News

Woolworths was selling a $636 million stake in pubs and bottleshops business Endeavour Group on Tuesday night, in a capital recycling trade via investment bank UBS.

Woolworths is expected to use proceeds for investments and general corporate purposes, according to terms sent to potential buyers, instantly sending thoughts to Woolworths’ imminent move on pet goods retailer PETstock, as revealed by Street Talk on Monday.

Having got out of pubs and pokies (at least as far as business lines go) and petrol in recent years, pets are emerging as a growth engine for Brad Banducci’s team.

The country’s biggest and most valuable grocer has been pushing further down the pets route, trying to capitalise on increased pet ownership and owners’ propensity to spend more on their animals.

It is understood to have cut a deal to buy a more than a 50 per cent stake in PETstock for about $600 million. The deal would value the pets business at about 11-times EBITDA.

Rapid grocery start-up Milkrun held talks with global transportation giant Uber about a strategic partnership in one of several moves it considered during a tumultuous year for loss-making delivery companies.

The closely watched Sydney-based start-up also had preliminary discussions with supermarket chain Coles and gig economy food delivery firm Deliveroo about potential ways to co-operate. Those talks did not result in any agreements, and Deliveroo pulled out of Australia last month.

Milkrun’s predicament has been a hot topic in Australia’s close-knit start-up scene, with widespread rumours swirling about a possible deal with Uber, the dominant player in food delivery. Multiple sources said the two companies held talks earlier this year, but cautioned that there is no guarantee that they will result in any formal agreements.

It is common for fledging firms to discuss partnerships or seek investment from larger rivals, and for larger firms to meet with smaller companies to better understand the market.

Company documents obtained by this masthead earlier this year showed Milkrun was bleeding cash, which it planned to stem by ditching ultrafast deliveries and reducing riders’ average hourly pay.

The food delivery sector has been hit by turmoil this year with investors increasingly unwilling to fund loss-making businesses as the economy sours. In recent months two of Milkrun’s rivals, Voly and Send, both ran out of money and ceased operating.

This masthead can also reveal that DoorDash, the US-based gig economy giant that launched a Milkrun competitor in Australia called DashMart last month, laid off some of the employees who worked on the initiative as part of a round of global job cuts.

“The positions do not affect any single team,” a DoorDash spokeswoman said. “While some of the affected employees are based in Australia, this does not affect our presence or commitment to DashMart in Australia overall.”

Several industry sources said Milkrun had briefly held talks with Deliveroo and Coles about ways to potentially collaborate, including by getting Milkrun’s products on Deliveroo’s app. But its discussions with Uber were more substantial, the sources said.

In a wide-ranging interview in October, Uber’s global chief executive Dara Khosrowshahi was sceptical about the prospects of firms like Milkrun, which had sprung up on several continents only to flounder.

“I think that the business model can work but it will be very expensive in order to build up a customer base,” Khosrowshahi said. “And right now, markets are penalising expensive business models. So I think that those companies are going to be challenged right now.”

Uber already has a presence in the grocery delivery market via a partnership with Woolworths called Metro60.

But the company has used the Australian market as a breeding ground for global product initiatives. Earlier this year it acquired Australian start-up Car Next Door, which is now forming the backbone of an international expansion into vehicle sharing.

Milkrun is the best-funded local delivery start-up, and raised $75 million from a host of prominent backers in January. It used the money to build a network of mini-warehouses in Sydney and Melbourne, enter new product areas such as alcohol, and create a confident, irreverent brand in a distinct shade of blue.

Filings with the Australian Securities and Investments Commission indicate Milkrun has not raised any fresh equity since then.

Milkrun chief executive Dany Milham did not respond to requests for comment. In June Milham said the company was in a “comfortable” financial position, growing rapidly, and predicted some of its stores would soon be profitable.

Milkrun’s total headcount, according to figures from the professional social network LinkedIn, which relies on users to update their employment status and is therefore useful as a guide only, is down 6 per cent in the last six months. But Milkrun is still advertising for a handful of open roles.

Uber and Coles declined to comment. Deliveroo no longer has Australian spokespeople.

From champagne to whiskey and alcohol-free spritzes, Australians are buying up beverages in bulk ahead of the festive season at a rate bottle shop owner Dan Murphy’s hasn’t seen for years.

