News

15 Jun, 2021
Woolworths gets green light despite ACCC concerns
Australian Financial Review

Australian Competition and Consumer Commission chairman Rod Sims says he will keep a closer eye on the $120 billion food sector after clearing the way for Woolworths to take control of PFD Food Services despite concerns about the impact on competition.

Mr Sims said the ACCC feared the deal – which will increase Woolworths’ 33 per cent share of the total food and grocery market by between 1 and 3 per cent – would have a “very negative” impact on suppliers but could not come up with enough evidence it would substantially lessen competition in the $18 billion food distribution sector.

“We’re not saying there won’t be some harm to suppliers,” Mr Sims told The Australian Financial Review on Thursday. “But the response [from market players] was so mixed we could not convince ourselves there would be a substantial lessening of competition.

“We’re recognising the reality that when one of the big two retailer players gets into the wholesale market very likely things will change,” he said. “To oppose the merger you’d have to be clear about how it’s going to change and have enough evidence to support that view.

“It’s something we’ll keep an eye on,” he said. “Our concerns about the food and grocery code have been there for some time.”

The ACCC has pushed for changes to the food and grocery code of conduct. It wants the code to be mandatory and for penalties for breaches to be introduced. It heard many concerns about the effectiveness of the code during its market inquiries.

“We’ll certainly watch and if we get evidence we could go back to the government and see if we can get a strong code rather than a weak one,” Mr Sims said.

The ACCC’s decision disappointed independent food service distributors and independent retailers, who said the commission had “got it wrong”,

In February five organisations – the Australian Convenience and Petroleum Marketers Association, the Small Business Organisations Australia, the Master Grocers Association, the Australasian Association of Convenience Stores and Independent Food Distributors Australia – urged the competition regulator to block the deal.

Their primary concerns were that the acquisition would reduce choice for consumers and some suppliers, particularly smaller suppliers, and increase costs for suppliers if PFD’s trading terms were harmonised with those of Woolworths.

Due to the dominance of Woolworths and Coles, food service is an important alternative channel for food manufacturers and distributors and margins for suppliers tend to be higher than those in the supermarket channel.

“While we acknowledge the ACCC’s efforts in investigating this proposed acquisition, we are incredibly disappointed by the decision to allow Woolworths’ to acquire PFD, one of the most significant players in the food distribution services sector,” said Richard Hinson, chairman of Independent Food Distributors.

“This will ultimately cost hundreds of jobs in the food distribution sectors, many of which will be in regional Australia.”

“It’s a bad decision and it’s going to be a significant challenge moving forward,” said NAFDA Foodservice chief executive Brad Lee, adding the ACCC did not want another “black eye” after losing several recent cases in court.

PFD purchases food products from suppliers and distributes them to businesses such as restaurants, cafes, hotels and clubs, petrol and convenience stores and institutions such as hospitals.

It has annual revenue of about $2.1 billion and speaks for about 15 per cent of the wholesale food services sector. The acquisition will make Woolworths the second-largest player in the sector after Bidfood.

The ACCC said that although Woolworths and PFD both supplied food products, they did not compete to a significant extent for customers.

“While there were concerns expressed by some suppliers, many suppliers did not raise competition concerns,” Mr Sims said. However, many of PFD’s competitors expressed very strong concerns about the potential effects of the acquisition.

Change on the way

The strongest concerns related to the potential for Woolworths to aggressively expand in food distribution and leverage its buying power in supermarkets into food distribution, growing PFD’s share of the segment by bringing down prices.

“The ACCC acknowledges that the acquisition will likely lead to changes in the way
the wholesale food distribution industry operates,” Mr Sims said.

“Despite these potential changes, we concluded that there are several competitors in the wholesale segment with similar market share to PFD and non-price aspects of competition, such as range, quality and service levels are likely to remain an important part of the competitive dynamics,” he said.

During the ACCC review, Woolworths offered behavioural undertakings to appease competition concerns – promising not to share supplier information between the two companies. Opponents of the deal said they were “meaningless”.

As the ACCC concluded the acquisition was not likely to substantially lessen competition, the undertakings were not a determining factor in its decision and would not have been policeable anyway.

Undertakings “unpoliceable”

As the ACCC did not rely on or accept the undertakings, Woolworths would not have to abide by them, Mr Sims said.

“It wouldn’t have been an undertaking we would ever have found acceptable,” Mr Sims said. “You can’t have undertakings you can’t actually police.“

Woolworths originally agreed to pay the founding Smith family $552 million for a 65 per cent stake in PFD and $249 million for its portfolio of freehold properties, including 26 distribution centres.

Woolworths’ purchase price will fall to about $302 million after PFD agreed last month to sell 25 distribution centres to Charter Hall’s wholesale industrial and logistics fund CPIF for $269 million.

Woolworths chief executive Brad Banducci welcomed the ACCC’s decision, saying the acquisition was a logical adjacency for the retailer and supported its evolution into a food and everyday needs ecosystem.

Mr Banducci wants to generate new revenue streams by building a retail ecosystem and opening up its supply chain (Primary Connect), data analytics (Quantium), media (Cartology) and rewards programs to third parties to accelerate growth.

PFD will continue to operate independently under chief executive Kerry Smith and a separate board and governance structure will be put in place. The Smith family has an option to sell its remaining 35 per cent stake to Woolworths in three years.

“At PFD, we pride ourselves on the strength of our customer and supplier relationships and that will remain unchanged as a result of this investment,” Ms Smith said.

“We look forward to continuing to drive innovation in the industry and serving the evolving needs of our customers, suppliers and the broader community.”

 

 

4 Jun, 2021
Woolworths takes on the big banks with new payments business
SOURCE:
The Age
The Age

Supermarket giant Woolworths is set to become a major competitor in Australia’s $700 billion payments industry after setting up its internal payments system as a new standalone company called WPay, which will offer its services to other merchants.

Woolworths began building its own in-house payments platform back in 2007, and has since grown it into Australia’s fifth-largest processor of card payments behind the big four banks, covering some $50 billion worth of transactions a year.

A website established by the supermarket operator to market WPay pitches the platform as one “ran by retail experts, not bankers” and says the company is creating “Australia’s leading” payments service.

WPay will be set up as a new business unit under the Woolworths Group, and the platform will become the payments provider for liquor stores Dan Murphy’s and BWS once Woolworths completes its de-merger of its Endeavour Drinks division later this month. Big W and formerly Woolworths-owned service station business EG already use WPay.

The platform will also be offered to other merchants, providing them with digital and in-store payment solutions, including payment terminals, along with analytics, fraud management, funds settlement and gift card support. Woolworths chief executive Brad Banducci said it made sense to extend the service to other retailers after building it internally for over a decade.

“We believe there is value in extending the benefits of the investments we’ve made in our payments platform to other merchants who may not have the scale to build it themselves,” Mr Banducci said. “Payments are an increasingly important part of the shopping experience, both in store and online, and we bring unique expertise to this space as retailers.”

Woolworths’ move to establish itself in the payments sector means the retailer will almost immediately become a sizeable competitor to both the banks and smaller payments services such as ASX-listed Tyro, Square and Australia Post-owned SecurePay. Mr Banducci used to be the chief financial officer at Tyro and still holds shares in the business.

It will also serve to broaden Woolworths’ “ecosystem” of businesses outside of supermarkets. The retailer has been making efforts over the past 18 months to expand its reach into other areas including investments in numerous startups and, most notably, a $550 million acquisition of food services business PFD.

Paul Monnington, a former NAB employee who is Woolworths’ general manager of fintech, has been appointed as general manager of WPay. He said the business would enter the sector with a “strong Australian pedigree”.

“Aside from payments, we know merchants are also looking for simpler ways to integrate gifting, loyalty and direct marketing platforms to engage customers while maintaining direct relationships. We look forward to partnering with merchants to help bring this to life,” he said.

