlier this month with administrators arranging to sell the business’ assets.

Ryan Agar, head of e-commerce at the Hairydog Group, said the acquisition strategically aligns the “strengths” of both businesses.

“This merger of two brands creates a powerhouse that is set to transform the online liquor retail space to provide better drinks and experiences to our customers.”

The acquisition will boost Hairydog Group’s annual revenue beyond $75 million, driving its profitability and strengthening its position in the online liquor retail industry.

Meanwhile, a redesigned Boozebud website relaunch is underway with the former chief technology officer of the brand, Damien Smith, joining the Hairydog team.

“To celebrate the return of BoozeBud and its new beginning, we have lined up a series of compelling promotions that we believe will thrill our customers and provide them with an unmatched shopping experience,” Agar said.

Food and restaurant technology start-ups Mr Yum and me&u have appointed investment banks to advise them on a potential merger.

The food and beverage digital payments companies are weighing up a combination as traditional funding sources like venture capital dry up for start-ups.

MA Financial is advising Mr Yum and boutique investment bank Record Point is working with me&u, people familiar with the discussions said. Earlier this month, The Australian Financial Review first reported the pair were in talks.

A potential transaction would likely be structured as a scrip-for-scrip merger. A combination is expected to bolster cash flow, while international aspirations could scale back as they consolidate their positions in Australia’s hospitality market.

The companies are still determining what a board structure would look like, and there is no guarantee a deal will materialise.

Hungry for capital

Led by chief executive Kim Teo, Mr Yum cut 17 per cent of its workers last year. The company scored $92 million in a Series A funding round in 2021. That investment was led by Tiger Global Management.

With similar technology, me&u was propelled by the same forces as Mr Yum, helping restaurants automate ordering during the pandemic. The start-up was founded by Stevan Premutico in 2018.

Mr Premutico nabbed early backing for me&u from restaurateur Justin Hemmes, who owns Merivale establishments like The Ivy complex, and chef Neil Perry, behind two-hatted restaurant Margaret in Double Bay.

In May last year, me&u mandated Record Point to gauge investor interest for a roughly $50 million capital raise.

Despite the early tailwinds of contactless ordering during the pandemic, both Mr Yum and me&u are evaluating joining forces as inflation bites and consumers dine out in greater numbers, a factor that may mitigate demand for QR code ordering systems.

Pullback from start-ups

Moreover, international growth VCs are stepping back from Australia’s start-up scene, Jason Georgatos, president of Partners for Growth, told the Financial Review this week.

The likes of Tiger Global and Japan’s SoftBank have retreated from innovative companies that fed off low-cost capital when interest rates were near zero.

Another challenge for early-stage investors is meeting the lofty returns their funds expected from investments originating in the earliest stages of the pandemic. Start-ups in particular have seen their valuations slashed, making it difficult to stomach a potential sale at a value well below what they would have garnered a couple of years ago.

Data from Cut Through Ventures underlines how much funding has slowed for start-ups. Deals of between $20 million to $49.5 million are down more than 50 per cent compared to the quarterly average from 2020 to 2021.

In the first quarter of this year, there were only two funding rounds exceeding $50 million: agritech firm Loam Bio raised a $105 million Series B and fintech Till Payments collected $70 million in a Series D fundraising.

A merger would stave off any need for Mr Yum or me&u to turn to costlier debt markets.

Woolworths chief executive Brad Banducci is pushing to have all the retailer’s petrol home delivery trucks swapped for electric models by 2030, in a move the nation’s largest supermarket chain claims will reduce total group transport emissions by about around 60 per cent.

Its fleet update will proceed despite the technology and infrastructure to support commercial loads and long-haul freight being still in its infancy.

Woolworths will begin delivering groceries to Sydney customers with 27 new EVs hitting the road within months. Its fleet investment follows a pilot period trialling two EV trucks over the past two years, and five EVs in New Zealand.

“You might say 27 is not a large number, which I happen to agree with. But it’s the biggest EV grocery delivery fleet in Australia, so it just shows you what a long way we’ve got to go,” Woolworths chief executive Brad Banducci told The Australian Financial Review.

Mr Banducci said there are a further 20 EV trucks on order that will start to replace Woolworths’ 1200 petrol home delivery trucks. It is anticipated that the last combustion engine vehicle will join the fleet by 2027, and be gradually decommissioned.

Public EV infrastructure to support commercial fleets remains limited. The EV trucks will operate out of the retailer’s customer fulfilment centres in Mascot and Caringbah, which are dedicated to picking and packing the supermarket’s online orders, and have been fitted out with charging stations.

Woolworths selected two models manufactured by Foton Motor and SAIC Motor, which both offer sufficient working range to complete daily metro home deliveries before returning to base to charge overnight.

