The largest supermarket chain in Australia, Woolworths Group, has revealed plans to first combine and then spin off its very profitable drinks and hospitality units in the upcoming financial year. The move will provide the Group with the opportunity to focus primarily on its main food business and respond to the increasing pressure over its gambling operations.
Woolworths revealed its intentions to merge its liquor and hospitality divisions making a single entity out of Endeavour Drinks, which includes BWS and Dan Murphy’s, and the hotels and gaming unit ALH Group by the end of the current calendar year. The new business is to be called Endeavour Group and is to include both the gaming operations and the liquor and hospitality divisions of the company.
The combined business’ estimated annual sales are expected to amount to about AU$10 billion, while its earnings before interest, tax, depreciation and amortisation would amount to approximately AU$1 billion on an annual basis.
Lately, Woolworths, which currently owns and operate the largest poker machine business on the territory of Australia, has been facing a lot of criticism from anti-gambling campaigners, activists and even pension fund investors to back off from controversial poker machine operations which have been associated with a number of high-profile scandals involving gambling addictions, irresponsible gambling and potential illegality.
Gambling Operations of Woolworths’ ALH Unit Have Been Criticised
The last time when Woolworths came under the spotlight was in June 2019, at the time when regulatory bodies in the state of New South Wales started disciplinary action against two pubs run by the ALH division of the Group.
The disciplinary action begun after the regulators carried out an investigation based on a few whistleblowers’ complaints, accusing the company of unethical and illegal behaviour.
The Australian supermarket chain has not revealed whether it plans to sell or list the new business after the merger is finalised. Still, the Group expects to retain a minority shareholding in the new entity, no matter what happens to it. In the 2018 fiscal year, Endeavour Drinks and ALH together accounted for over 30% of the Group’s earnings, with Endeavour Drinks being the second-largest contributor to the company after its Australian grocery store chain both in terms of earnings and sales.
This is not the first time when the company is making such a move. Previously, Woolworths has offloaded its petrol business. Now, the Group revealed that the merger and spin-off are set to create a simpler structure of its operations and will also help it better focus on its core food and everyday needs markets.
Apart from that, the gambling business of Woolworths’ ALH unit has been vastly criticised for their policy in some pubs across Australia. The planned spin-off could help the company improve the reputation of its gambling division. The merger will include also a number of brands, including Pinnacle Drinks, the Endeavour Drinks’ own and exclusive brands business, Cellarmasters, a wine subscription business, the fine wine auction and retail business Langton, as well as an 8.7% in ALE Property Group.