On Wednesday, Woolworths also announced it had taken its first step towards its goal of using 100 per cent renewable power by 2025, striking a power purchase agreement with a wind farm near Yass in NSW that’s currently being built.

The deal will cover about 30 per cent of Woolworths’ stores in the state and contribute 195,000 megawatt-hours of electricity into the grid annually. Woolworths’ network development director Rob McCartney, who is overseeing the project, said the retailer was sticking to a “tight timeframe” in order to hit its goal by or before 2025.

“We’re looking at different projects, whether they’re wind, solar or hydro, across the country,” he said. “We’re looking at opportunities constantly. I’m fairly confident it’s an aggressive, but achievable, timeline.”

1 Jun, 2021
Aussies could inject an extra $5 billion into the economy each year just by buying Australian-made products
Business Insider Australia
  • CEO of Australian Made Ben Lazarro wants Melbourne’s latest lockdown to remind Aussie consumers of the importance of buying local.
  • Australian Made Week, which ends on Sunday, seeks to hammer home the economic benefits of choosing Australian-made products.
  • “Consumers know if they see those products they can buy with confidence and not worry about where the product’s from,” Lazarro said.

If every household spent an additional $10 a week on Australian-made products, it would inject an extra $5 billion into the economy each year and create up to 11,000 new jobs, according to new research from Roy Morgan.
 

That’s what Ben Lazzaro, chief executive at advocacy group Australian Made, hopes Australians will do.

His organisation kicks off Australian Made Week on Monday — and he wants to spend every last minute of the week ensuring Australian consumers are aware of the massive impact their purchases could have in boosting the country’s economy over the next 12 months.

As part of the first-ever Australian Made Week, May 24-30, the campaign urges shoppers to buy one extra Australian-made product a week.

Over 4,000 businesses are licensed with the green-and-gold Australian Made logo; the only registered country-of-origin certification trade mark for Australian products and produce.

Elyse Knowles — model, businesswoman, designer, social media influencer and Australia Made ambassador — said $10 is a small price to pay to help support local makers and growers.

“There are so many high quality Australian products,” Knowles said, adding that “in nearly every product category there’s an Aussie option – so why wouldn’t you want to buy local?”

With a social following of 878,000 that she’s sharing her Aussie purchases with, she said she hopes others will do the same.

“When you’re making purchases – whether it’s flowers, bedlinen, sunscreen or socks – go for Australian Made or Grown, and spread the word on your socials by posting about your buy with #AustralianMadeWeek,” Knowles said.

Lazarro told Business Insider Australia that, particularly in the current economic climate, as international border closures, trade disputes and rolling lockdowns impact businesses, it’s more important for consumers to think about who their money is going to.

“More than half of the businesses… that carry the Australian Made logo are exporters,” Lazarro said.

“Many of those would certainly have been impacted.”

Lazarro believes the pandemic has shown Australians “the importance and the impact their purchasing decisions can have when they do choose to buy local and support, not only local manufacturers and growers but also businesses.”

He said that with the increasing likelihood that we “will all be spending a lot more time in Australia,” the silver lining is the opportunity to support more local businesses and makers.

“Whether that be in the Metro centres or in the regions; that is a positive outcome of a situation none of us want to be in,” he said.

Every Australian Made product purchased is directly supporting a sector of 900,000 people and thousands of businesses across the supply chain, Lazarro said, with one job in manufacturing producing three to four jobs in other parts of the economy.

Anton McKernan, general manager of Australasia’s largest mattress and foam manufacturer, The Comfort Group, said he considers his Australian Made certification a “badge of honour”.

“All of our brands are supported by Aussies who work every day to produce high quality products that are distributed across Australia,” he said.

“Australian Made Week is a fantastic opportunity to shine a spotlight on those interesting and inspiring people behind local brands and manufacturing.”

Lazarro said that while support for, and trust in, Australian brands has always been strong — 99% recognise the Australian Made logo and 92% trust it — it often takes a major disruption for people to really think about the real-world impact their choices make.

“It’s important to acknowledge that this green and gold logo kangaroo has been around for 25 years, and has got an enormous amount of market capital,” he said.

“It’s a really effective tool for businesses to demonstrate their Australian credentials.”

“That trust level…it’s the reason it’s so effective,” Lazarro added. “Consumers know if they see those products they can buy with confidence and not worry about where the product’s from.”

 

31 May, 2021
Greater China drives profit growth for Fonterra
Inside FMCG

Dairy giant Fonterra says a 61-per-cent boost in normalised profit for the nine months to April shows its restructuring program is paying dividends. 

The New Zealand-headquartered company recorded a net profit after tax of NZ$603 million, up 2 per cent – or $587 million ‘normalised’ after extraordinary items were factored in. 

CEO Miles Hurrell said the company achieved higher margins and reduced its operating expenditure, despite the challenges of the Covid-19 pandemic, which remains very much part of life for the co-op’s employees and customers around the world.  

“It’s too easy to forget this if you’re sitting here in New Zealand – but today’s results show that despite these challenges we’ve lifted our financial performance. Over the last three months, we have also committed to getting out of coal by 2037 and made some promising progress in a trial using seaweed in cows’ feed to reduce emissions,” said Hurrell. 

Greater China powers performance

Fonterra’s results illustrate the importance of Greater China to the company’s overall fortunes, delivering year-to-date EBIT up 30 per cent year on year to $106 million.  

Foodservice continued to be the big driver behind the result, contributing $93 million of that growth. Year-to-date margin in China increased from 21.5 per cent to 28.6 per cent.  

In Asia Pacific, normalised EBIT of $224 million was down 10 per cent, or by $24 million. Consumer sales improved by 29 per cent and foodservice by 89 per cent, offset by falling sales in the ingredients segment.  

And the Africa, Middle East and North America sector saw EBIT fall by 11 per cent, or $40 million, to $322 million, largely due to lower Ingredients sales. Consumer and foodservice sales in those regions continued to perform well. 

Hurrell said Fonterra’s operating expenses were down by 5 per cent year-to-date but the company will incur some additional expenditure in the final quarter to support its brands and product initiatives for the next year. 

Looking ahead, Hurrell says the improving global economic environment and strong demand for dairy – relative to supply – should lead to an increase in the Farmgate Milk Price range to its $8 projected midpoint. 

“Global demand for dairy, especially New Zealand dairy, is continuing to grow. China is leading the charge as its economy continues to recover strongly. Prompted by Covid-19, people are seeking the health benefits of milk and customers are wanting to secure their supply of New Zealand dairy products and ingredients,” he said.

“Growth in global milk supply seems muted and the global supply of whole milk powder is looking constrained.  

“Based on these supply and demand dynamics, along with where the New Zealand dollar is sitting relative to the US dollar, we’re expecting whole milk prices to remain at current levels for the near future.”

However, Hurrell flagged “a number of risks” including the unpredictable nature of the Covid-19 pandemic, the impacts of governments winding back their economic stimulus packages, foreign-exchange volatility, changes in the supply and demand patterns that can enter dairy markets when prices are high, and – as always – potential impacts of any geopolitical issues around the world.

31 May, 2021
Australians to get cheaper scotch, Stilton and Bentleys, UK signals
Financial Review

London | Aussies could soon be mixing gin and tonics, sipping scotch whisky, nibbling Stilton cheese and cruising in Bentleys at lower cost, as the UK Trade Minister signalled that Australian tariffs may tumble when the two countries ink a free-trade deal in the next fortnight.

During a fiery parliamentary debate about the impact on British farmers of the deal – which could be settled when Prime Minister Scott Morrison visits his opposite number Boris Johnson in mid-June – MPs were urged to focus on areas where Australia was likely to offer tariff cuts to British exporters.

“I can say that the deal we are trying to secure will be very beneficial to exporters of whisky, biscuits, cars, cheese, apparel, ceramics and gin,” Trade Minister Greg Hands told Parliament on Thursday (Friday AEST) during a special debate on the Australia-UK free trade agreement (FTA).

