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Shares in Australian Pharmaceutical Industries slumped 12 per cent on Friday after suitor Woolworths ditched an eleventh-hour takeover approach in an attempt to usurp rival bidder Wesfarmers.

The move now clears the way for Wesfarmers to control Australian Pharmaceutical Industries, the owner of the Priceline chemist chain, albeit at a lower price than Woolworths suggested in its surprise December bid.

Woolworths said it was unable to stack up the prospective returns it would hope to achieve if it took 100 per cent ownership of the $850 million API at $1.75 a share.

Wesfarmers, which previously operated Coles supermarkets in competition with Woolworths, owns 19.3 per cent of API after making a $1.55-a-share bid for the company last September.

That was itself a sweetened offer on Wesfarmers’ initial $1.38 unsolicited offer for the owner of the Priceline Pharmacy chain made on July 12.

Although Woolworths threw in a $1.75-per-share bid last month, it was a price at which Wesfarmers refused to sell out.

This would have left Woolworths holding 80 per cent of the company partly owned by its historical rival, Wesfarmers, which now operates Bunnings, Kmart and Officeworks chains after spinning off Coles in a separate ASX listing in 2018.

Woolworths late last year entered into a due diligence process following its bid, but was unable to “validate the financial returns it requires in line with the group’s capital allocation framework”.

“We are grateful to the board and leadership team of API for their constructive engagement and support throughout the due diligence process,” Woolworths CEO Brad Banducci said in a statement.

Sources familiar with the due diligence process said nothing unpalatable was discovered in the data room, but Woolworths could not pass muster with its strategy, and plans for return on investment.

Wesfarmers and Woolworths are old sparring partners, having for 15 years battled for dominance of Australia’s supermarkets industry.

The decision by Woolworths to abandon the takeover joust leaves the door open for Wesfarmers to take control of API.

API said its scheme implementation deed with Wesfarmers “remains in place and is on track for completion in the first quarter of calendar year 2022”.

The cash price of $1.55 per API share represents a 35.4 per cent premium to API’s closing share price on July 9 of $1.14, and a 36.8 per cent premium to the one-month volume-weighted average price to July 9 of $1.13 per share.

Another non-binding proposal was lobbed by Sigma on September 27 to merge with API. However, this was dropped in November. Sigma’s bid for API was met with heavy criticism from its biggest shareholder, Allan Gray, over what the fund manager believed to be poor allocation of capital.

API, which operates Priceline Pharmacy, Soul Pattinson Chemists, Pharmacists Advice and Clear Skincare, closed 12.4 per cent lower on Friday at $1.52.

After Woolworths lobbed its bid, Wesfarmers courted Priceline community pharmacies, telling them they would not have the conflict of working with a large supermarket chain if they stuck with the Perth-based conglomerate.

Wesfarmers CEO Rob Scott had warned of the significant overlap in health and beauty products sold by Woolworths supermarkets, and pharmacies.

Mr Scott also said Wesfarmers was very confident it would have no problems in gaining approval from the Australian Competition and Consumer Commission for a buyout of API because it did not own a large supermarket chain of 1000-plus outlets like Woolworths.

Under its proposal, Wesfarmers aims to use its e-commerce, data and digital capabilities to enhance the API online offer and drive customer engagement, including foot traffic and in-store sales for community pharmacists

Long-term API shareholder Washington H. Soul Pattinson sold its 19.3 per cent strategic stake to Wesfarmers in October, underpinning Wesfarmers’ initial bid.

The powerful Pharmacy Guild of Australia, which has 5500 members operating community pharmacies under various banners in their own suburbs, also presented a headache for Woolworths.

The Pharmacy Guild has been critical of Woolworths, with disputes stretching back almost 20 years. It was sceptical about Woolworths’ pledge that it has no plans to try to eventually install in-house pharmacists in supermarkets.

 

JBS Australia has completed the acquisition of Rivalea Holdings and Oxdale Dairy Enterprise from Singapore food company QAF, just weeks after receiving ACCC clearance of the deal and Foreign Investment Review Board approval. 

The deal was set at an enterprise value of $175 million.

JBS Australia CEO Brent Eastwood described Rivalea as a leader in the Australian pork sector with a strong team and track record of sustainable pork production. 