Mr Banducci said Woolworths will continue to increase its use of electric and low-emissions freight vehicles across its Primary Connect supply chain logistics business. It operates three electric heavy-duty trucks, and is trialling the emerging technology to help decarbonise its fleet.

EV charging infrastructure

He said Woolworths would contribute to public infrastructure planning to ensure charging station locations can support the commercial EV fleet, as well as low-emissions long-haul freighter trucks, which will require charging points across regional Australia.

Asked if Woolworths would invest in consumer charging infrastructure for shoppers visiting its supermarkets, Mr Banducci said petrol stations will provide much of the nation’s charging capabilities, and Woolworths had no plans to do so on its own.

“I know [Ampol CEO] Matt Halliday and the whole team at Ampol are working on that. Everyone’s in scale-up. But I think we will scale up in partnership, no question,” he said.

Woolworths has a partnership with Ampol via its loyalty program but will stop short of putting its capital behind the rollout of charging infrastructure. However, Mr Banducci noted plans to add charging stations at some of Woolworths’ new developments.

By 2030, Woolworths’ goal is to cut overall operational transport emissions by around 60 per cent and to have decommissioned more than 3000 internal combustion engine vehicles from its company-wide fleet.

Other climate action by the retailer includes reducing its operational emissions by 31 per cent since 2015. It aims to run its entire operations on renewable electricity, with all its sites in South Australia powered by 100 per cent green energy by 2025, and it has committed to become net carbon positive by 2050.

As Australia’s grocery operators jostle to provide value to households being squeezed by the cost-of-living crisis, discount supermarket NQR has one simple focus.

“The goal of the business is to buy things as cheap as we can, sell things as cheap as we can,” said chief executive Ewan Jones.

“Our stores won’t be the prettiest stores in history [but] they will be the cheapest by far.”

The discount supermarket, which has been in operation since 1987 and was previously also known as Not Quite Right, has collapsed twice in the past two decades, most recently in 2018. 

But NQR’s current owners, a group of investors – including retail veterans who have worked at other budget chains, such as The Reject Shop – say the time is right for the company to be back on the expansion path.

Two new stores are planned for Victoria this year, at Box Hill and Mount Waverley, as well as new sites across South Australia. There are no stores in New South Wales or Queensland yet, but the group’s online platform ships nationally. The business has grown to a network of 23 stores.

Jones says the business has worked hard to rebrand itself over the past few years, broadening its range of stock and emphasising that it sells high-quality products.

“If you ask any customer, they’d say ‘Oh they only sell out-of-date [products]’. That’s not actually the case,” he said.

Instead, NQR’s experienced team of product buyers are “wheeling and dealing all day and all night”, sourcing products that are close to their use-by dates, or that a supplier might need to sell at a good price for other reasons, despite the products being good quality.

“Our buyers are very in tune with that market,” Jones said.

The group’s promise of well-known brands sold at up to 80 per cent of their recommended retail price is gaining new traction in an environment where the price of everyday pantry staples are skyrocketing.

Price tracker data from investment bank UBS suggested overall food inflation hit its peak in April, averaging 9.6 per cent.

Jones says NQR has an important role to play in the current grocery landscape, and takes its promise to budget-focused shoppers seriously.

“There’s a specific market for our kind of product. There are some people who just won’t shop with us; they feel like in their mind it’s too low for them ... that’s OK with us. We’re there for people who really need us,” he said.

“They talk to us about it all the time, [and say] ‘we’re so glad you’re here, I couldn’t afford to eat if you weren’t here’. We have a bit of responsibility at that end to look after them.”

As the company looks to expand its range, everyday pantry essentials and snacks are a top priority, with frozen products and snacks, such as chips, flying off the shelves.

“Dry grocery is the one where people are really struggling at the moment; that’s where you’re seeing the most growth,” Jones said.

The business also wants to play a role in reducing food waste at a time when many people are experiencing food insecurity.

“We consider what we are doing for the market is really strong, [because] things aren’t just being thrown out because they are short-dated, but still can be sold.”

While NQR stores have traditionally been placed in regional and outer suburban centres, Jones says there’s a place for the brand in CBDs, too.

“I’d love to be around Spencer Street [Melbourne]. There’s a lot of people in the city – do they deserve cheaper groceries? Yes, because they’re probably paying top dollar in the city.”

Fonterra says its net profit for Q3 has surged to $1.326 billion – $854 million more than last year. 

The strong bottom line includes the impact of a $260 million gain on the sale of the company’s Chile business Soprole and a $12 million loss on the sale of its Hangu farm in China. Even without the Chile gain, the normalised after-tax profit rose by $606 million to $1.078 billion, equivalent to 65 cents per share.