“It is on course to slash tariffs on iconic UK exports, saving business potentially about £115 million ($210 million) a year.”

Mr Hands noted that the £113 million of Scotch whisky sold in Australia each year – a figure that is growing 7 per cent annually, making Australia the eighth-largest consumer by volume – was subject to a 5 per cent tariff.

The whisky tariff has long been a British bugbear – about 10 years ago, a campaigner dressed as Johnnie Walker strode into Australia House to noisily demand its removal. As it cascades through the distribution chain, picking up excise tax along the way, it can significantly boost prices.

It did not go unnoticed that when tariffs on bourbon were removed in the US-Australia FTA in 2005, US distilleries felt the benefit at scotch whisky’s expense.

The whisky tariff is not protecting a directly competing Australian industry, making it a handy bargaining chip for Canberra in the negotiations.

Mr Hands told another MP that cars account for 8 per cent of British exports to Australia, and also attract a 5 per cent tariff.

“We are looking to reduce or remove that tariff in this agreement, and I look forward to making progress precisely on that issue,” he said.

Britain expects only a 0.02 per cent boost to its GDP, worth about £500 million, from the FTA. Canberra has not publicly put a figure on the potential benefits to Australia.

Although Mr Hands tried to persuade sceptical MPs of the benefits to Britain from an FTA, he had to spend much of the parliamentary debate defending the deal’s likely removal of British tariffs and quotas on Australian beef and lamb.

The National Farmers’ Union has led a strident campaign against the tariff cuts, saying British farmers will not be able to compete against lower-cost Australian exporters, whom the NFU says benefit from producing at lower standards.

“We continue to maintain that a tariff-free trade deal with Australia will jeopardise our own farming industry and could cause the demise of many, many beef and sheep farms throughout the UK,” NFU president Minette Batters said in a recent statement.

But Mr Hands said that Australian volumes were not a threat; that farmers would be protected by a slow phase-in, reportedly 15 years; and that British producers would be able to seize new export opportunities, particularly in Asia.

“Any deal we strike will contain protections for our farmers, any liberalisation will be staged over time, and any agreement is likely to include safeguards to defend against import surges,” he said.

“The UK accounts for just 0.15 per cent of Australian beef exports, and our analysis suggests that any increase in imports is more likely to displace food arriving from the EU.”

He also noted that at present Australian lamb exporters do not even use their full tariff-free quota for shipments to Britain.

The FTA will reportedly phase out tariffs and quotas over 15 years. Mr Hands said “a typical Australian free trade agreement has stages over 10, 12 or 15 years” and safeguards “are typical of free-trade agreements” – clearly intending to hint that they would be included in the Australia-UK deal.

The Australia-US FTA had an 18-year phase-out, which still has several years to run; but its safeguards provisions on beef have never been used. Under the Australia-Korea FTA, by contrast, beef tariffs tend to get reimposed on an annual basis, as exporters exceed their yearly cap by about September or October.

Ms Batters said the hit to British farmers would come “whether tariffs are dropped immediately or in 15 years’ time”. Both she and shadow trade secretary Emily Thornberry, from the Labour Party, called for price and volume safeguards to be included.

Mr Hands said Australia met international animal welfare standards, and no product falling below British standards – such as hormone-fed beef – would be sold in the UK.

MPs also quizzed Mr Hands about Australia’s record on deforestation and its climate change commitments under the Paris Agreement. He said the Morrison government was “absolutely committed to combating climate change” and “there may even be something on that in this agreement, which we are negotiating at the moment”.

31 May, 2021
David Jones Food review leads to end of BP partnership
Inside Retail

Following a review of David Jones’ food business, which was signalled by chief executive Scott Fyfe in March, the department store’s partnership with convenience chain BP is ending.

The 35 dual-branded sites built over the past year will be transitioned in the coming months as DJs continues to streamline its Food business.

“Our organisations have collectively agreed to work through a managed transition that will see our relationship end in the coming months,” a BP spokesperson said.

“We know the needs of consumers are changing and we are excited by the growth opportunity this presents for BP in Australia.

“A differentiated offer which is delivered well clearly resonates with our consumers, who lead busy lives and want easy access to healthy and delicious food.”

David Jones, on the other hand, will refocus its food efforts toward bespoke Food Halls in its Elizabeth Street and Bondi Junction locations, as well as its pantry and seasonal ranges.

“We thank bp for its strong collaboration throughout the partnership and wish the business all the best in the next phase of its development,” a David Jones spokesperson told C&I.

“David Jones remains committed to delivering an exceptional food range reflective of our customers’ needs and preferences while reducing cost and enhancing overall business performance.”

The issue seems to have stemmed from David Jones’ failure to make a profit from its Food ventures, with parent company Woolworths Holdings group chief executive Roy Bagattini stating the business has “not transitioned fast enough“ during an analyst call last September.

And, that while the David Jones Food convenience locations were progressing well, the larger format David Jones Food business trades at a loss.

At a minimum, Bagattini said he hoped a review would get the food business to a break-even position by the 2022 financial year.

20 May, 2021
Biosecurity, soil and relocation: How the budget stacks up for FMCG
Inside FMCG

Federal treasurer Josh Frydenberg has handed down a national budget worth billions of dollars with a focus on boosting the country’s digital economy, reskilling Australians for the jobs of the future, and on providing more cash for Aussies to spend through tax breaks.

But, after a year of comparatively strong economic recovery, how do the new measures stack up for the FMCG industry?

A nation-wide digital upgrade

In all, the government is dropping $1.2 billion on accelerating Australia’s digital transformation through it’s Digital Economy Strategy. The funding eclipses the $800 million unveiled last year, with both retailers and consumers having amplified their reliance on e-commerce, and the internet more broadly, due to the ongoing impact of Covid-19.

“Every business in Australia is now a digital business,” said Prime Minister Scott Morrison.

“This transformation is not merely a national one that needs to happen – it’s a global one that is happening We must keep our foot on the digital accelerator to secure our economic recovery from Covid-19.”

The measures announced, including almost $30 million to fund the rollout of high speed 5G internet and over $100 million to support digital cadetships to help Australians build necessary digital skills, have largely been welcomed.

“The pandemic has created a powerful shift in the way people live and work and how people purchase the goods and services they need,” Australian Retailers Association chief executive Paul Zahra said.

“It’s important that businesses, particularly small businesses, have the skills and knowledge they need to keep up with the rapid rate of innovation and new and emerging consumer trends.

“Consumers are now expecting retailers to ‘meet them where they’re at’, through consistent, seamless omni-channel interactions – and that involves businesses having a clear and dedicated focus on digital.”

Skills training for the masses (retail excluded)

And, after a year or so of job support and job creation being of high importance to both the Australian populace and the federal government, it’s no surprise the budget came out with a $1 billion extension to the JobTrainer program – an extension which it expects to provide around 160,000 extra training places.

Though, while eligibility for the fund was expanded within the 2021 Budget, it still isn’t available to retailers: the second-largest employing sector in the Australian economy.

“Much credit must go to the resiliency and innovation of the retail industry [but] despite the headway, it remains an uncertain period for both the industry and the consumers who support it,” said Vend vice president of APAC Gordana Redzovski.

“Particularly concerning for retailers are labour shortages. Retail is a transient industry, underpinned by overseas students and short-term visa holders.

“With border closures in place for the foreseeable future, an extension of the JobTrainer scheme [would] have been celebrated by retailers nationwide.”

ARA’s Zahra added that, while the extension is certainly welcome, it is a huge missed opportunity to exclude the retail industry.

“For these measures to translate into job outcomes, we need more flexibility for retailers to access the scheme,” Zahra said.

“As Australia’s largest private sector employer – with 1 in 10 Australians working in the industry – retail plays an important role in the employment and skills rebound.”

Relocation, relocation, relocation

Frydenberg also announced a number of initiatives to help farmers recover from years and years of drought and flood.