“Rivalea is a crucial part of Australia’s pork supply chain and we believe we can work together to create an improved and more efficient pork processing business for Rivalea customers, by using JBS’s experience as a major meat and food processor,” he said.

“JBS Australia is committed to building on these strong foundations and growing the business through new opportunities for Australian grown pork. We look forward to working closely with Rivalea’s management and workforce, existing customers, suppliers and contractors, to achieve this.”

Rivalea Holdings is the majority shareholder in Diamond Valley Pork, which Eastwood said will continue to provide kill services for customers and work at growing its customer base. He said Rivalea has provided written assurances of this directly to all DVP customers, along with local pork groups, the Victorian Farmers Federation and the ACCC.

“JBS has a long and proud history of supporting and growing its Australian and New Zealand businesses over the long-term, investing heavily in its local operations and domestic brands, while at the same time providing employment opportunities and supporting the regional economies in which we operate. 

“We will employ this same locally-minded approach at Rivalea,” Eastwood said.

South Australian dairy company, Beston Global Food, has appointed former COO of Bubs Australia, Fabrizio Jorge, as its new CEO.

Jorge will start his new role on April 1, taking over the interim CEO, Darren Flew.

“Fabrizio’s extensive global experience in senior management roles across the dairy and food and beverage industries makes him an ideal person to lead Beston into its next stage of growth and development,” said Roger Sexton, chairman of Beston Foods.

Brazilian-born and of Italian descent and fluent in five languages, Jorge has 25 years of experience in the F&B industry, particularly in dairy products, across Latin America, Europe, Africa, the Middle East, Asia, and Australia-New Zealand.

He served as a board member of the Australian Dairy Industry Council and the Australian Dairy Products Federation for two years, before supporting Dairy Australia’s International Trade programmes. Jorge held several positions at Nestle and Fonterra during the early stage of his career.

Since last May, Fabrizio has been the COO of Bubs Australia, overseeing growth into new markets in Asia and the US.

“Beston has built a solid core business in a growing and dynamic sector,” Jorge said. “With a leading product portfolio and a continuing focus on product innovation in protein products and protein derivatives, the group is well-positioned for its next stage of growth and profitability.”

Snap Franchising CEO Richard Thame is leaving the heritage print business in February 2022 and will take up the CEO position at CouriersPlease.

Thame’s return to the logistics field comes after the exit of long term CouriersPlease CEO Mark McGinley, which was announced on 1 December, and the appointment of former CFO John Venetsanos as acting CEO.

A statement from CouriersPlease pointed to Thame’s “decades of combined executive leadership, franchise excellence and logistics industry experience’.

Thame spent almost 11 years as managing director of Fastway Couriers, which then became Aramex, prior to joining Snap.

“Richard is well positioned to build on the growth and success that CP has achieved. He is passionate about working with teams and leveraging technology platforms to create a better experience for customers and employees and working with franchisees to grow their businesses,” CouriersPlease said.

When the new CEO takes up the role in mid February John Venetsanos will return to an expanded CFO role.

Thame said “It has been a privilege to lead the Snap brand through such a challenging time, working with an amazing group of franchise partners. I have also had the benefit of a very supportive board, as we worked together to navigate the Covid-19 crisis, with one goal, to ensure we left no one behind.”

Anne Cashman, chair of Snap Franchising, said “Richard has done an extraordinary job for Snap over the past two years, leading our outstanding management team and franchisees through the Covid-19 crisis, whilst overseeing a revolution of how we do business with the launch of Snap-Online.

“At Snap we have always been a market leader as a franchise operation and with the opening of new markets through the evolution of our online offering we have never been in a stronger position in our over 120 years as a business than we are today to take advantage of the positive economic conditions that are expected in 2022,” she said.

Snap is planning to complete its CEO recruitment process early in the New Year.

 

L’Oreal has added American vegan skincare brand, Youth to the People, to its portfolio of skincare brands. 

Founded in 2015 by two cousins, Greg Gonzalez and Joe Cloyes, the brand is known for formulas that combine premium vegan blends of superfood extracts with science. 

“Its skincare expertise based on healthy, vegan, high-efficacy formulas make it a very strategic addition to L’Oreal Luxe,” said Cyril Chapuy, president of L’Oreal Luxe. 

