Woolworths eats up $5m Marley Spoon windfall

Simon Evans

May 14, 2020

AFR

Woolworths has made a handy $5 million profit on paper from the rapid rise of meal kits group Marley Spoon as households stayed at home during the coronavirus pandemic.

But the supermarket giant chose not to be part of the $16.6 million capital raising by Marley Spoon earlier this month, which meant Woolworths slipped below the substantial shareholder threshold of 5 per cent.

Woolworths said the decision to steer clear of the capital raising wasn’t an indication that its enthusiasm for Marley Spoon had waned after its own online operations boomed over the past two months amid COVID-19 lockdowns and soaring at-home consumption.

“In 2019 we entered into a five-year alliance with Marley Spoon and we remain committed to our partnership,” a Woolworths spokesman said on Thursday.

Woolworths invested $30 million through a debt and equity transaction mid-2019, which included the issue of 8.2 million ASX-listed Chess Depositary Interests in Marley Spoon at 50¢ each. A further $4 million in convertible notes was added in September 2019.

That holding of CDIs has grown in value by more than $5 million as Marley Spoon’s fortunes improved. The company had a large sales jump in April as households in Australia and offshore gravitated to its home meal kits.

Marley Spoon is the second-largest meal kit provider in Australia after HelloFresh.

Marley Spoon CDIs were trading at about $1.15 at noon on Thursday. They reached a high of $1.30 on April 28 after languishing at just 23¢ on March 17.

But even after the surge from mid-March, they are still below the $1.42 issue price in a float on the ASX in 2018.

Meal kits account for less than 1 per cent of the food and grocery market, but the sector is expected to deliver robust growth, clawing fresh food sales and foot traffic away from supermarkets.

Marley Spoon signalled on May 4 in its capital raising presentations there was no precedent for the ”accelerated shift” in consumer demand for meal kits which had occurred since mid-March. The company had doubled revenue in a four-week period from the start of “Week 14” of calendar 2020.

This had come after a robust start to 2020 prior to the big impact from COVID-19 restrictions, with revenue growth in the March quarter up 46 per cent over the same time a year ago.

Woolworths invested in Marley Spoon via its W23 investment vehicle set up for potential partnerships with outside firms that can help the core Woolworths business over the long term.

Both Woolworths and big rival Coles generated hefty sales increases in their core supermarket operations over the past few months as at-home consumption of staple products soared, and more shoppers opted to order online.

Woolworths in late April posted the strongest quarterly sales growth in more than a decade, with group sales rising 10.7 per cent to $16.5 billion as shoppers filled trolleys with gusto. Products such as toilet paper, tissues, pasta, flour, cake and bread mixes, liquor and household cleaners were in strong demand.

But costs have also been rising for both players as more people were hired and extra cleaning and security was put in place.