Dan Murphy’s managing director Agi Pfeiffer-Smith says trading across the Black Friday and Cyber Monday weekend shows consumers aren’t looking to cut their drinks budgets in the lead-up to Christmas - if anything, they’re searching for deals at the premium end of the market.

“We’re not really seeing any indications of customers trading down at the moment. They are definitely taking advantage of offers, we keep seeing that come through. But it’s the time of year when we normally actually see people trade up, more than anything else,” she said.

Trading in the last week of November suggests shoppers are increasingly buying up booze in bulk to last them the next four or six weeks - and more so than last year, Pfeiffer-Smith said. Customers are also getting a jump on their Christmas gifting, brushing off concerns about the economic outlook for 2023. 

“This will be the first Christmas in a couple of years where people really get to gather with family and friends that they might not have had the chance to connect with,” Pfeiffer-Smith said. “There is a bit of confidence to plan, which might not have been there in prior years.”

Champagne will be the star of the show, but premium Japanese and Australian whiskeys are also in high demand. Meanwhile, the drinks retailer saw its biggest-ever sales week for non-alcoholic products during this year’s Black Friday sales period.

Yet while shoppers are clearly still willing to spend on booze, the price tag matters. Dan Murphy’s will step up its aggressive price beat policy in December as it works to coax shoppers away from competitors.

Like hardware giant Bunnings, the company promises shoppers it will beat the price of competitors on the spot if they find an identical item stocked elsewhere at a lower price. Dan Murphy’s has also grown a team of staff dedicated to check competitors’ prices and beat these across the store for members of its loyalty program.

The inflationary environment has led the company to lift its investment in technology, so it can track and lower prices across its stores in real time. This includes the roll-out of electronic shelf labels that let its workers update prices the minute their systems identify the need to beat a rival.

Australia’s topline inflation slowed to 6.9 per cent in October, but alcoholic beverage prices are up 3.6 per cent for the year and the recent surge in fresh food prices has left households with less room in their budgets for booze.

Pfeiffer-Smith says price drops are most common throughout the festive season, and she expects these to surge in the lead-up to Christmas, when 2,200 seasonal staff will join stores across the country to help meet customer demand.

While making predictions about overall Christmas spending is tough this year, Pfeiffer-Smith says the promise of having the lowest prices puts the company in a strong position.

“Early indications for us is that it will be a good festive season. People seem to be in the mood, and they want to celebrate.”

Delivery service Jimmy Brings has launched a range of convenience products to augment its liquor line-up.

The range includes condoms, chips and dips, painkillers, drinks and more, and spans 231 inner-city suburbs across Sydney, Melbourne and Brisbane. 

Aiming to provide customers with convenient services, Jimmy Brings said Australians can place their orders and follow Jimmy’s activities via the app.

Luke Calavassy, head of Jimmy Brings, said Jimmy’s entry into the convenience market is a “natural step” toward elevating its “ultra-convenience services”.

“From impromptu family pop-ins to parties with your friends, our new non-liquor range makes it easier for our customers to get more of what they want from us,” said Calavassy. 

Customers can order all the essentials by visiting Jimmy Brings’s website or downloading the Jimmy Brings app. 

Multibrand food chain franchisor Retail Food Group says sales across its domestic network have grown 16.5 per cent in the first 21 weeks of this year.

The company owns and operates Gloria Jean’s, Crust Gourmet Pizza, Donut King, Brumby’s Bakery, Cafe2U Michel’s Patisserie, Pizza Capers and The Coffee Guy.

In August, the business reported that its tax-paid profits increased threefold to $5.3 million in its full-year results.

Continuing into the new financial year, same-store sales are up by 20 per cent with Donut King performing particularly well, up by 47.6 per cent.

Customer visits to stores have grown by 20.6 per cent during the quarter to date, although staffing shortages are an ongoing issue for many outlets.

To alleviate operational pressures, the company says it has launched a baker recruitment program in partnership with the state-based TAFEs to create career opportunities.

For the first half of this year, 32 new outlets were opened while an additional 50 stores are planned across 16 countries in the remainder of FY23 (which includes four new US-based Gloria Jean’s drive-thru outlets).