Around $200 million has been set aside for a national soil strategy with the aim of raising soil standards across the country, with farmers willing to share the results of soil testing to see rebates through a two-year program.

And while there is zero new Federal funding to help bring overseas workers back to Australia, the budget has said it will seek to incentivise “modern agriculture job opportunities” to bring Australians into the industry.

To facilitate this, the government is making changes to the Take Up a Job program, wherein employees who have relocated for work will need to only work a minimum of 40 hours over two weeks to receive $2000 in relocation assistance.

And, in an effort to get young Australians leaving school on board with the program, the program has been opened up to 17-year-olds for the first time.

Boosting biosecurity

The security of Australia’s livestock and crops was also supported by the budget, with about $370 million set aside to protect crops and “put a protective ring around Australia”, according to Morrison.

According to the ABC, the efforts will include $30 million to improve the biosecurity of incoming international mail, $100 million to identify freight containers for intervention, and $35 million in research on how pests enter Australia.

“Protecting our borders is as much about protecting our livestock, crops and environment from diseases that have the potential to devastate them and the livelihoods they support,” Morrison said.

“This investment is about putting a protective ring around Australia to safeguard industry as well as the rural and regional communities that depend on it.

“There will never be zero risk, but we are committed to reducing the risk where possible.”

Tax cuts to drive spending

One of the main ways the government seems intent on boosting spending is through providing tax cuts to more than 10 million low and middle income earners – with an expected $7.8 billion to enter the economy through tax relief worth up to $1080 per person.

“Lower taxes means that hard-working Australians will keep more of what they earn, allowing them to spend more, help grow the economy and create more jobs,” the Government said.

And this, paired with the $1.7 billion towards childcare subsidies, is likely to further boost retail spend as Australians see their discretionary income rise.

“With family households, and particularly women, expected to hold more disposable income this financial year, this should trickle down into increased consumer spending,” said Emarsys’ APAC managing director Adam Ioakim.

“[It will] no doubt help further boost retail spend and accelerate industry growth following disruption in 2020 driven by the pandemic.”

But businesses didn’t miss out on tax relief. The Government also announced an extension of last year’s instant asset write-off scheme, which allows businesses to claim the full value of eligible assets that are installed before June 2023 – a 12 month extension.

Zahra welcomed the scheme, stating it allows businesses to invest in what they need, when they need it, so they can continue to focus on growing in the “post Covid world”.

20 May, 2021
Treasury Wine pivots to US, Penfolds brand after China’s shock tariffs
The Sydney Morning Herald

Winemaking giant Treasury Wine Estates will pivot to the US market and focus on its highly profitable Penfolds brand in a bid to restart profit growth without the help of the lucrative Chinese market.

At a strategy day on Thursday, Treasury laid out its plan to grow the business over the next five years and outlined its goals for its three new company divisions announced to the market in February: Penfolds, Treasury Americas and Treasury’s premium brands.

It also told investors 2021 earnings before interest, tax, depreciation, amortisation and industry accounting standard SGARA would be in the range of $495 million to $515 million, beating market expectations.

Chief executive Tim Ford said he was confident of the prospects for Treasury’s new vision, noting the company did not have “many great ambitions” for its Chinese market at the moment. “The effective closure of the Chinese market to the Australian wine category was a significant event for Treasury, but we are truly excited by the opportunity this now presents to us to accelerate the growth of our business,” he said.

Treasury has been battered in recent months by 200 per cent tariffs placed on its goods by the Chinese government, with the winemaker formerly deriving about 30 per cent of its total earnings from the lucrative market.

The company has been making efforts to diversify away from China in response, placing most of its focus on growing its US divisions and also expanding its offering into other Asian markets such as Thailand, Singapore and South Korea.

On Thursday, Treasury appeared more confident in the success of these plans and set out for investors its targets for earnings in each division. It also revealed for the first time its profit margins for Penfolds, showing the high-end division reported EBITS of $357 million in 2020 at a margin of 47 per cent.

Treasury is hoping to leverage Penfolds’ prestige and brand awareness to further expand the high-margin segment across the globe, including into budding Asian markets such as Thailand, South Korea and Malaysia where Treasury previously did not have wine available to sell.

“We have more luxury wine than we currently have built into our five-year plans we’ve outlined today, and that is the most wonderful opportunity that we’ve ever had,” Mr Ford said.

“It’s not reallocating - we have the wine to sell. The Penfolds brand has significant awareness and strength across the globe, so we have to build demand.”

Alongside this, Treasury is aiming at ‘premiumising’ its US business, moving away from its sub-$10 bottles and focusing on its higher-end labels in the region. The company is aiming for an EBITS margin of 25 per cent for the Americas.

However, the company’s focus on the US was questioned by some analysts, with Bank of America’s David Errington asking why investors should “get excited” by the US expansion when considering the relatively low margins in comparison to the significant amount of capital spent by Treasury on growing its American division.

Mr Ford defended the company’s choice, saying the US business had the potential to be a “very successful” growth engine for the business.

“Is the return on capital employed for the Americas business ever going to be the same as Penfolds? No, it’s not, but it’s going to be an additive view of how we improve our group return on capital employed across our businesses,” he said.

Shares in the business rose as much as 4 per cent on Thursday before closing 2.7 per cent higher at $10.22 as investors welcomed the winemaker’s better-than-expected earnings results and strategy goals.

Mr Ford also noted the business was on the hunt for new acquisitions in the tightly-held French winemaking industry, saying Treasury would chase any opportunities “aggressively”.

The company also noted an improvement in its supply chain optimisation program, which is now expected to deliver $75 million in total cost savings by 2023, up from the previously announced $50 million. It also committed to net zero emissions by 2030 and having its operations powered by 100 per cent renewable energy by 2024.

 

20 May, 2021
Kathmandu names RipCurl boss as new group CEO
Inside Retail

Seven months after Kathmandu’s long-time group chief executive Xavier Simonet resigned, the outdoor fashion business has announced his replacement: RipCurl CEO Michael Daly.

Daly has led RipCurl for the last eight years, according to chairman David Kirk, who said the group is confident he will bring a relentless focus on brand, product, people and the bottom line, as he did at RipCurl.

Daly will start in the position immediately, and a search for his replacement at RipCurl is now underway.

“This is an exciting next step for me,” said Daly.

“The Group has a portfolio of outstanding brands in Kathmandu, RipCurl and Oboz and I am looking forward to leading three great teams as we work together to grow and develop the group.”

Simonet announced his departure in November, and will be heading up Austrade – the Australian Trade and Investment Commission.

“I have had an awesome time at Kathmandu Holdings, where I’ve spent the last five immensely exciting years,” Simonet said.

“The Group has great brands, passionate teams and strong values. I’m very grateful to our teams, to the board of directors, to our shareholders, and to my chairman, David Kirk, for their support.”

12 May, 2021
Vodka-based drinks lead 40 per cent surge in RTD sales: LMG
Inside FMCG

Ready-to-drink sales have recorded double-digit growth over the past year, primarily driven by vodka-based drinks, according to Liquor Marketing Group (LMG).

In a 12-month period starting from March 2020, the RTD category achieved 40.2 per cent growth in dollar sales across the group’s stores, which include Bottlemart, SipnSave, Harry Brown and Thirsty Camel. RTD sales in this year’s first quarter across the stores surged 39.3 per cent compared to the previous quarter. 

Meanwhile, the vodka subcategory saw the strongest demand with a 72.3-per-cent increase, followed by bourbon and seltzer. 

“LMG’s dollar sales growth for the category has continued to be higher than the total market average,” said Scot Hayman, national merchandise manager for beer, spirits and RTDs at LMG.

“This trend has been consistent in each state and for all RTD segments.”

The strong performance of RTDs sales were recorded in WA, with more than 50-per-cent growth, followed by NSW with 44.7 per cent. 

According to Hayman, the strong performance of RTDs sales can be attributed to the increasing demand for healthier options. 