“The brand’s core values and distinctive spirit reflected in its initiatives to amplify diverse voices, build a fairer world and enhance consciousness of the planet will be further celebrated at L’Oreal not only because they are precious to us, but because they are very true to our own values.”

The brand’s investors include Sandbridge Capital, Strand Equity and Carisa Janes. Its products are available across the US, Canada, Australia and selected European countries. The brand is expected to record more than US$50 million of sales this year.

“We founded Youth to the People to continue our family’s legacy of making skincare and to inspire and represent our community,” said Cloyes and Gonzalez. 

“Joining the L’Oréal family gives us the opportunity to realise all the dreams of Youth to the People.”

• Australian law has been tested by the transformation of the on-demand alcohol delivery industry since the start of the pandemic. 
• Online beer, wine and liquor sales in Australia grew 27.2% over the past 12 months.
• The explosive growth of the sector represents a wholesale transformation of Australian drinking culture and the laws that govern it, experts and industry say.

In 2011, Sydney’s fringe nightlife revellers were up in arms. A series of articles in The Sydney Morning Herald and other outlets had outed The Beer Baron — Sydney’s only legal 24-hour liquor service — to the general public.

At the time, the company operated through a loophole in the state’s liquor laws whereby the sale of alcohol without a license was accepted as long as it was treated as a gift; accompanied by food or flowers.

Under NSW liquor law at the time, takeaway alcohol – including home deliveries – could not be sold 24 hours a day. The service was shut down by the end of 2011. 

While restrictions on around-the-clock alcohol delivery remain in place, the Australian law has been tested by the transformation of the industry since the start of the pandemic. 

Once the domain of wine connoisseurs importing rare vintages from international markets and wineries shipping cases for long-term customers, Australians have strongly embraced buying alcohol online. 

Online beer, wine and liquor sales in Australia reached a market size of $1.8 billion in 2021, with 27.2% growth over 12 months according to industry analysis from Ibisworld. 

Data from Roy Morgan shows that, during the first year of the pandemic, nearly six million Australians bought packaged alcohol in an average week, either in-store, online, over the phone or some other way.

Of these consumers, over 11% bought alcohol online, more than tripling the figure of 3.5% for 2019.

Online alcohol sales now represent 4.6% of total sales, with that growth rate expected to increase to 16.5% this year.

The explosive growth of the sector represents a wholesale transformation of Australian drinking culture and the laws that govern it. 

Companies across the industry, from the retail giants to smaller independent players which scrambled to reconfigure their business models to weather lockdowns, have emerged on the other side with a deeper reliance on online sales.

Experts and industry players say trends suggest consumers are unlikely to return to pre-pandemic purchasing habits. As a result, the state legislation that governs the delivery of alcohol for a niche market has been forced into a rethink to cover a newly robust sector. 

A now mature industry 

Australia’s major retailers have now captured the largest market share of online liquor sales, with Woolworths (the owner of Dan Murphy’s and BWS until its June demerger from Endeavour Group) and Coles leading Australian sales, followed by established online-only and subscription companies Get Wines Direct, Naked Wines, and Vinomofo. 

Vinomofo, founded in 2011, was one of the earliest to set up a subscription wine service in Australia. 

It had been steadily growing year-on-year but saw an explosion in growth when the pandemic hit, Vinomofo chief executive Paul Edginton told Business Insider Australia.

It recorded new customer growth of more than 100% year-on-year from March 2020 through to the end of September, with revenue for the same period averaging more than 50% growth year-on-year. 

“It’s been really good for business, not only because, obviously, sales have picked up enormously,” Edginton said. “But the level of engagement with our customers…has increased as well.”

Edginton said the transformation for the business went beyond the improvement in sales and its customer base. It also saw an overwhelming surge in returning customers that had tried the service over the past decade.

“While the new customers, people who’ve never used us, grew 25%, we got this huge growth from people who had used us once before – before pandemic times – and then reactivated their account.”

Two trends had defined the past two years of sales, Edington said: marked growth in the percentage of over-60s, and a higher spend overall per purchase. 

“Globally, there’s been a shift to what’s called wine premiumisation,” he said. “That is people discovering wine and buying better wine.”

