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Sigma Pharmaceuticals has won over the Chemist Warehouse wholesale pharmaceuticals contract held by its much-bigger rival EBOS, in a major win for the business.

It has signed a binding term sheet with the pharmacy giant for supply of Pharmaceuticals Benefits Scheme (PBS) medicines and fast moving consumer goods (FMCG) items for five years starting in July 2024.

The contract is worth $2 billion annually and would triple Sigma’s existing Chemist Warehouse contract from $1 billion.

Sigma would pay Chemist Warehouse across new shares and a right to acquire some non-core assets. It would issue about 10.7 per cent of its share base at 64.2¢ a pop to the pharmacy owner at the start of the supply contract. (Sigma shares closed at 63.5¢ on Monday).

In addition to it, Chemist Warehouse would have the right to acquire certain non-core assets from Sigma that have a $24.5 million value. Should Chemist Warehouse decide not to buy the assets, Sigma would have to pay it $24.5 million net cash.

Sigma’s largest shareholder is David Di Pilla’s HMC Capital, which owns 19.07 per cent. HMC Capital, in turn, is backed by Chemist Warehouse’s owners and has been on fundies’ M&A radars for a while.

It is a major blow for the New Zealand and ASX listed EBOS, which has a $7.25 billion market capitalisation and was halted from trading on both exchanges on Tuesday morning.

Eric Morris will step down as chief executive of Larry Kestelman’s Brand Collective – the name behind Superdry, Clarks and Volley – after 18 years in the top job, with former David Jones boss David Thomas taking the helm.

Mr Morris was appointed to lead the Brand Collective business when womenswear retailer The PAS Group merged with Brand Collective in March 2022. Rich List property developer Mr Kestelman snapped up Brand Collective from Anchorage Capital Partners, which owns Shoes & Sox, Shoe Warehouse and Volleys, in 2021. He bought PAS Group after it fell into administration the year prior.

“It has truly been an amazing journey, from the formation of The PAS Group in 2005 following the acquisition of the Yarra Trail business by private equity, to my involvement in each subsequent acquisition of the PAS brands and to the delivery of the business as it stands today,” said Mr Morris, who will take a non-executive director seat and advisory role within the Brand Collective business.

Under his management, the enlarged Brand Collective business expanded its portfolio, adding Reebok, Replay and Canada Goose.

Mr Thomas headed up Country Road Group, as well as a short stint as CEO of David Jones, and stepped down from running Peter Lew’s Brandbank Group, which owns Seed Heritage and All Kinds, after four years.

“I am delighted to join Brand Collective and to work with the team to enhance business performance and deliver on future growth opportunities. The team have created a strong framework for future growth, and I look forward to this new challenge,” said Mr Thomas.

Executive chairman Mr Kestelman said the company is positioned for a prosperous future as the business evaluates growth opportunities.

“I would like to thank Eric for what he has done in building the business as well as his dedication and tenure, and I look forward to David’s future leadership and contribution,” he said.

Brand Collective’s parent company, Queens Lane Capital, was founded and is controlled by internet entrepreneur-turned-property investor Mr Kestelman, Boris Rozenvasser and Nick Tsoumanis.

Brand Collective is one of Australia’s biggest multi-brand apparel, footwear, and sports businesses, with a stable of 24 brands, over 300 retail stores and 14 e-commerce sites.

It also operates Designworks, the wholesale arm responsible for the development and distribution of private label and licensed sports and character brands such as Bluey.

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.

Woolworths’ proposed acquisition of the Supa IGA store in Karabar, NSW has been opposed by the Australian Competition and Consumer Commission (ACCC).

Supa IGA Karabar is an independent supermarket that sells a range of groceries and liquor along with an attached liquor store (trading as Liquor Boss) located in Karabar, NSW.

The regulator concluded the transaction of the entities would likely “substantially lessen competition in the supply of groceries in the local area”.

The decision was made after analysing the spending habits of local consumers, including how often and how much local consumers spent at different supermarkets in and outside the local area.

ACCC chair, Gina Cass-Gottlieb, said: “Local consumers would be left with just one Coles and two Aldi stores as alternatives.”

Woolworths already operates two supermarkets in the neighbouring suburbs of Queanbeyan and Jerrabomberra while Supa IGA is the only independent supermarket in the local area.

“The more supermarkets or grocery stores there are, the better outcomes for local consumers, who can change where they shop based on the most competitive offerings for their particular needs,” said Gottlieb.

The proposed acquisition would also affect suppliers supplying to Supa IGA as they may not be stocked by Woolworths.

“The local Supa IGA competes with its different product mix, service offering and store amenities, and different promotional cycles.

“It also has the ability to make decisions locally, and to dynamically adapt and respond to changes in tastes and preferences of local customers,” said Gottlieb.

If we needed any more evidence that Japan’s Seven & i Holdings was still keen to acquire 7-Eleven then here it is. Street Talk can reveal the Tokyo-based retailing group that owns the 7-Eleven brand globally has engaged Bank of America, Nomura and Baker McKenzie as it considers a tilt for the convenience and fuel retailing outfit.

The Withers and Barlow families put 7-Eleven, which they have run since acquiring the local license to the brand in 1977, on the market through Azure Capital earlier this month. Indicative bids are due at the end of June and a sale flyer has been circulated to interested parties.

As this column revealed, Seven & i, which runs almost 30 per cent of all 7-Eleven stores globally, had held extensive discussions with 7-Eleven last year but eventually withdrew, triggering the broader sales process.

According to the flyer, obtained by Street Talk, Azure Capital is marketing 7-Eleven as a company with an “exceptional financial profile”. The company expects to report merchandise sales across its network of $1.8 billion this financial year, and an EBITDA of around $220 million. It will have sold 2.7 billion litres of fuel in the 12 months to June 30, the flier adds.

Among key investment highlights, according to Azure Capital, is 7-Eleven’s brand strength – “the group defines convenience with best-in-class service and an iconic product range” – and a proven operating model “that has inherent leverage to Australia’s growing population and is centred on providing a consistent, high-quality customer experience”.

Other details relayed to potential suitors is sales and foot traffic information – between 50 per cent and 100 per cent higher than peers and the number of customers served every second: eight. Some 9000 people live within a one-kilometre radius of every store, the document reports. More than 60 per cent of customer visits do not include a fuel sale, it adds.

Working off OTR Group’s 11-times sale multiple (pre-synergies) to Viva Energy last year would suggest a value for 7-Eleven well north of $2 billion. Given its size, most private equity firms will have a look at 7-Eleven. Buyout firms spend more time explaining to limited partners why they didn’t look at an asset, rather than why they did.

Global bigwigs

Getting 7-Eleven – a major tobacco retailer – past various ESG screens will be an issue. It is, however, a declining revenue stream for the business, and each PE firm will have different ESG limitations whether it be for an individual fund or the firm as a whole.

Seven & i doesn’t have preemptive rights, but the new owner will need its consent to continue using the 7-Eleven brand. Other global convenience store giants, including Canadian retailer Couche-Tard – the operator of Circle K – are known to be interested. A key talking point is whether the likes of Couche Tard could face resistance from Seven & i, on the basis that it is a competitor.

Seven & i has had its own issues of late. Last week, it managed to see off North American activist funds that had sought to dump its leadership after shareholders voted down a proposal from ValueAct Capital, a major investor in the company. ValueAct was calling for Seven & i’s 7-Eleven operations to be spun out of the business entirely.

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.