“RTDs with low and zero sugar, light RTDs – particularly in vodka and gin, and Seltzer align with this trend and have given shoppers a reason to rediscover and re-engage with RTDs, while simultaneously attracting new buyers across different demographics and life stages,” said Hayman.

12 May, 2021
The cat’s out of the bag: Behind Woolies’ new pet business
Inside Retail

Despite a burgeoning petcare aisle at its supermarkets, Woolworths Group is hoping to carve out a greater slice of the $2.9 billion petcare market with the launch of a new standalone business, Pet Culture. 

The online pet care business, launched last month, is a joint venture between Woolworths and Hollard Group’s PetSure, the country’s biggest pet insurance provider which has underwritten Woolworths’ pet insurance offer for several years. According to The Australian, Woolworths is holding a 60 per cent stake in the business. 

“We know that pet food and care is a high priority for many of our customers. To help address the health and wellbeing needs of their pets, we have invested jointly in a new online start-up called PetCulture, which is now in its early stage of testing with customers,” a Woolworths Group spokesperson told Inside Retail

PetCulture will be run separately to Woolworths as a digital start-up and will focus on offering “a large range of premium pet food products and health advice” not currently available through Woolworths.

Petsure CEO Alex Thomas had already noticed the increasingly important role pets play in Australian families before the pandemic. 

“We saw, even pre-Covid, our pets increasingly being treated as members of the family and playing a more important role in the lives of pet parents,” he said.

“Via our pet health insurance, telehealth, and fintech experience, we formed the view that innovation was needed in pet health and wellness, so it made sense to partner with Woolworths to offer pet parents products and services directly informed by our pet health care expertise.”

Simon Smith, former managing director of rideshare platform Ola Australia and also of eBay Australia, was recently appointed CEO at PetCuture, bringing experience in analytics, e-commerce as well as services and communities. Smith takes over from the role from founder Iain McDonald who has been developing the business over the last six months. 

Woolworths supermarkets and Big W have reported strong growth in the pet category over the past 12 months, giving the retail group confidence in this digital platform which will offer pet owners a more personalised experience.

The site is still in the early stages of beta testing, which Woolworths said will allow the team to learn more about customers and tailor the offer to their needs. 

Driving growth online

E-commerce offerings in the pet category have prospered during Covid-19 as consumers lean into online services more than ever. 

Fuzzyard, an Australian premium petcare brand that’s sold in more than 10,000 stores globally, has witnessed strong growth in its online business. 

“The sales growth has been incredible in the last year and we only hope to continue to grow that,” Anne Nguyen, marketing and e-commerce manager at Fuzzyard, told Inside Retail

“The pet industry is really being driven by the millennial demographic at the moment, and I think it comes down to lifestyle; millennials are taking their time with growing their families and their treating pets as family members essentially.”

Fuzzyard’s Australian HQ is based in Melbourne, Victoria but it also has a warehouse in California where it ships all North American orders. While the business is predominantly wholesale, Fuzzyard is eager to grow the online business and connect more directly with consumers. 

“We’ve got a pretty big following on socials, but we really want to be able to connect with our end consumers more and really engage with our audience there. That’s something we’re looking at growing,” Nguyen said.

“Our online channels really exemplify our brand identity and our personality and that’s something that you probably miss if you walked into like a pet store, you don’t really see a lot of the branding behind the product.”

Fuzzyard is also planning to launch online exclusives and seasonal products that can’t be found at local pet stores.

12 May, 2021
Barbeques Galore still sizzling as buyers circle
Financial Review

Trade and private equity suitors are circling specialty barbecue retailer Barbeques Galore after it was put up for sale by Quadrant Private Equity last month.

Quadrant managing partner Jonathon Pearce confirmed the retailer had received interest from both trade buyers and private equity firms. However, he said Apollo Global Management was not conducting formal due diligence on the chain.

As reported in The Australian Financial Review’s Street Talk on Monday,  a senior Apollo Global executive visited two Barbeques Galore stores (and two rival retailers) last weekend before testing positive for COVID-19, ending Sydney’s month-long COVID-free period.

Barbeques Galore chief executive Angus McDonald said all team members who worked at those two stores, not just those working at the time the man visited, were tested and isolated while awaiting their results.

“I’m very relieved and pleased to say all those team members tested negative,” said Mr McDonald, wishing the Apollo executive a speedy recovery.

The stores were also professionally deep-cleaned after the company was notified by the NSW Department of Health and resumed trade the following day.

“It’s something every business has to be prepared for in this time and it’s a situation that could happen to anybody,” Mr McDonald said.

Indicative offers for Barbeques Galore are expected to come in over the next few days and Quadrant is likely to draw up a shortlist of bidders by the end of the week.

The interest from private equity shows that investors still see potential to make strong returns from Barbeques Galore even though it has been in private equity hands for more than 15 years.

Ironbridge Capital acquired control of Barbeques Galore in 2005 and sold a major stake in the retailer and stablemate Amart Furniture nine years ago. Quadrant acquired full control in 2016.

Barbeques Galore has 88 company-owned and franchised stores and accounts for about 21 per cent of the barbecue market. It also sells barbecue accessories, outdoor furniture, braziers, smokers and wood-fired heaters.

Same-store sales rose “well in excess” of 20 per cent in the March quarter and were up more than 20 per cent in the financial year to date, underpinned by strong demand from consumers entertaining at home during the pandemic.

Mr McDonald, who took the helm in 2019, is aiming to maintain sales growth by opening and refurbishing stores, introducing new and exclusive products and investing in the brand and systems.

Later this month the retailer will launch a new website that will provide improvements such as real time inventory availability, better search and navigation and dynamic personalisation.

Over the past 20 months, Mr McDonald has re-set the business by closing eight underperforming stores, reducing floor space, and opening new stores between 500 square metres and 1000 square metres where it can display a curated range of products and achieve better sales per square metre.

Potential buyers include Mr McDonald’s old employer Super Retail Group, Wesfarmers’ Bunnings, JB Hi-Fi, Harvey Norman, Shriro Holdings – which owns the Everdure by Heston Blumenthal range sold in Barbeques Galore stores – specialty retailers, high net worth investors and private equity investors.

12 May, 2021
A2 Milk lowers earnings forecasts for 4th time since September
The Australian Business Review

Infant milk formula maker A2 Milk, the former market darling that at its peak was New Zealand’s biggest public company with a market value of almost $10bn, is quickly crashing back to earth after unveiling its fourth profit warning since September.

The company is on a growing casualty list of Australian and New Zealand companies that have ridden the China consumer boom on the way up, along with ­vitamins brand Blackmores and Treasury Wine Estates, only to face a growing profit black hole as trade with China is disrupted.

Chief executive David Bortolussi is facing several challenges as he looks to repair the company’s battered and bruised earnings, as well as its reputation among investors, as the ripples from souring trade with China, COVID-19 and bloated milk inventories erode A2 Milk’s once enviable fat profit margins.

Only taking on the CEO role earlier this year, Mr Bortolussi is acting fast to resuscitate earnings and fix the infant milk group’s bloated inventory problem that will include an estimated $NZ80m-$NZ90m ($74m-$83m) of new provisions against profits for excess inventory that will need to be written down in value.

This will come on top of the $NZ23m in stock provision recognised in the December half.

There will also be management changes, particularly for the crucial China market, with 14-year A2 Milk veteran and CEO of its Asia-Pacific region, Peter Nathan, to ­resign. No reason for his resignation was given on Monday.

The market never likes a profit warning and, with A2 Milk now on its fourth revision of earnings projections, its shares were smacked lower, falling more than 15 per cent on Monday. The stock is down almost 50 per cent since the start of the year and down from just under $20 last year. Shares later closed down 92c, or 13.11 per cent, at $6.10.

The company is now targeting revenue for the 2021 fiscal year in the order of $1.2bn-$1.25bn, and is forecasting an underlying profit margin of 11-12 per cent for its 2021 fiscal year, down from the 24-26 per cent it had forecast at its third earnings downgrade on February 25.