In its international division, the company has reported that restructuring activity and improved trading conditions boosted underlying EBITDA by 35.5 per cent last financial year.

Metcash chief executive Doug Jones says the second half of fiscal 2023 has started well, with group sales up 6.2 per cent.

Mr Jones said shoppers were still supporting neighbourhood stores, which helped the wholesaler distributor hold its ground against larger supermarket rivals.

He also said lost sales in the hardware business after months of heavy rain along the east coast – for items including paint, garden tools such as lawn mowers and outdoor barbecues – would only be made up if better weather prevailed in summer.

What was once dubbed a temporary gain amid COVID-19 lockdowns as shoppers stayed away from malls, Mr Jones told The Australian Financial Review that independent supermarket IGA and Foodland network’s refurbished stores and investment in price was paying dividends – and winning share.

“It’s simple math if you’re growing faster than the others, you must be taking share. Now we are very small in comparison to them (Coles and Woolworths), so it’s going to be small numbers in terms of the share,” said Mr Jones, who took the helm in February.

“But what we’ve disclosed is that our volumes and our sales numbers are holding up well. And our retailers are telling us that the local shoppers are enjoying what they’re experiencing, and we think it’s now beyond just being locked down. They found that the experience is good, and they found that they do not have to pay any more for that.

“As a wholesaler ... we are keenly aware that our responsibility is to keep the network competitive. Our primary value driver, as a wholesaler, is volume.”

Inflation crunch

Metcash shares rose 3¢ to $4.26 each by 3pm AEDT, after it said food sales grew by 4 per cent in November. This was underpinned by supermarket sales and a return to volume growth as wholesale price inflation marched upwards, averaging 8.8 per cent last month.

Wholesale price inflation reached 6.2 per cent in the first half, boosting supermarket and convenience store sales in the six months to October 31.

Mr Jones’ comments came after Metcash posted a first-half revenue gain of 7.8 per cent to $8.86 billion against lockdown-fuelled sales a year earlier. This includes charge-through sales, which are direct sales from suppliers to retailers invoiced via Metcash.

Earnings were up strongly in the first half, although its reported bottom line was pulled lower by one-off costs and adjustments to $125.7 million. Underlying profit after tax increased 9.1 per cent to $159.9 million.

The board declared an interim dividend of 11.5¢ per cent a share, up 9.5 per cent from a year ago. It will be paid on January 30. Dividends are up 92 per cent over the past three years.

All divisions topped consensus expectations. The Total Tools hardware business was the standout, making up 20 per cent of group sales and 44 per cent of profits.

Hardware sales surged 16.8 per cent to $1.7 billion in the first half, supported by growth in both the Independent Hardware Group and Total Tools. Trade constitutes most of the hardware business amid a growing DIY market. Total Tools is aiming for 130 stores by 2025, up from its present 104 sites.

Mr Jones said although underlying demand was high in the second quarter, the growth was cut short because of poor building conditions in the final six weeks. Wet weather and flooding in NSW and Victoria restricted access to building sites and dampened spring sales of outdoor, garden and paint items.

Hardware sales were up 8 per cent in November, but IHG sales fell slightly.

Inventory was more than $100 million higher at $1.23 billion for the half, mostly due to hardware goods and Metcash beefing up its position to insure against any supply chain delays. Mr Jones said he did not expect to have to discount much to move stock.

IHG chief executive Annette Welsh said the business would not be able to recoup the lost sales due to weather through Christmas trade, but the length of builder times would become longer. She added that the trade pipeline remained strong, and weather seemed to be the main issue in Queensland and NSW rather than a more general slowdown.

Chief financial officer Alistair Bell, who planned to leave Metcash, called the results “stellar” with record profits. Mr Bell added that Metcash’s “Project Horizon” spend remained inline with guidance of $95 million to $105 million for the 20 months ended calendar year 2023.

Metcash, which has an April 30 year-end date, is the second-largest player supplying independent liquor stores including Cellarbrations, The Bottle‑O, IGA Liquor and Porters Liquor.

Sales gained 8.9 per cent in November, supported by customers returning to on-premises drinks post-lockdowns. The gains came after sales increased 11.6 per cent to $2.4 billion in the first half.

