The Auswine Forum

Announced to the ASX earlier today:-

[url]https://www.asx.com.au/asxpdf/20190703/pdf/4 ... vs2l98.pdf[/url]

Hmmm.

I wonder what ALH will do differently with the wine businesses compared to Woolworths?

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There are already some ridiculous/outrageous deals at Dans re EOFY or that they are cutting lines, Passing Clouds Graemes Blend is one I have seen
Except you have to live in the eastern states, absolutely nothing doing here in SA, the supposed wine state.

I hope all of us get an opportunity to pick over a carcass...I have always found the current buying model odd in Australia, unlike Europe/UK where one can purchase groceries and wine together.

Cheers Craig

Hi Craig
True of much of Europe, but the exceptions I'm aware of are the Scandinavian countries, where there are state monopolies for anything other than low alcohol beer e.g. Sweden, Finland and I think Norway as well. Denmark didn't go down that route, and like the UK seems to have a healthy band of independant wine merchants.
Regards
Ian

Frankly, the end of the Woolies/ALH era can only be looked at as a positive.

Roger Corbett met Bruce Mathieson at the Sydney Olympics and thus was born the scheme that would lead to a bid for the formerly listed ALH and then ultimately to the combination of it with Bruce's own group in 2005. All of this to further the primary goal of selling retail liquor in Qld. For Woolworths it has always been a lopsided deal which involved a significant injection of cash (primarily into "goodwill" I might add) at a very low return. Ten years ago it was earning a return on capital for WOW of less than one tenth the returns on supermarkets despite very high operating margins (as you would imagine the gross margin on gaming is pretty darn high!).

The business was always operated as a fiefdom by Bruce, and of course Woolies then copped the crap for being Australia's biggest pokie operator.
As of 2018, Woolies had $1.2bn of goodwill in ALH (and $500m in Endeavour, which I assume comes largely from the Cellarmasters acquisition). I suspect that may survive the spin off but only because the returns on the historic capital base of the retail liquor business will be higher than a new purchaser (or the equity market) would demand.

That said, giving away all of the retail liquor nationally seems to me a case of cutting off the nose to spite the face. The reality is without doing this there was probably no way for Woolies to recoup the sizeable intercompany loan to ALH which funded its creation and growth while also getting rid of the pubs. Still, giving away Dan Murphy's which is the one truly unique retail concept that Woolies has (and probably the most successful of Corbett's acquisitions) is a real loss. I am also unclear what it means for the online operation- it would surely be frustrating for consumers to have to make a separate order for food and for liquor.

Also, it is perhaps unlikely but if the regulatory environment was ever to change to allow the sale of liquor in supermarkets it would be a major impediment for Woolworths to have lost their supply chain, leaving Coles at a massive advantage.

I cannot quite shake the feeling this is classic corporate machinations. Your core business is tough and boring but very profitable. Your old second business (DDS) is a battle. You tore up a pile of money trying to do an adjacency (hardware) and no one wants to go offshore. So what do you do? This is the one big corporate transaction you can do. Because, you know, if you don't do anything then the share price doesn't move and you don't get to keep all those stock options.

Will this impact on us as consumers? Personally I doubt it. You might see some discounting to clear inventory, but at the same time they will want to sell at the best possible EBIT level so I wouldn't expect a lot. The question mark of course is that a new management team might want to "stamp their mark" and make changes for the sake of it, so I suppose anything is possible once the business is separated.