Only three years ago, A2 Milk was crowned New Zealand’s biggest public company, nudging out of the way Auckland International Airport and Fisher & Paykel.

Since then, billions of dollars in shareholder value has been wiped out.

And there is more pain to come, as the company released its trading update, profit warning and plans to address its slipping sales and swollen inventory levels.

A2 Milk said while its third-quarter trading was broadly in line with plans, it was clear that the actions taken to address challenges in the personal shopper “daigou/reseller” and cross-border e-commerce channels would not result in sufficient improvement on third-quarter pricing, sales and inventory levels.

A comprehensive review of ­inventory in the trade has indicated that the level of channel inventory is higher than had been anticipated, with the company to spend more on marketing and book provisions against some stock.

It is increasing efforts to invest behind its China-labelled infant milk formula. Its sales of English-label milk it still has that was sold in China and cross-border channels fell by 77 per cent in the third quarter, to $NZ22.1m.

China-label infant nutrition sales of $NZ98m were recorded for the third quarter, representing 5 per cent growth on the same time last year, and an 18 per cent decline on the second quarter of 2021.

“Despite these short-term setbacks, we are confident in the long-term potential for infant ­nutrition and other opportunities we have in China, and are determined to build on the strong position we have built in the market over the past five years,” Mr Bortolussi said.

“We recognise that the China market and channel structure is changing rapidly and are commencing a comprehensive review of our growth strategy and executional plans to respond to this new environment.”

12 May, 2021
‘More focus’ for Woolies as $10bn drinks and pokies demerger gets underway'
The Sunday Morning Herald

 

Woolworths boss Brad Banducci says the company’s $10 billion demerger of its Endeavour drinks, pubs and pokies division will leave the company better placed to tackle social issues within the business.

On Monday, the supermarket giant announced it would be powering ahead with a demerger of the Dan Murphy’s and BWS owner before the end of the financial year after the plan was delayed for a year due to COVID-19.

When the move was initially announced in 2019, market-watchers speculated it may have been spurred by a desire from Woolworths to divest itself from the problematic pokies division, though the company denied it was a major factor.

Mr Banducci maintained that he didn’t see any major changes for Woolworths from a reputational standpoint come June, though he told The Age and The Sydney Morning Herald the demerger would allow the business “more focus” on other social issues such as renewable energy and ethical sourcing.

“I don’t think it changes anything, maybe except a little more focus. The world is changing so quickly we need to continually progress,” he said.

Endeavour derives about a third of its earnings from its hotels division, which includes its pokies earnings. Incoming chief executive Steve Donohue said that pokies would continue to be a focus for the business, with Endeavour planning to increase the rate of renewal of its 12,000-odd gaming machines in the coming years.

“Gaming is a technology-based pursuit and it’s important to keep pace with the latest technological change,” he said. “You should expect over the short to medium-term for Endeavour to improve the fleet of gaming machines we have. They’re on a seven-year renewal cycle at the moment and that probably needs to be slightly shorter.”

“That doesn’t mean more machines, just an improved player experience is what we’d target.”

As part of the demerger, which investors will vote on in early June, Woolworths will look to return between $1.6 billion and $2 billion to shareholders by way of a special dividend. This news was welcomed by investors, with Woolworths’ shares gaining 2.7 per cent on Monday.

Angus Gluskie, managing director at Woolworths shareholder White Funds, said the move to divest the pokies-linked Endeavour would be a good move for the supermarket from an environmental, social, and corporate governance (ESG) perspective.

“What this allows is the investors that are comfortable with the the ethical or moral elements to align themselves to [Endeavour]. That in many ways, is better than forcing investors to make a mixed choice,” he said

“It seems cleaner, and it gives people the opportunity to make their own personal decisions.”

Anton du Preez, fund manager at Pengana Capital, agreed, with the shareholder expecting Woolworths would benefit from a re-rating from an ESG point of view as investors who were previously unable to invest in the stock buy shares.

Shareholders will receive one share in Endeavour for every one Woolworths share they own, with the division reporting $10.3 billion in revenue last financial year. The company’s board has unanimously voted in favour of the demerger.

Woolworths first announced it was exploring its options for a demerger or other sale of Endeavour in June 2019, and quickly got underway with restructuring the business in preparation. However, the process was put on hold due to COVID-19 before being restarted again this year.

Following the split, Woolworths will hold a 14.6 per cent interest in the new Endeavour Group alongside billionaire hotelier Bruce Mathieson due to his former 25 per cent stake in the company’s ALH hotels division.

The move is reminiscent of Wesfarmers’ demerger of Coles in 2018. However, Mr Banducci noted he intended to be a longer-term shareholder in Endeavour, unlike Wesfarmers which sold two tranches of Coles shares in 2020.

Mr Mathieson will sit on Endeavour’s board alongside current Woolworths director Holy Kramer, former Lion managing director Duncan Makeig, former Telstra CMO Joe Pollard, Woolworths executive Colin Storrie, and Nine Entertainment director Catherine West. They will be joined by Endeavour’s chairman Peter Hearl and Mr Donohue.

Endeavour intends to pay a dividend of 70 to 75 per cent of net profit after tax for the second half of the 2021 financial year and will cement that as its long-term payout ratio. It expects to frank its dividends to the maximum extent possible, with the business currently sitting on $600 million in franking credits.

“We believe that Endeavour Group’s long-term prospects are strong. We have assembled an experienced and proven team, have a leading store network, digital presence, and market position,” Mr Donohue said.

Through living our purpose of creating a more sociable future together we see many opportunities to grow the business and create value for our shareholders.”

6 May, 2021
Woolies falls behind Coles in sales growth as shopping goes back to normal
SOURCE:
The Age
The Age

The head of supermarket giant Woolworths has admitted the return to pre-COVID shopping habits may be disproportionately benefiting rival Coles as his company gave a weaker-than-expected trading update.

The company said on Thursday comparable sales at its supermarkets division fell 2.1 per cent to $11.1 billion in the March quarter with its performance being compared against the panic buying boom of March 2020. This marked a bigger drop than the 1 per cent fall analysts had been forecasting.

Chief executive Brad Banducci said trading for the first three weeks of the fourth quarter had been largely flat on last year, a stark contrast to Coles, which on Wednesday reported a 4 per cent rise in its sales for the start of April.

Analysts had been predicting that Coles had been losing market share to its major rival, but these latest results suggest the tables may have started to turn. Mr Banducci acknowledged that the normalisation of shopping habits post-COVID were likely favouring Coles with its higher number of inner-city and shopping-centre-situated stores, which had been harder hit during the lockdowns.

“We are seeing that playing out. We don’t think it penalises us, but it doesn’t unduly benefit us,” he said. “I think it’s good for the longer term, we do want to get back to more normalised, predictable shopping patterns for our customers.”

Both Mr Banducci and Coles chief Steven Cain, who presented his company’s third-quarter results earlier this week, talked about a return to normal for shoppers, with customers purchasing fewer items and less on bulk, buying more on weekends and shopping at CBD stores as people return to the office.

This is good news for Coles, which has more stores in shopping centres and city centres than Woolworths, and saw its shares rise as much as 4.7 per cent on Thursday.

Shares in Woolworths, however, tumbled by 3.8 per cent to $39.81. Milford Asset Management portfolio manager Greg Cassidy said overall Woolworths’ performance was strong, but the gap between it and Coles appeared to be narrowing.

Mr Cassidy said it was important to note that Coles’ outlook included the bumper Easter period where Woolworths’ did not, however, the fund manager said it did appear Coles’ was gaining market share, though not necessarily from Woolworths.

“The message that Coles was trying to send yesterday is that it is normalising,” he said. “But that’s not necessarily at the expense of Woolworths. Perhaps it’s more at the expense of independents.”

Woolworths’ weaker supermarket sales were offset by a revenue jump at department store Big W, which grew comparable sales by 20 per cent over the quarter to over $1 billion.