Mr Jones warned that supply chain risks have eased but remain a challenge for all parts of the business for the second half, as do additional fuel, freight and labour costs.

Total Tools was forced to pay millions to fund additional transport and handling costs for products sent direct from factory in Shanghai in the first half because China’s lockdowns, which crimped EBIT margins.

Plant-based organic chocolate maker Loving Earth has tapped into the loyalty of customers, hundreds of whom have helped it raise fresh funds to give the start-up a fighting chance at recovering from the pandemic.

Founded in 2007, Loving Earth, which makes vegan chocolate from unroasted cacao beans sourced from an indigenous Amazonian community, enjoyed a period of growth driven by the health food trends of the late 2000s and early 2010s. However, consolidation in the independent health food store sector, the emergence of competing products and the impact of COVID hampered the brand.

“[Co-founder Scott Fry] saw the peak of this wave that was about to break into the market, which was the raw food wave and the superfood wave,” said co-founder and creative director Martha Butler. “We started to catch the tip of that wave and rode it into the Australian market.”

For a time, demand far exceeded supply – the husband-and-wife duo were moving factories every year just to keep up with growth.

“Then the market turned on us because all the big companies got on board – Swiss and Blackmores started to bring in heaps of coconut oil and coconut products,” Butler said.

In 2016, as supermarket giants grew their own health food aisles, independent stores focused on organic and health food products began closing and consolidating, taking away a key revenue stream for Loving Earth.

“COVID was sort of the final blow,” Fry added. The company has only recently returned to profit of $80,182 – the first time in 16 months.

Loving Earth has secured a $485,006 lifeline from 307 investors through equity crowdfunding, with Fry and Butler hoping to use the funds to claw back market share in their unique pocket of the $5 billion Australian chocolate market.

The funds, raised through equity crowdfunding platform Birchal, will be split towards product innovation and marketing, with plans to “reboot” the brand, roll out a new ecommerce website, bring on new distributors and push further with exports.

The company’s biggest challenge will be distinguishing itself from its competitors by better showcasing its ethical and sustainable credentials, especially as it believes the next competitive frontier to capture environmentally conscious consumer dollars will be in the way companies treat land and soil.

Global conglomerates such as Cadbury’s Mondelez, KitKat maker Nestle and Mars Wrigley have been trumpeting sustainability goals and their own efforts with growers to encourage better farming practices.

Loving Earth’s 80 gram bars retail for $6.90 at Woolworths, compared to Cadbury’s standard 180gram block which goes for $5. The premium goes towards helping bring the cacao growers, who hail from the Ashaninka community, Peru’s largest indigenous group, to financial independence.

Fry and Butler maintain Loving Earth was an early mover locally on the “raw” chocolate trend, with its competitors taking cues from its design and marketing.

According to Fry, there aren’t many local outfits delivering on the “raw” chocolate promise despite the marketing, giving Loving Earth a chance to reassert its place in that niche market.

“There are a few companies saying they were making raw chocolate ... and it wasn’t, it was clearly roasted because you could taste it,” said Fry.

“We are really doing what we’re saying. My belief is that the market will respond to that.”

To cater to increased demand for its canned beverages, Coca-Cola Europacific Partners has opened a new $43.7 million “state-of-the-art” can line at its production site in Moorabbin, Victoria.

The new can line can produce up to 1700 cans per minute in various formats and sizes – from mini 250ml to 375ml up to 500ml packs – allowing CCEP to scale local can production and efficiently deliver beverages to customers across Victoria, Tasmania, and SA. 

Cans produced in the facility include brand favourites such as Coca-Cola No Sugar, Canadian Club & Dry, Mother Energy, Sprite, and Franklin Lightly Sparkling. 

“At CCEP, we adopt a value-chain approach to our operations and continually assess the entire lifecycle of our products to unlock ways we can make, move and sell beverages more sustainably whilst ensuring we’re continually driving growth for our valued customers,” said Peter West, VP and GM of Australia, the Pacific, and Indonesia at CCEP. 

With minimised freight movements, West added that the new can line could also help reduce carbon emissions. 

“This new can line at Moorabbin allows us to make a larger range of canned beverages from across our portfolio of non-alcoholic and alcoholic brands locally in Victoria, meaning our products are closer to the end-consumer,” he said.

