Xenophon asks Metcash to reconsider pokies plan

July 25, 2012
The Age

Update A move by grocery wholesaler Metcash to extend the war for consumer dollars to pubs and poker machines has prompted Senator Nick Xenophon to write to the company’s board urging them to consider the social and economic harm caused by poker machines before making an investment.

“One of the great things about IGA supermarkets is they have proudly proclaimed they are not in the pokies business. In fact, it has been a point of difference highlighted here in South Australia in their advertising,” Senator Xenophon said.

“If Metcash gets into the pokies business, it will be buying into the misery caused by the 40 per cent of pokies losses coming from problem gamblers. I expect individual store operators here in South Australia will not be happy with this news.”

He said the irony of Metcash’s reported move is that Woolworths and Coles are coming under increasing public criticism for their poker machine holdings.”
From our earlier report:

The battle of the supermarket giants for a bigger slice of the consumer dollar is set to spill into pubs and poker machines – the grocery wholesaler Metcash, which operates the IGA chain, is believed to have hired a broker to identify pubs and hotels.

It follows a $375 million-plus equity raising launched by Metcash last month and a strategic review that included slashing 500 staff, cutting debt and identifying bolt-on acquisitions.

The Herald 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 that are being battered by the price war between the Coles and Woolworths.

Metcash is under 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 extra $50 million from retail investors.

Part of the equity raising was used to buy a 75 per cent stake in the automotive parts operator Automotive Brands Group and to soak up the remaining 49.9 per cent in hardware chain Mitre 10.

Metcash declined to comment on the speculation yesterday despite the talk 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 2011-12, 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 and hotels 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 the reputation issues with owning poker machines as part of the hotels business.

Coles does not report the earnings of its hotel division separately, instead rolling them into its supermarket earnings figures. However, it is estimated to generate more than $2.8 billion in revenue from liquor, compared with arch rival Woolworths’ $6.6 billion.

An industry source said Metcash’s interest in pubs and hotels was part of a plan to create scale in alcoholic beverage sales. He said the product range purchased by hotels from wholesalers included beverages, dry goods and food.

For 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 them, similar to the model used in its IGA supermarket chain.

Metcash is said to be close to exchanging the leasehold of three Queensland pubs, with one suggested to be the Aspley Hotel, and it is also on the hunt for leasehold hotels in NSW.

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