Much of this growth was due to stronger apparel sales, Mr Banducci said, along with five years of “very hard” work done by Woolworths to turn the struggling department store around. Last year, Big W reported a profit for the first time in four years.

Online sales also continued to rise, surging a massive 64 per cent to $1.3 billion across the group. Digital orders now comprise nearly 8 per cent of the company’s total supermarket sales.

In this channel, Woolworths appears to be comfortably outperforming Coles, which reported only 49 per cent growth for the quarter, comprising 5.5 per cent of total sales.

Sales at Woolworths’ Endeavour Drinks division rose 5.5 per cent to $2.4 billion for the quarter. The growth at bottle shops and Big W was enough to offset the drop in supermarkets, with Woolworths’ overall sales for the quarter up 0.4 per cent at $16.56 billion.

6 May, 2021
Allpress coffee buy gives Asahi much needed caffeine hit
The Sydney Morning Herald

Beverages behemoth Asahi has acquired Melbourne coffee company Allpress Espresso, marking the first foray for the $20 billion drinks company into Australia’s booming $1.3 billion coffee market.

Asahi has bought the company from the business’ original founder, Michael Allpress, who founded the coffee roastery in New Zealand in 1989 before expanding it into Australia in 2000. Today the business has operations in the UK, Japan and Singapore, and is served at hundreds of cafes along with being a popular office coffee brand.

The price of the acquisition was not disclosed, but the deal is Asahi’s first major purchase since its $16 billion acquisition of Carlton & United Breweries (CUB) in 2019, which saw the Japanese brewer take control of nearly 50 per cent of the country’s beer market.

Asahi Oceania chief executive Robert Iervasi told The Age and The Sydney Morning Herald the Allpress acquisition would give the company a strong foothold in Australia’s coffee market, a move Asahi had been wanting to make for some time.

“We were looking at categories that we participate in and coffee was something that we knew we had a gap in, and Allpress fills that gap,” he said.

“Asahi often gets feedback saying, you’ve got a great alcohol portfolio range, great non-alcoholic portfolio range, but do you do anything in coffee?”

Data from market analysis firm IBISWorld indicates Australia’s coffee industry is worth about $1.3 billion and has been consistently growing over the past five years, with demand for premium coffee fuelling this growth.

Allpress is a sizeable player in the market, with the company’s 2020 financial report revealing its Australian revenues totalled $23.6 million with profits of $653,000. The majority of the business’ revenue is from the 1500 tonnes of wholesale coffee beans it sells worldwide.

6 May, 2021
Nestle to buy core brands of The Bountiful Company
Inside FMCG

Nestle is expanding its health and nutrition portfolio by acquiring The Bountiful Company’s core brands. 

The deal, which is estimated to worth US$5.75 billion, will include Nature’s Bounty, Solgar, Osteo Bi-Flex and Puritan’s Pride. The Bountiful Company’s sports and active nutrition brands Pure Protein, Body Fortress and MET-Rx, as well as Dr.Organic and the Canadian over-the-counter (OTC) business are excluded.

The acquisition is set to close in the second half this year. 

“Vitamins and supplements are a key part of our business and have contributed to strong growth acceleration,” said Greg Behar, CEO at Nestle Health Science. “This acquisition complements our existing health and nutrition portfolio in terms of brands and channels.”

Nestle Health Science’s current vitamins, minerals and supplements brands include Garden of Life, Vital Proteins, Pure Encapsulations, Wobenzym, Douglas Laboratories, Persona Nutrition, Genestra, Orthica, Minami, AOV and Klean Athlete.

29 Apr, 2021
Priceline ‘waiting for green light’ to help with vaccine rollout
The Sydney Morning Herald

Priceline boss Richard Vincent says pharmacy wholesalers stand ready to play a bigger role in the distribution and rollout of COVID-19 vaccines across the country as the national cabinet is considering plans to fast-track the process.

The sector  lobbied hard last year to be involved in the cold chain logistics of the vaccine plan, including distribution and storage of vaccine doses, but government contracts ultimately went to DHL and Linfox.

Mr Vincent, whose company Australian Pharmaceutical Industries owns the Priceline Pharmacy and Clear Skin Clinics chains, says his company is still willing to lend its expertise.

“We manage cold chain ... we have a track record of delivering on that. And we can provide those services, but it’s obviously the Health Minister’s choice. We still stand ready to support him if he chooses us,” he told The Sydney Morning Herald and The Age.

Companies like API are so far only involved in the vaccine rollout through their pharmacists administering doses to the public from phase 2a onwards — the timeline for this was pushed back to the middle of the year.

Mr Vincent said stores in his network were “just waiting for the green light” to administer the vaccines.

“Our pharmacists are ready to deal with all manner of vaccinations. And because of their geographical spread and the convenience of them, once [they’re involved] the vaccine rollout will accelerate dramatically,” he said.

Pharmacies have played a significant part in the accelerated rollout of doses in the United States, with chemist operator Walgreens having administered 5 million doses at the end of March, while rival chain CVS had given 10 million doses across 2000 of its stores.

Priceline pharmacies are continuing to feel the sting of pandemic lockdowns, with the company’s CBD locations seeing softer sales as many Australians continue to work from home for at least part of the week.

API recorded a 29 per cent earnings drop for the six months to February, with net profit coming in at $15.9 million. Revenues across the businesses were down 2.6 per cent to $1.98 billion, though sales at the company’s flagship Priceline stores in Melbourne and Sydney continued to be hit hard. Melbourne’s like-for-like sales were down 65 per cent for the period, while Sydney had slumped 51 per cent.

Mr Vincent said Sydney stores were in “better shape” than Melbourne’s, but the simple fact was “women are shopping less in the CBD these days”.

Workers had returned to city offices after the lockdowns, but not to the same extent, he said. “A lot of that [return to work] is happening for part of the week, not the whole week.”

The business has been preparing itself for the longer-term “post-COVID boost”, however, including doubling down on online shopping investments and its loyalty program Priceline Sisterclub, whose members spent $300 million in its stores during the half.

Mr Vincent said the company was in the process of renegotiating lease agreements with its landlords as both retailers and commercial property owners were coming to terms with lighter foot traffic in major areas.

He said there was the possibility city stores could face closures if negotiations on rent reductions were unsuccessful.

“I don’t want to be silly about this, but I’m not frightened to close a store if the economics are not working,” he said.

API’s shares had declined 1.5 per cent to $1.34 just before midday, but rebounded to trade unchanged from Wednesday’s closing price at $1.36 at 1.52pm on Thursday.

The company declared an interim dividend of 1.5¢ per share, fully franked, payable on June 4.

29 Apr, 2021
‘Price cuts will come’: suppliers brace for new food fight
Financial Review

Food and grocery suppliers are bracing for pressure on pricing and margins amid a new battle for market share between Coles, Woolworths and Metcash, as food retailers cycle sales growth inflated by panic spending 12 months ago.

Coles and Woolworths have been approaching suppliers in recent weeks and asking them to fund temporary and permanent price reductions, adding to growing fears of a new price or marketing war between the two supermarket giants.

“Coles has been in contact with a few people and asking if there is anything left in the tank,” said the chief executive of one food manufacturer, who asked not to be named. “I think price cuts will come.”

Suppliers also believe Woolworths is reviewing its Prices Dropped and Low Prices Always campaigns (Woolworths’ equivalent of Coles’ long-running Down Down campaign) and is planning to launch major price reductions early next month.

Woolworths said it was not in a position to comment on specific promotional plans but confirmed it was in regular talks with suppliers about promotional funding.

“We know value remains important to our customers and continue to work hard to offer it in partnership with our suppliers,” a Woolworths spokesman told The Australian Financial Review.

“As part of this, we regularly talk to our suppliers about our shared promotional plans. This often includes discussions about whether promotional funding is best put towards a high-low specials cycle or an everyday low pricing approach.”