‘People started getting comfortable with ordering alcohol online’

Joel Amos, owner of indie wine company DRNKS, said it saw a sevenfold increase in sales in the first weeks of the 2020 lockdown. 

“For us, it was insane,” Amos told Business Insider Australia.

He said that, while it’s true that alcohol sales increased during lockdowns in states across Australia, the underreported transformation was around behaviour. 

“What actually happened in my mind is basically people started getting comfortable with ordering alcohol online.

“Prior to that, Australia was one of those countries where most of the sales were done physically in spaces, so it kind of flipped the switch literally overnight.

“It was like, ‘Okay, we don’t go to shops anymore. This is how we buy wine now.’”

DRNKS had previously built its reputation on its curation and in-person interactions with customers at its stores in Sydney, the pandemic forced it to rapidly scale-up its online logistics. 

He said the company is around five times bigger now than it was pre-pandemic thanks to this shift, with a customer base that is 60% women, with the bulk between the ages of 35 to 44. 

Amos echoed Edginton’s insights around purchasing patterns. While media coverage had zeroed in on the increase in alcohol consumption, particularly during lockdowns, he said the biggest behavioural change was more frequent, smaller orders of products in a higher price range.

Elliot Scali, owner of Not Wasted, an indie online-first biodynamic wine store that he set up from his home in early 2020, told Business Insider Australia that his business succeeded thanks to the pandemic.

“Every time we [went] into a lockdown [we saw] like a 300% increase in sales,” Scali said. It’s a factor he believes was “quite common across the alcohol online sector.”

 

He said he thinks the rapid growth of his business was a direct result of consumers breaking out of established patterns of purchasing behaviour during the shift to online shopping. 

“It’s kind of just expedited…our growth because we only started about 28 months ago.”

It wasn’t just alcohol brands that saw a spike in sales. 

Trish Reynolds, co-founder of non- and low- alcohol beverage delivery company unwstd, told Business Insider Australia it saw a raft of new customers during both the first and second lockdown periods. 

She said she believes there are two reasons for the success. Firstly, the business was buoyed by the rising tide of e-commerce in general. Secondly, the company’s products cater to an emerging generation looking to spend the same money on premium, non-alcoholic drinks as they would on alcohol.

Reynolds said her company saw a 110% spike in sales when the pandemic hit. 

“It’s been insane the growth that we’ve seen, and how quickly it has come and … how the pandemic has really accelerated that,” she said. 

“It’s been really interesting from a non-alcoholic perspective, because not only has there been a growth across the whole e-commerce industry, but the non-alcoholic drinks are also in this huge moment right now,” she said.

In 2020, Australia hit a 50-year low in terms of alcohol consumption. “And then we’ve seen, since 2015, the non-alcoholic and low-alcoholic space has grown 506%.”

Tech expansion has grown the sector 

Across the board, the companies were unanimous that the challenges of the pandemic forced them to scale up their technological capabilities — with this digital transformation resulting in a permanent shift of their business model toward online-first sales. 

“That’s been the big area where, from a tech point of view and a practice point of view, focusing on personalisation, and data evaluation has been where we focus a lot of our attention,” Edginton said.

Amos said DRNKS was forced to scale up its tech when it went from 40 or 50 inquiries a day to thousands. 

“In that three month period, I essentially stopped running a natural wine shop and started running the logistics business,” he said.

He said it was a revelatory moment when the company discovered the untapped potential of its online offering. Amos said it led to an increase in business the company never might have seen otherwise. 

“We had to automate elements of what we were doing, which meant that post that first lockdown we were able to lean up the business quite a bit because we had all these systems in place,” Amos said. 

“There was an opportunity there and we took it.” 

Legislation no longer fit for purpose 

 

Fresh scrutiny of the alcohol delivery sector has followed the boom, with renewed focus on gaps in regulation that fail to account for the responsibility of companies serving alcohol to the public.

In May of 2020, VicHealth called out the dangerous practices of on-demand alcohol delivery giants — specifically pointing the finger at UberEats and BWS Online — after new research revealed companies in the sector fail to meet the basic safety standards of alcohol service.

In mid-October the NSW alcohol regulator revealed it was investigating Jimmy Brings, one of the country’s most established alcohol delivery services, over the death of a 49-year-old Bondi man.

