It’s getting to the pointy end for Brad Banducci and Steve Donohue.
The chief executive of grocery giant Woolworths and the boss of Woolies’ drinks and hotel business Endeavour Group are in the final months of preparations for the $10 billion demerger of Endeavour. Financing for the spin-off is being negotiated and a board is being assembled under Endeavour chairman-elect Peter Hearl and private equity buyers are still sniffing around, although most in the market see a demerger as the most likely option.
“It’s the next couple of months that become very important, but we’re on track with where we thought we would be,” Banducci says, before pausing. “In fact, where we thought we would be a year ago.”
The pandemic, and the role Woolworths played on the frontline of the crisis, forced a 12 month delay on the demerger plan, which will see Endeavour become an ASX 50 business with annual sales of around $10 billion and underlying earnings of about $1 billion.
The delay has not been wasted.
“I think it’s a better business today than it was a year ago, just because Steve and the team have had time to become one team [and] continue to progress on the strategy,” Banducci says.
Donohue agrees. While the pandemic caused no shortage of pain for Endeavour – particularly in its hotels division which struggled with forced shutdowns – it has given him 12 months to work on the new group’s culture. Endeavour’s all important purpose statement – “creating a more sociable future together” – is at the heart of this.
It’s a clear nod to Woolies’ own purpose – “create better experiences together for a better tomorrow” – and an indication of how much of the Woolworths DNA Endeavour will start its new life with.
This is further underlined by the partnership agreements the two groups have put in place ahead of the deal. Woolworths and Endeavour have ironed out 24 separate deals, covering supply chain, store management, loyalty and fintech, digital and media and business support.
Woolworths will, for example, provide all of Endeavour’s transport warehousing services. Where Woolworths and Endeavour have stores in the same locations – BWS bottle shops in Woolies’ supermarkets, for example – Woolworths will provide facilities management and replenish the drinks group’s stock.
The two companies will partner on loyalty – Endeavour will remain part of Woolies Everyday Rewards program – and the BWS liquor range will continue to be available through the woolworths.com.au site. Other agreements cover everything from trolley management to cleaning.
Banducci says the partnership agreements will underpin the success of the demerger for Woolworths investors. “I think when you look at it, to have two of the leading retailers in Australia post-demerger in a strong partnership is prima facie attractive for both of them.”
Of course, the level of partnership between the two groups raises interesting questions.
Could Endeavour become too reliant on its former parent?
And while Banducci and Donohue clearly have a great understanding – borne in part from the deep experience in each other’s business; Banducci previously ran Woolies’ liquor business and Donohue helped turn around the supermarket division – will relations always be so cosy?
Donohue says it’s important not to overestimate the importance of the Woolies’ agreements, arguing they are the first among myriad partnerships that power Endeavour’s business.
Further, Banducci and Donohue agree a rigid approach to the partnership agreements won’t work. The vision is that the two teams continue to work hand-in-glove as they do today – sharing lunch rooms, helping out in store during busy patches, getting stock from the loading dock to the shelf.
“I think it’s all well and good for Brad and I have a good relationship, but the more important relationships are those that exist between the many hundreds and thousands of team members that work together every day,” Donohue says.
“The partnerships that I’ve lived through in the last few decades that have been successful have not relied on an agreement, they’ve relied on relationships. I think given the shared culture of these two organisations, the prospect of things going pear-shaped is hopefully limited. But it’ll come down to people at the end of the day.”
Maintaining the rapport that exists today between the two organisations will also be vital to the collaboration Donohue and Banducci want to see in the future.
“There’s a couple of [areas of partnership] that are sustaining – keep the boxes moving, keep the systems running – and then there’s some interesting sort of growth opportunities that we’re partnering on together more in that in the tech and digital space.”
The establishment of the Endeavour partnership agreements has also been important for breathing life into Banducci’s vision for Woolworths to build a business out of providing a select group of partners with third-party services, with logistics, loyalty, digital and media being likely to be among the most prominent.
Endeavour will be Woolies’ biggest partner, and Banducci says the process of establishing agreements ahead of the demerger has made Woolworths more disciplined about its service provision.
“This is like a catalyst for what the new Woolworths Group has to be,” he says.
“It’s sort of a broader change management piece around trying to make sure we’re all clear on who does what for whom, and what value is created into it. So there’s a really good opportunity to just put a lot more discipline into our business, particularly as we move into an ecosystem we’re providing services to people, to make sure it’s all done on the right basis.
“That doesn’t mean that as we’ve gone through and tried to make sure our costs are allocated correctly there hasn’t been a little bit of friction, like there is in every relationship. But I think it’s been good because it forces specificity.”
The new model represents a twist on the retail-as-a-service that, as Banducci points out, has become increasingly prevalent in online retail, with Shopify and Amazon helping retailers outsource core parts of their businesses.
“The world we live in is about building partnerships, because no business can do everything if it wants to act with sufficient agility, given the way out how fast things are moving,” he says.