CEO Miles Hurrell acknowledged the impact posed by reduced demand for dairy products – especially from China – on the current season’s forecast Farmgate Milk Price. But despite this, the company remains committed to delivering a strong full-year dividend.

“We’re well through the season now, with almost all of our milk contracted, giving us more certainty on where we’ll end the season,” said Hurrell.

Fonterra forecasts a gradual recovery in China’s demand for whole milk powder over the medium term. 

Hurrell said Fonterra’s strong financial performance over the quarter was due to a strong performance in its ingredients channel, with continued higher margins in the cheese and protein portfolio, particularly casein and caseinate.

“These favourable price relatives have continued longer than expected, and we’re also seeing improved performance in our food service and consumer channels, particularly in global markets,” he said.

As a result, the cooperative lifted its full-year forecast normalised earnings to 65-80 cents per share from 55-75 cents and remains on track for a strong full-year dividend. 

“With the sale of Soprole now complete, we are bringing forward payment of our proposed capital return of around 50 cents per share and unit from October 2023 to August 2023,” Hurrell concluded.

Implementing the capital return – approximately $800 million – remains subject to a Scheme of Arrangement, being voted on by shareholders and gaining approval from the High Court.

Global FMCG giants P&G, Mars, Amcor, and Delterra have launched a joint initiative to tackle plastic waste and help develop a more circular economy, with a US$6 million budget over the next five years.

The partnership comes in the lead-up to the second negotiating committee meeting for a Global Plastics Treaty, working to develop a “globally binding” instrument on plastic waste. 

Allison Lin, global VP for packaging sustainability at Mars, said the collaborative aims to create programs for waste management and recycling systems – particularly in the Global South – where there needs to be more infrastructure needed for waste management.

“We call on all parties gathering in Paris for the Global Plastics Treaty negotiations to agree on a regulatory framework that enables the creation of effective waste management infrastructure systems everywhere in the world,” said Lin.

Recognising that plastic pollution is a symptom of poor waste management, the partnership said it is committed to investing in programs along the full value chain, including the following:

• Upstream: Design a “waste out of the system” with Delterra’s global rollout of Plastic IQ, a digital tool that aims to change how companies understand and improve their plastic footprint. 
• Downstream: Work on the supply and demand side to capture recyclable and compostable materials and return them to productive use with Delterra’s Rethinking Recycling program while innovating material traceability solutions to provide transparency on matters such as source, quality and ethical concerns along the recycling value chain. 

Delterra president and CEO Dr Shannon Bouton added that solving plastic pollution requires rethinking how corporations produce and manage waste, including rapidly expanding waste collection and reliable recycling markets. 

“We are inspired that these organisations are stepping up to this challenge alongside Delterra, and we invite more companies to join this growing partnership,” concluded Bouton. 

The joint initiative said it would focus on countries of the global south, beginning with Indonesia, Argentina and Brazil. It aims to provide easier access to waste management and recycling systems and will explore new ways to improve the ecosystem.

Chinese wine sales will not return to the same level for Australia’s Treasury Wine Estate even if high tariffs imposed during a political dispute with Canberra are dropped, its chief executive said.

The world’s biggest standalone winemaker drew a third of its profits from China before anti-dumping and subsidy tariffs of up to 212 per cent were imposed on Australian wine, effectively ending sales, in 2020.

Australia’s trade minister met with his Chinese counterpart in Beijing last week seeking an end to all trade impediments as diplomatic relations improve, although wine tariffs remain in place.

Treasury is closely watching how the Chinese and Australian governments work through a process to resolve tariffs on barley, outside of the World Trade Organisation, hoping the same path will be followed for wine, Treasury chief executive Tim Ford said on Tuesday.

The company had continued to invest in marketing the luxury Penfolds brand in China over the past three years, and supporting staff there to maintain relationships, despite making no profit, he told the Australia-China Relations Institute at the University of Technology, Sydney.

“Our brand awareness in China has gone up in the last two years on Penfolds,” he said.

The biggest lesson learnt from the situation was that Treasury should have invested more in the local Chinese wine industry earlier, he said on Tuesday.

It was most likely tariffs would be dropped, although they could also be reduced, he said.

“This isn’t going to be a big tap that gets turned on overnight for us. We don’t have incremental wine sitting there ready to go at the A$100 above,” he said.

“The A$30 level we would be able to start supplying to China pretty quickly, but it is going to take us two, three, four years to start building up the Australian supply,” he added.

Many Australian wine growers had exited the industry, while in China, the luxury wine segment had shrunk, he said.

Treasury will not get back to China being a third of profit in the next six years without diverting wine from the other markets it had built to replace Chinese sales – “which we are not going to do”, he said.

In February, Treasury said net profit for the first half through December jumped by nearly three-quarters to A$188.2 million ($131.51 million) from the same period a year earlier, but below analysts’ estimate.