ENDEAVOUR GROUP REVEALS ITS BIGGEST GROWTH OPPORTUNITIES

Endeavour Group has revealed that its key focus areas for growth are Pinnacle Drinks, premiumisation, and increased market penetration in both ecommerce and its hotels.

CEO Steve Donohue and CFO Shane Gannon led an investor conference call on August 26, following Endeavour Group unveiling its first financial results since formally separating from Woolworths Group in June.

In FY21, group sales were up 9.3% to $11.6billion; online sales were up 34.7% to $859million; hotels were up 49.1% to $261million; and group EBIT was up 22.1% to $899million. The Group’s net profit for the year after tax was $445million.

The pluses to premiumisation

Endeavour Group noted in its results presentation that all major categories of drinks were in growth in FY21, with the trend towards spirits continuing. The category grew at more 20% in FY21, following similarly strong growth in FY20.

The group said the ongoing shift to premium products was also seen across many categories. There was particularly strong growth in craft beer, Champagne and gin, as well as no-alcohol and low-alcohol alternatives.

“As customers deal with COVID they’ve very much sought to treat themselves and Dan’s has been a big beneficiary of that customer move,” said Donohue.

Donohue used what he described as the “explosion of gin” as an example of margin growth being experienced in the category. He said that while wine traditionally yielded higher margins, increasing interest in craft gin was transforming the spirits category, as consumers were prepared to pay upwards of $100 per bottle.

“So the return is appealing for us,” he said.

Australian craft distillers Four Pillars Gin and Ink Gin, for example, are now among the Top 10 biggest selling gins in Australia.

Earlier this week, Dan Murphy’s also revealed sales of Australian single malt whisky have soared 150%.

“Trends we expected to build over the next three to five years happened in three months following the first lockdown in March 2020,” said Spirit’s & Premix Category Manager James Duvnjak. “With everyone staying home due to COVID, we saw customers really start to think about their drink choices differently. Just as people started to make sourdough and pasta at home, they needed better drinks to match with them.

“Single malt was one of the main trends that has been growing over the past five years that was all of a sudden at the forefront of people’s minds.”

Pinnacle’s rapid expansion

Pinnacle Drinks, which creates and manages a portfolio of drinks brands that it sells through Endeavour Group’s channels and to key strategic partners overseas, launched more than 530 new products in FY21.

When asked about penetration levels of the division, Donohue refused to be drawn on numbers. He said he was more interested in Pinnacle winning awards and growing its consumer fan base.

Its Paragon Wine Estates division manages a collection of wineries and wine brands in Australia and New Zealand, including Krondorf Wines, Oakridge Wines, Chapel Hill Wine, Isabel Estate and Riddoch Wines.

Oakridge Wines 2019 864 Funder & Diamond Chardonnay was recently crowned the country’s best chardonnay in the 2022 Halliday Wine Companion Awards.

Endeavour said the prestigious accolade further cemented Oakridge as one of Australia’s best chardonnay producers.

Donohue also noted that a silver lining in the China wine tariff crisis had been that Paragon was sourcing increasingly premium grapes for its brands.

“We have more access to A, B and C grade assets out of the Barossa,” he said. “You will taste that quality next time you open a bottle of Krondorf wine.”

Growing digital engagement and profit

Endeavour’s online sales grew 34.7%, with online now accounting for 8.4% of total retail sales, up from the prior year’s 6.9%. Donohue revealed that the figure had shifted to closer to 10% following the recent ACT COVID-19 lockdown.

However, he admitted that while ecommerce was a billion-dollar business for Endeavour Group, it remained challenging from a cost perspective.

“Is it as profitable as the bricks and mortar business?” he asked. “No.”

But profitability had improved significantly in 2021 and would further improve in 2022. Additionally, sales fulfilled by pick-up grew ahead of delivery and the shift to digital has been sustained even as restrictions eased in various states.

Among the initiatives to increase profitability in the space:

• The launch of new personalisation capabilities
  ● Improved web & app CX, driving up conversion
  ● Evolving the store enabled pick-up experience
  ● Expanding the Jimmy Brings on demand delivery capability into BWS

Is a hotel buying spree on the agenda?

Endeavour said the 2021 financial year was challenging for the hotels business due to continuing COVID-19 related trading restrictions and associated costs. Despite these challenges, sales were up 7.3% to $1.4 billion.

Hotels were top of mind for analysts in the investor call, with most questions directed at Donohue and Gannon being around their plans for future growth in the division.

During FY21, Endeavour Group invested in 26 hotel renewals and five hotel acquisitions. Donohue noted that the Terrey Hills Tavern in Sydney’s north – which the group acquired in July for around $39.8million – was a prime example of the type of inventory Endeavour was seeking.

He said it ticked all the boxes, as it was ready to “jump straight in and start trading”.

Donohue also noted that he was in the middle of “crunching numbers” on the future of the hotels division, using learnings from Woolworths supermarkets and major shareholder Bruce Mathieson’s “know-how” to identify “white space opportunities” for network growth.

“Out of 6000 hotels in Australia we have 339,” he said. “The challenge is in the profile of the remaining pubs and whether they meet our needs and their accessiblity for purchase.”

Gannon added that there was also opportunity to renew and grow profits in the group’s existing hotels, as they were “right in front of us”.

Donohue said Endeavour anticipates huge pent up demand when restrictions lift.

“People will be busting to get back to the pub,” he told The Australian. “We have seen it before as we’ve emerged from lockdowns and we are ready to serve those customers. The schooners will be cold and the schnitties will be hot.”

Endeavour kicks off pub buying spree

The outlook for 2022

Commenting on the outlook for the 2022 financial year Donohue said: “The strength of this year’s result has demonstrated the resilience of our business model and the commitment of our team to living our purpose and values and delivering for their customers and communities. We are excited that we are entering the new year with a robust balance sheet and a significant number of opportunities to create value, including growing our digital engagement, expanding and enhancing our network and optimising our business through a focus on profitability and capital management.

“We remain committed to maintaining the efforts that saw us deliver positive outcomes for our stakeholders in FY21. The recent COVID-19 trading restrictions, which began in June, make it extremely difficult for us to forecast with any degree of certainty how our businesses will perform over the next 12 months.

“We do know that our teams will continue to adjust and respond to the changing conditions and we will continue to innovate and build for the future beyond COVID-19. We look forward to keeping you updated as we progress on the journey.”

Endeavour Group reveals its first stand-alone results

 

Source: Endeavour Group reveals its biggest growth opportunities (drinksdigest.com)