Woolworths’ move comes as Coles starts to more aggressively cut prices to win back market share lost to its largest rival and independent retailers supplied by Metcash, after consumers shifted their spending towards neighbourhood stores during the pandemic.

Inflation impact

Earlier this month, Coles said it had undertaken a major relaunch of the Down Down program, where prices of key products were reduced for months at a time, cutting prices on more than 250 products and saying more price reductions were on the way.

Coles declined to comment on its future promotional plans, citing the release of March quarter sales figures on Wednesday.

Analysts are likely to question Coles chief executive Steven Cain and Woolworths CEO Brad Banducci (Woolworths reports on Thursday) about pricing and promotions.

Suppliers fear a margin squeeze if they come under pressure to reduce wholesale prices to fund retailers’ promotional discounts or “permanent” price reductions at a time when commodity costs are on the rise.

Nestle, for example, said over the weekend it would have to raise prices and warned analysts against forecasting excessive margin growth, saying pandemic-related inflation was pushing up input costs.

“We now see broad-based inflation across our various commodities, packaging materials, and transportation costs,” Nestle chief executive Mark Schneider aid.

Code of conduct

Australian Food & Grocery Council chief executive Tanya Barden said it was not surprising that if Coles was looking at discounting more heavily Woolworths would follow suit.

“The big concern for us is we don’t want to get back into a situation where there’s enormous pressure on suppliers to fund the discounting,” Ms Barden said.

“We now have these new obligations under the Food and Grocery Code of Conduct, including good faith negotiations ... retailers need to be mindful of their obligations under the code when negotiating price.

“If suppliers feel there’s any retribution for not participating in promotional activity. they need to raise concerns with the new code arbiters and the independent reviewer.”

Price wars in previous years decimated suppliers’ margins, reducing their ability to invest in innovation, manufacturing and marketing.

While most food and grocery suppliers’ sales rose in 2020, due to panic hoarding and people consuming more food at home, costs also rose, particularly for freight, PPE, cleaning and extra labour, putting pressure on margins.

Investors are also increasingly nervous, fearing another price war could squeeze retailers’ margins and earnings.

“The COVID pandemic saw the supermarket chains enjoy expanding gross profit margins as consumers became less focused on price and more focused on availability,” said Watermark Funds Management portfolio manager Daniel Broeren.

“We now appear to be seeing price leadership re-emerging as a priority for the major chains, which historically has had a detrimental impact on profitability and share prices.”

Marketing push

Jarden analyst Ben Gilbert said in a report last week the reimplementation of the Coles Down Down promotions posed a threat to industry pricing. However, the absence of price reductions on branded products and key value items suggested the campaign was more of a marketing push than real pricing pressure.

Goldman Sachs analyst Andrew McLennan believes same-store sales at Woolworths and Coles “turned significantly negative” last month as they cycled a surge in spending in March last year, when supermarket sales jumped 24.8 per cent.

Mr McLennan believes Coles’ same-store sales fell 14.5 per cent in March, dragging same-store sales for the March quarter down 3 per cent, while Woolworths’ same-store sales are forecast to fall 13 per cent in March, dragging third-quarter sales in Australian supermarkets down 1 per cent.

“While sales are expected to be volatile, we continue to believe that industry profitability will be manageable over calendar 2021 and believe the current market concerns over a price war in the sector are overstated,” he said.

However, some analysts, such as Morningstar’s Johannes Faul, fear Coles will use price as a lever to regain market share after losing ground to Woolworths and Metcash’s IGA retailers in the second half of 2020.

 

29 Apr, 2021
Woolworths to automate online grocery orders
Financial Review

Woolworths hopes to slash the cost of online groceries and deliver more orders faster by building automated fulfilment centres to supplement orders picked from its supermarkets and “dark” stores.

The first automated centralised fulfilment centre (CFC) will be built at a cost of more than $100 million in the densely populated suburb of Auburn, in Sydney’s western suburbs, and the retailer has not ruled out opening more as demand for online groceries soars.

The centre will use “lift and shuttle” technology supplied by Austrian-based automation and logistics specialist Knapp and will enable Woolworths to process 50,000 online grocery orders a week. This is double what it can process from one of its five manual fulfilment centres or “dark” stores.

The Knapp technology, which uses high-speed shuttles to move boxes or totes to about a dozen human “personal shoppers” and at least one robotic picker, will make picking from the automated CFC cheaper than from a manual CFC.

It is also faster, enabling Woolworths to deliver more orders in two hours, and more flexible, enabling customers to change orders up to two hours before scheduled delivery.

“The volume of orders, combined with the automation technology for picking, enables substantial economic benefits when it comes to serving online customers,” Amanda Bardwell, the managing director of Woolworths’ digital business, WooliesX, told The Australian Financial Review.

“The facility enables us to pick efficiently and enables us to provide customers with very fast and very flexible service as well.”

Woolworths to date has preferred to pick from supermarkets and from manual CFCs and micro-fulfilment centres, which are faster and cheaper to build and can be located closer to customers.

At Woolworths’ December-half results in February, chief executive Brad Banducci did not rule out opening automated CFCs similar to those Coles will operate in partnership with UK e-commerce giant Ocado, but said 80 per cent of online orders would be fulfilled from stores.

The change in approach reflects the faster than expected shift towards online grocery shopping, which accelerated during the pandemic, when customers were reluctant to shop in stores.

Woolworths’ online food and grocery sales soared 92 per cent to $1.8 billion in the December half, compared with 48 per cent growth at Coles, reaching almost 8 per cent of total Australian food and grocery sales, up from 3 per cent a year ago.

Mr Banducci believes as more shoppers buy online the speed of online orders will become more important than cost or range, and same-day delivery will become de rigueur.

Ms Bardwell said Woolworths’ stores would continue to fulfil online orders that were picked up from stores or taken to customers’ cars, even when the Auburn facility went live.

“The demand we’re seeing in that western Sydney catchment, which serves 2 million residents, is very high,” Ms Bardwell said.

“By making the most of our unrivalled national store network, we can stay close to our customers for faster same-day and on-demand delivery options, as well as convenient Pick Up solutions.”

The first 22,000 square metre CFC will be built on land the retailer owns in an industrial precinct in Auburn. The building will be either owned or sold and leased back by Woolworths, which will invest about $100 million in automation, infrastructure and fitout.

Woolworths’ investment appears to be bigger than that of Coles, which is spending about $150 million, or $75 million each, building two automated CFCs, one in Sydney and another in Melbourne.

However, Woolworths’ partnership with Knapp is different to Coles’ partnership with Ocado – Woolworths will pay upfront then own the facility, whereas Ocado has a platform-as-a-service model and will have an ongoing relationship with Coles.

Woolworths’ Auburn CFC, which will support up to 250 full-time equivalent roles, is due to open in 2024, a year after Coles’ CFCs, which are under construction.

Staff to share knowledge

Ms Bardwell said Woolworths chose Knapp’s shuttle technology because it matched that used in its automated micro-fulfilment centres, enabling staff to share knowledge, and Knapp worked with overseas retailers such as Rewe in Germany, Lotte Mart in Korea and Albertsons in the United States.

“At the moment we don’t have any plans to put another automated site on the ground but we’ll continue to evaluate that as customer demand changes,” Ms Bardwell said.

Woolworths would also evaluate whether to open more micro-fulfilment centres or e-stores with Takeoff Technologies after opening its fourth, at Maroochydore, later this year.

“There has been an extraordinary shift in customer demand for e-commerce services – that requires us to continue to very regularly evaluate the needs of every catchment around Australia and make sure we’re well set up to serve that increasing demand,” she said.

Knapp’s vice-president of food retail solutions, Rudolf Hansl, hinted at a long-term relationship with Australia’s largest retailer.

“Our proven technologies enable fast and efficient customer order fulfilment.” Mr Hansl said. “We’re very pleased to partner with Woolworths and look forward to working together for years to come.”

 

 

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