The case, which raised questions over whether the company broke the state’s responsible service laws delivering wine and spirits to the man’s home – including two identical orders placed within 10 minutes of each other – cast a spotlight on the ways the sector has been able to elude rules placed on other organisations that sell alcohol.

Until recently, NSW was the outlier in more heavily regulating the emerging sector. Now, most states have raced to catch up with fresh legislation introduced in Victoria, WA, and South Australia requiring an ID check by the recipient of the delivery. 

In July, NSW implemented new laws requiring drivers who work for delivery companies to have a responsible service of alcohol certificate (RSA).

On November 25, an expanded legal framework came into force in the state, with some of the strictest rules in the country around the sale of alcohol to intoxicated customers and new restrictions on same-day deliveries. 

Caterina Giorgi, chief executive of the Foundation for Alcohol Research and Education (FARE), said she wants to see more done, including online age verification, ensuring ID is checked at the door, and ensuring that alcohol isn’t handed over to intoxicated people. Giorgi has also recommended a ban on alcohol deliveries between 10pm and 10am. 

Dr Peter Miller, Professor of Violence Prevention and Addiction Studies at Deakin University, said while the foundation’s recommendations were comprehensive, they were still far from practical. 

“The reality is [that] most of our liquor licence laws as they stand aren’t enforceable,” Miller told Business Insider Australia. 

In terms of legislation that would have a real impact, Miller said mandating a two-hour delay for delivery of alcohol would be the most achievable and have the greatest impact. 

Miller said the more comprehensive laws introduced in NSW were the right next step, and should be adopted by other states.

“I think if a government puts it into law, it makes it more serious. And it sends a very clear message the government is serious about reducing the harm,” he said.

An ongoing issue not yet addressed by governments remains the burden placed on delivery workers.

Miller said that situations emerge where there is “some very poorly paid delivery worker delivering to a house where people are intoxicated, and creating situations which are really diabolical, [putting the] very lowest paid workers into those sort of situations with no real background,” he said. 

‘It’s become a lot more competitive’

Scali said that coming out the other side of two years of rolling lockdowns, it had “become a lot more competitive online.”

“There are a lot of new players in this space, because of all these different lockdowns,” he said, adding that the growth in business for many meant the scaled-up online models would endure.

But he also thinks the shift online for the alcohol industry will be a rising tide that buoys the sector as a whole.

“I think the whole industry has grown so much as a whole that everyone’s got…your market share or share of the pie or however you want to put it — even if there are more players,” he said. 

“It’s been a really fortunate time for us who happened to be in the right space at the right time.” 

Woolworths Group has put forward its own non-binding bid to acquire Australian Pharmaceutical Industries at a cash price of $1.75 per security – a 20c per share premium on Wesfarmers’ $1.55 per security offer.

According to Woolworths, API’s board has determined their proposal is likely to be superior to Wesfarmers’, and it is working to “quickly” finalise its due diligence enquiries.

“There is a compelling strategic rationale to support Woolworths Group’s acquisition of API,” said Woolworths Group CEO Brad Banducci.

“Health and wellbeing is a large, fast-growing category and API would be a fantastic addition to our food and everyday needs ecosystem.

“We are strongly committed to supporting the community pharmacy model including pharmacy ownership and location rules to ensure pharmacies are well represented in all communities, especially in regional and remote parts of Australia.”

Woolworth’s play is the latest in a string of acquisition offers for API, from a proposed merger with Sigma in 2018, to an offer of acquisition from Wesfarmers in 2021, which was rivalled by Sigma, and now Woolworths.

According to Wesfarmers, its aim for the buy-up is to enable the conglomerate to enter the “growing health, wellbeing and beauty sector”, according to manging director Rob Scott.

“The combination of Wesfarmers and API is a compelling opportunity to capitalise on API’s strengths and positioning in these markets while drawing upon Wesfarmers’ capabilities in retail and distribution, our strong balance sheet and our willingness to invest in our business for growth over the long term,” said Scott.

Tristan Harris, the co-head of family-owned grocer Harris Farm, says he is looking forward to the day when customers can shop for a chocolate bar and get a carbon credit in return for their purchase.

