Shifting customer behaviour at Dan Murphy’s & BWS

Endeavour Group announced its Q3 FY23 results today, hours before the Reserve Bank of Australia lifted the official cash rate from 3.6% to 3.8%. While Endeavour’s retail sales rose to $2.4 billion in the period, an increase of 1.2% on the previous year, CEO Steve Donohue has revealed customer behaviour is changing due to cost of living pressures.

He said customers have been shopping in stores at a higher rate compared to prior year, driving in-store sales growth of 2.8% in the quarter.

Donohue told the Australian Financial Review that customers were driving to bricks and mortar liquor stores to make purchases rather than buying online to ensure they secured the best bargains.

He noted there had been an increase across the industry in liquor retail promotions and discounts, particularly online.

Donohue said there had been a pullback in areas such as the Jimmy Brings on-demand service for people who wanted liquor orders filled quickly but at a higher cost.

“They are the most expensive way to buy something and they are becoming less popular,” he said.

He also revealed there had also been a shift away from high-end French champagne due to price rises of between 10 to 15%, with many customers substituting Australian sparkling in their shopping baskets.

“It has reached that inflection where people are willing to try premium Australian sparkling and in so doing are discovering it is a very good product and are sticking with it,” Donohue said.

The categories in growth

However, Donohue noted that new products continued to perform well, particularly benefiting the RTD category, which was the fastest growing category in the quarter.

The company’s investment in owned brands was reaping major benefits due to changing customer behaviour. Headlining this investment was premium Paragon Wine Estates’ acquisition of the iconic Cape Mentelle winery in Margaret River, while its Oakridge Winery in the Yarra Valley was recently awarded 2023 Winery of the Year by The Real Review.

“The investments we have made in our Pinnacle Drinks business see us well placed to meet changing customer preferences, offering exceptional value at all price points and providing capability to partner with suppliers to develop new products across categories,” Donohoe said.

Sales surge for hotels

Donohue told The Australian he believed a night at the pub will be one of the last indulgences to be cut from household budgets.

“On the hotel experience, there is the familiarity, the value and the quality that you get in the hotel experience and I think on a per-drink basis or a per-bottle basis it’s a really small indulgence for a lot of people and therefore, one that perhaps isn’t the first on our list to give up,” Donohue said.

Hotel sales for Endeavour Group in the third quarter increased by 18.5% to $480 million, with strong growth of 31.5% in the first five weeks, followed by a growth rate of 11.5% in the final eight weeks.

Comparable sales increased 16.3% for the quarter, with strong year on year growth in bars, food and accommodation
as Endeavour cycled pandemic-related restrictions and team availability challenges last year.

Donohue said patronage was further supported by the return of live sport and entertainment. Gaming sales growth continued to normalise from the elevated levels seen in the second half of F22, reflecting the cycling of the heightened demand in the prior year.

During the quarter, Endeavour added five hotels to its network: The Tower Hotel (Magill, SA), Beach Hotel (Seaford, SA), The
Marine Hotel (Cardwell, QLD), Beachfront Hotel (Rapid Creek, NT) and Rainbow Beach Hotel (Rainbow Beach, QLD). In
addition, we renewed three hotels and divested one (The Victory Hotel in Brisbane), with 353 hotels in total (including
five managed clubs) at the end of the quarter.

”In hotels, food, bars and accommodation have all continued to be materially above the prior year in which COVID-19 impacted both customer demand and team availability levels,” Donohue said.

“This was supported by over 100 live events held across the quarter, with ticketed events attracting over 38,000 patrons. Gaming has returned to pre-pandemic share of turnover, with low single-digit growth in the quarter.”

Outlook for Q4

Donohue said rising interest rates would result in higher finance costs in H2, which were expected to range between
$240 million to $260 million for the full year.

“As we continue into Q4 trading conditions have remained generally consistent with Q3, however we remain alert to
the cost of living pressures impacting customers across Australia,” Donohue said.

“Across our business we will continue to adjust and respond through our breadth of offerings that have something for everyone, whether they are socialising in our hotels or at home.

“As we look ahead we continue to closely monitor customer choices in the context of the macroeconomic climate. We
remain confident that we offer a great breadth of options and value for all social occasions and we will continue to
tailor our offering as the environment requires.”

Coles Liquor returns to sales growth

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