Seltzer sales up, beer down at Endeavour Group

Endeavour Group delivered sales of $6.3 billion in the first half of FY22, its first six months trading as an independent business.

The result was down 0.3% due to the impact of COVID-19. However, group EBIT increased 3.2% to $556 million compared to H1 FY21, driven by an improvement in gross profit margin within the retail segment. The retail business delivered sales of $5.7 billion in the first half of FY22, slightly behind what Endeavour described as the “exceptionally strong sales” in H1 FY21 and up 18.4% on a two-year basis.

Endeavour said its retail highlights were the continued consumer move to craft offerings, more premium wines and spirits, with gin and seltzer sales particularly strong. The company noted that beer and cider were the only major categories in decline compared to last year.

Endeavour Group Managing Director and CEO, Steve Donohue, said: “We maintained group sales in line with last year, and improved our profitability significantly. This is a positive result during a period which was heavily impacted by COVID-19. These financial outcomes have been delivered through the hard work and dedication of our team who have responded diligently and flexibly to many COVID-19 related challenges.

“Our Hotels business was particularly hard hit in H1 F22. There were multiple and extensive COVID-19 impacts in the first quarter, including lockdowns in the key markets of Victoria and NSW. We have however, continued to invest in our Hotels, retained core team members, deployed new digital services and created COVIDSafe environments; all of which enabled the business to rebound strongly during periods when COVID-19 impacts abated. Unfortunately, high levels of infection in the community since the emergence of the Omicron variant resulted in reduced patronage in hotels in the period
immediately prior to Christmas and impacted the first six weeks of H2 F22.

“With on-premise restrictions in place, the retail market remained elevated through the half. We delivered retail sales consistent with the exceptionally strong H1 F21 period. Our retail business profitability also improved considerably in the period. Retail EBIT increased by 10% when compared to the same period last year, delivered through gross profit margin improvements and disciplined cost management.”

Hard seltzer
Seltzer sales were strong for Endeavour Group

The retail landscape

Endeavour said online sales were a highlight, growing 24.8% to $603 million, representing a penetration of 10.7%. My Dan’s membership program also continued to grow in popularity, with members reaching 6.2 million at the end of December, an increase of 21.6% on the prior year.

The retail market remained elevated due to extensive on-premise closures in the first four months of the financial year. Following the easing of COVID-19 restrictions during October, Retail sales started to normalise as customers returned to on-premise venues.

Gross profit margin was 23.7%, driven by generally lower promotional activity in the market, premiumisation trends and mix improvements through higher margin new products.

Donohue told the Sydney Morning Herald that both in hotels and retail “people are drinking better”.

“They’re generally speaking, drinking less, but certainly drinking better in terms of the quality of the product.”

Endeavour said there was also “growing demand” for Pinnacle Drinks brands, which partners with winemakers, growers, brewers and distillers to supply exclusive products to BWS, Dan Murphy’s and The ALH Pub Group.

Donohue told the Australian Financial Review that the company is likely to make more acquisitions via its Paragon Wine Estate division, which owns wine companies including Chapel Hill in South Australia’s McLaren Vale, Riddoch in the Coonawarra district in SA and Oakridge in Victoria’s Yarra Valley. Oakridge’s sales were up 70% once it came into the stable in March.

He said the group has gaps in its portfolio on a geographic basis, and is eyeing Tasmania, and the Margaret River region in Western Australia.

During the half, Endeavour’s retail store network increased by a net 24 stores, and it renewed 49 stores. Six Dan
Murphy’s stores were opened and four stores were renewed.

Following a successful pilot, Endeavour has commenced the roll out of the Dan Murphy’s 2.0 format with five stores now live. There were a total of 257 Dan Murphy’s stores at the end of the half.

Further BWS network expansion also took place in H1 F22 with the opening of 24 new stores, and the renewal of 45 stores, bringing the total number of stores to 1410 (six BWS stores were closed during the period).

Hotels significantly impacted

COVID-19 continued to have a significant impact on Endeavour hotels through the first half of FTY22. Sales grew by 1.9% to $680 million on a one-year basis, and were still well down on a two-year basis (pre COVID-19) by 26% due to lockdowns and trading restrictions.

“There were only 30% of total trading days where all our hotels were open in this half-year,” Endeavour noted. “When hotels were permitted to open, they were subject to ongoing trading restrictions ranging from outdoor only trading to seated service only, as well as various other capacity constraints which differed by state and region.”

The most significant closures were in NSW and Victoria, which extended for the full first quarter.

“On reopening, there was strong demand from our customers and the trading results in November and early December were encouraging though remained below pre COVID-19 levels due to ongoing restrictions as well as the impact of team availability issues,” Endeavour said.

Hotel trading conditions weakened again in the last three weeks of the half, as cases of the Omicron variant surged across the

Terrey Hills Tavern (Sydney, NSW), The Manly Hotel (Brisbane, QLD) and the Commercial Hotel (Charters Towers, QLD) were acquired during the half. The total hotels portfolio consisted of 342 hotels (including five managed clubs) at the end of the period.

The acquisitions have continued in the second half of FY 22, with JLL Hotels & Hospitality Will Connolly in conjunction with TJ Board Pty Ltd announcing last week that the Empire Hotel Kilburn had sold to Endeavour Group in an off market deal for $11.5 million.

The outlook for the second half

Endeavour said the Omicron outbreak had caused increased uncertainty and brought new challenges to both retail and

“Our sales across the first six weeks of the second half are tracking slightly behind F21, with retail down 2% and hotels 2.9% below,” the company noted. “Team availability has been a challenge in both businesses and consumer hesitancy reduced patronage in our hotels particularly in January. This has eased in February as restrictions were lifted.

“The two-year growth rates have also moderated. Retail sales were up 12.2% when compared to the same period in FY20, whilst Hotels were down 12.7%.

“We are confident that the actions we have taken and the investments we have made in our hotels and stores, in our technology and online offering, as well as in our Pinnacle Drinks business have provided us with strong foundations to navigate this next phase of COVID-19 and to continue to build a strong and resilient business.”

Donohue has warned analysts to expect a weaker six months ahead, as Endeavour’s sales are weighted towards the first half due to major events such as Christmas and New Years Eve.

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