Australia: Woolworths Ditches Alcohol Business
Woolworths has announced it will be cutting out alcohol retail from its supermarket chain. They will package together its alcohol, hospitality and gaming interests in the Endeavour Drinks and ALH Group businesses ahead of either a de-merger, or “other value accretive alternatives”, such as a trade sale, in 2020.
Woolworths Supermarkets is an Australian supermarket and grocery store chain owned by Woolworths Group. Founded in 1924, Woolworths along with Coles forms a near-duopoly of Australian supermarkets accounting for about 80% of the Australian market, according to wikipedia.
Woolworths said the separation would deliver benefits from a simplified organisational structure and greater focus on its core food and retail businesses.
The merger of Endeavour Drinks and ALH will create Australia’s largest standalone integrated alcohol and hospitality business, with sales of around $10 billion and pre-tax earnings of $1 billion.
Woolworths is currently dealing with allegations that the Westower Tavern in West Ballina and the South Tweed Tavern on the NSW north coast supplied patrons with free alcohol in order to keep them playing poker machines.
A win for public health and public interest. https://t.co/G7a8l3kgX3
— Clare Ross (@Clare_comms) July 7, 2019
The global rating agency Standard and Poor’s said while the demerger would reduce Woolworths’ scale and diversity, it would not affect its creditworthiness.
In our view, the group’s Australian and New Zealand food business remains strong, although the separation will reduce the group’s scale and diversity,” wrote Sam Playfair and Craig Parker, Standard and Poor’s analysts, as per, ABC News.
In addition, the reduced exposure to hotels and gaming removes significant regulatory risks and improves the group’s perceived social licence to operate.”
Investors are evidently happy with the demerger move, with Woolworths shares jumping 3.3% to $34 in early trade.