Mr Harris said offsetting or avoiding carbon pollution in the production of food was the best way forward, but the retailer was working hard in every part of the business across its 10,000 products and thousands of suppliers to create a more ecological supply chain.

“So what we’re spending our time on at the moment is measure directly or get good enough proxies to measure carbon, and then allow the customers to opt in to offset,” Mr Harris told the UBS Australasia Conference.

“Obviously, it’s much better to avoid creating a carbon problem in the first place. I’m really looking for the time when we have carbon negative products so when somebody buys their bar of chocolate, they can get a carbon credit.”

Mr Harris said while it sounded relatively simple to bring all this information around production to the consumer, it was not.

“It’s going to take some innovative companies a bit of work to try to muster all that vast range of information and present it in a beautiful way to both retailers and customers,” he said.

Harris Farm is seeking to gain B Corporation status, spending time educating the consumer and seeking to move to 100 per cent renewable electricity by early next year.

Mr Harris noted Harris Farm also repurposed food: old bread was turned into bread crumbs and fresh kale was made into kale chips.

Consumers consider production

Anthony Pratt, the chief operating officer, northern operations, at JBS Australia, said the group was investing in high-end automation in its factories, which was improving the welfare of its people and creating higher global energy savings.

JBS Foods Australia is part of the Brazilian giant that is Australia’s largest meat and food processing company. The global company’s CEO recently made the commitment to go to net zero by 2040.

Mr Pratt added that if any business wanted to be a major player in any industry, as an operator, you felt the “gravity” of sustainability.

He said consumers made decisions to purchase your products or a competitor’s, taking production into account.

“If you’re not active in this space then it’s hard to get the consumers interested in your product,” he told the conference.

When asked about the rise in popularity of plant-based protein and if it would play a role in achieving its carbon reduction goals, Mr Pratt said there was no “silver bullet”.

“Will people eat more plant-based than animal protein? On the evidence we’ve got today, no. Plant-based protein has been around for a couple of years now, and it’s certainly a marketplace on its own that has contributed to people’s diets, but we’ve not seen any reprieve for our core products,” he said.

Brendan Savage, owner of Tolga Farm in Western Australia, said finding a cheap and efficient way to measure soil carbon would be welcome.

“Any work we’re doing with soil organic carbon testing, we’re in the infancy as far as that goes. We try and renew projects that were up and running in 2008 to 2012 ... but everything takes time as far as the bureaucracy goes,” he said.

Mr Savage hoped this project would enable him to go back to the sites and find out which practices had resulted in a beneficial change.

 

Lyre’s Spirit, which is producing strong growth from its range of no alcohol spirits, has raised $37 million in a capital raising which values the business at $500 million.

Queensland-based co-founder and executive director Carl Hartmann said on Wednesday that while some customers did not drink alcohol at all, there were many who were tired of waking up with hangovers and drank Lyre’s products in social settings or out at hotels and bars.

They were increasingly conscious of health and wellbeing and this trend had accelerated during the COVID-19 pandemic.

“In a lot of cases, people are using our products to moderate,” Mr Hartmann said.

Lyre’s, which takes its name from the lyrebird because the company set out to mimic a full range of spirits with similar tastes but no alcohol, was established in April 2019.

The chief executive of Treasury Wine Estates has promised the high quality of the wines produced by luxury chardonnay maker Frank Family Vineyards in the Napa Valley in California will be maintained as it looks to step up volumes after a $US315 million ($434 million) acquisition.

Tim Ford said the quality would not be diminished as it sourced extra grapes from its own vineyards in California and contracted growers to expand the volumes of the No.2 player in the luxury chardonnay market in the United States.

“We simply won’t do it,” Mr Ford said. “We are not going to compromise the quality of these wines. We’d be silly to adjust the formulations.”

Frank Family Vineyards was established in 1992 by Rich Frank and sells wines in price brackets from $US38 to $US225 per bottle across grape varieties including chardonnay, cabernet sauvignon, pinot noir and sparkling wine. The flagship wine is a luxury chardonnay which is No.2 behind market leader Rombauer Vineyards.

Mr Ford said the acquisition would sit well with the company’s existing brands in the US and was a high-margin business delivering 37.9 per cent earnings margins, compared with the current Treasury Americas operations which generate overall margins of 17.2 per cent.