The company also describes its Moorabbin can production facility as its most sustainable line in Australia. It estimates to save an equivalent of more than six Olympic-sized swimming pools of water per year, and with the upgrade that allows filling cans at room temperature, the site’s energy usage will drop approximately 160,000 kW hours each year. 

“The requirement to move product between states in a country as vast as Australia contributes to greenhouse gas emissions, and reducing this is a challenging task, but it’s not impossible,” said Orlando Rodriguez, VP of the supply chain – Australia, New Zealand, and Pacific at CCEP.”

“Our continued investment in more efficient infrastructure at our facilities will play a role in helping us reach our net zero targets.”

Huggies parent and nappy manufacturer Kimberly-Clark is set to expand a nappy recycling trial nationally.

Dubbed ‘The Nappy Loop’ – the trial uses anaerobic digestion to turn the organic materials in used Huggies nappies into nutrient-rich compost while capturing and using bioenergy in the process. Kimberly-Clark says this is the first trial using anaerobic digestion in Australia, however there are other nappy recycling programs operating, including one led by Diaper Recycle.

The program, which has been active since July, has collected and recycled almost two tonnes of used Huggies nappies so far in partnership with the national science agency CSIRO and one of South Australia’s largest composters, Peats Soils and Garden Supplies, Solo Resource Recovery.

Kimberly-Clark ANZ MD Belinda Driscoll said identifying an effective recycling solution hasn’t been easy due to the availability of technology and collection systems

“As Huggies is the most popular nappy brand in Australia, we not only set the standards in baby care, our goal is to set the standards for our industry in sustainability too.”

The used Huggies nappies were collected from G8 Education’s Welly Road Early Learning Centre in Mount Barker, SA.

Ali Evans, the head of early learning and education at G8 Education, said sustainability is a “core focus” in all 440 centres across Australia and added the partnership will leave a positive impact on the environment.

A pallets shortage across Australia is interrupting production schedules at some food and grocery suppliers – and the Australian Food and Grocery Council (AFGC) says it could disrupt Christmas and post-holiday deliveries.

Déjà vu? Yes, because the same shortage happened last year after Covid disrupted the supply chain, leaving pallets stranded in factories and wharves.  

Yet, despite having 12 months to prepare, the $133 billion FMCG sector has again raised fears that there might not be enough pallets to transport their goods, with older pallets breaking and taking too long to repair.

AFGC CEO Tanya Barden says Chep – the world’s largest pallet supplier – should be held accountable for failing to keep up with the supply when the demand has been increasing for years.

“I think Chep has fundamentally misread the demand for pallets in the market,” Barden told The Australian.

“About 70 per cent of pallets are used in fast-moving consumer goods to move products along the supply chain, and the pallet pool has been broken for the past 12 months. Companies are only receiving about 10 to 15 per cent of their pallets from the poolers, Chep and Loscam.”

Lis Mannes, GM at Chep Australia, responded that for the past two years, the company engaged with customers to discuss their pallet needs and invested more than $100 million to increase its pallet pool. 

“There are now materially more Chep pallets in the market than this time last year, more than pre-pandemic, and more than in Chep’s 70-year history,” Mannes told The Australian.

Barden says she also reached out to newly appointed Australian Competition & Consumer Commission chair Gina Cass-Gottlieb last month about the pallet problem and has alerted the office of federal industry minister Ed Husic to the imminent danger to supply chains of the “dwindling pallet pool.”

A spokesperson from ACCC confirmed the regulator was aware of the pallet shortage issue.

“There has been a range of media reports about shortages in the pallet sector. The ACCC will continue to engage with key stakeholders on this issue,” it said.

A spokesperson for Husic’s department responded it would engage with stakeholders on the pallet problem.

A range of issues could have disrupted pallet supply, reports The Australian, including wood shortages, increased timber costs, and legal action by environmentalists that “halt logging” in key local forests that are a crucial source of pallet wood.

However, while traditional pallets are made from wood, they can also be made from materials like plastic, steel, and even recycled plastic or corrugated paper.

FMCG asked a representative from AFGC for a statement on why nothing has improved after having a year to prepare. The organisation replied: “There’s no comment at this stage.”