Adele Ferguson and Carolyn Cummins
July 25, 2012
The Age
THE big supermarkets’ battle for a larger slice of the consumer dollar is set to spill into pubs and poker machines after grocery wholesaler Metcash, which operates the IGA chain, is believed to have hired a broker to identify venues and hotels.
It follows a $375 million-plus equity raising launched by Metcash last month and a strategic review that includes slashing 500 staff, cutting debt and identifying bolt-on acquisitions.
BusinessDay understands that up to $90 million could be allocated to bolt-on acquisitions, including pubs and poker machines, as pressure mounts on Metcash to revive earnings as the price war between Coles and Woolworths heats up.
Metcash is said to be close to exchanging contracts on the leasehold of three Queensland pubs, with one suggested to be the Aspley Hotel.
It is understood that Metcash does not want to own the freehold – as it is not a property developer – but wants to form joint ventures such as Woolworths has recently with the Laundy family.
Metcash faces pressure to lift its flagging share price, which is trading close to a seven-year low of $3.22, well below the $3.50 a share paid by institutional investors in the $325 million share placement completed on June 29. It also announced it would raise an additional $50 million from retail investors.
Part of the equity raising was used to buy a 75 per cent stake in automotive parts operator Automotive Brands Group and soak up the remaining 49.9 per cent in hardware chain Mitre 10.
Metcash declined to comment on the speculation yesterday despite it being rife in the hotel trade.
Woolworths is the biggest owner of poker machines in the country through its joint-venture arrangement with Australian Leisure and Hospitality, which owns 12,000 poker machines across 294 hotels. Its hotels business generated $1.2 billion in revenue in 2012, up 4.4 per cent on the previous year and up 5.4 per cent in the June quarter as the federal government’s $2.8 billion family assistance package came through.
Coles owns a portfolio of 95 pubs, worth an estimated $900 million, and is looking to find a joint-venture partner to enable it to separate its hotels and poker machines from its liquor business.
Internally, Coles management has made it clear it does not consider hotels a core business. It is also believed to be concerned about reputation issues with owning poker machines.
Coles does not report the earnings of its hotel division separately. But it is estimated to generate more than $2.8 billion in revenue from liquor, compared with rival Woolworths’ $6.6 billion.
An industry source said Metcash’s interest in hotels was part of a plan to create scale in alcoholic beverage sales. He said hotels purchased product ranges from wholesalers including beverages, dry goods and food. Metcash hotels would provide a new distribution channel for its wholesale products.
The model would be to buy the pubs and gaming machines then get an independent operator to run it, similar to the model used in its IGA supermarket chain.
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