No booze, hotels or pokies and no food but more pets for Woolworths as it continues its move out of supermarkets into other areas of the $400 billion a year plus retailing market.
Earlier this week Woolies
(ASX:WOW) sold its remaining stake 5.5% stake in drinks arm Endeavour (Dan Murphy, BWS and hundreds of hotels) for more than $630 million amid speculation it was on the verge of buying a stake in a pet product business. Woolies had spun out Endeavour in the middle of 2021.
That mail was spot on as Woolies announced on Thursday that it would acquire a 55% stake in pet food and services retailer Petspiration Group for $586 million, a diversification it adds to online retailing, the Quantum data group, food service business, PFD, the Big W department store chain and the company’s NZ operations.
Petspiration is the owner and operator of leading retail brand PETstock and has a network of 276 stores, established eCommerce platforms such as Pet.co.nz, a 2.4-million-member Petspiration loyalty program, and a strong own brand range including brands such as Caribu and Glow.
Woolworths Group CEO Brad Banducci said in Thursday’s announcement that, “Specialty pet is a large and growing retail segment in which we have limited presence. We are delighted to be investing alongside founders, Shane and David Young, in Petspiration, the number two player in the segment.”
“Specialty pet is a logical adjacency given the high penetration of pet ownership across Australia and New Zealand. The partnership will allow us to meet more of our customers’ pet family needs with a complementary range of specialty pet products and services, strengthen the Everyday Rewards loyalty program and unlock opportunities for material value creation across both businesses.
“We will work together to support Petspiration’s growth through access to our retail capabilities in areas such as Digital and eCommerce, Supply Chain, Retail Media, Format and Network Development, and Advanced Analytics.
Woolies said that Shane and David Young (and other existing shareholders) will retain a 45% equity investment in the business and continue as CEO and Managing Director respectively, running Petspiration as a stand-alone business within Woolworths Group under a separate board and governance structure.
“Within Woolworths Group, Von Ingram – the newly appointed managing director of W Living – will assume responsibility for bringing the partnership to life and unlocking the value creation opportunities across the Group,” Woolies said in the statement.
Woolies said the new business had turnover of $979 million in the year to September, with estimated net financial debt of around $290 million and lease liabilities of about $380 million as at September 2022.
“Petspiration is well positioned to continue to grow strongly, as the business builds out and consolidates its national footprint and brand. The transaction is expected to achieve a mid-teens internal rate of return, with identified value creation opportunities to support strong earnings growth,” Woolies said in Thursday’s statement.
The major competition is Greencross/Petbarn/Animates groups now owned by US private equity giant TPG. The Woolies purchase of a controlling stake in Petspiration will no doubt see renewed interest in these companies.
Rival supermarkets groups, Coles and Metcash have kept their grog businesses (and Coles has nearly 90 hotels) while Metcash also controls the Mitre 10 hardware chain, number 2 in the sector after Wesfarmers’ Bunnings.
Coles is now probably the ‘purest’ listed food chain in the country of the majors (Aldi is unlisted), a far cry from when it was owned by Wesfarmers (and before that when it was a standalone company) when it also owned Myer, Target and Kmart, as well as Officeworks.
Now Wesfarmers has Kmart/Target, Bunnings and Officeworks
Coles and Woolies both went into and then quit petrol retailing and convenience stores because the volatility of petrol and oil prices meant volatile working capital costs for both retailers as prices soared, then eased.
Interest charges rose and the vagaries of pricing made for a lot of uncertainty on the debt side and a lot of poor publicity among consumers.
So what did investors think of the news? The company’s shares edged up 0.12% to $34.33 on a day when the wider market sold off as the US Federal Reserve again lifted rates and said more increases will come in 2023.
