Mon, Mar 11, 2:39pm by Staff Writer
Australian supermarket giant Coles has formed a joint venture with Australian Venue Co, carving up its hotel, gaming and retail liquor store operations.
Under the joint venture, Bruce Dixon’s 60-plus Australian Venue Co will take on the operations of Coles’ Spirit Hotels in Queensland.
AVC will pay Coles approximately $200 million in cash and retain all profits from those hotel operations.
In return, Coles will retain and manage day-to-day operations of 243 retail liquor stores in Queensland and 10 retail stores attached to Spirit Hotels’ Western Australia and South Australia operations.
These liquor stores include established brands such as Liquorland, First Choice, First Choice Liquor Market and Vintage Cellars.
Coles will retain all profits from those retail liquor operations, according to The Shout.
Announcing the joint venture company, Queensland Venue Co, to the Australian Stock Exchange, Coles Group said the structure: “will allow both parties to focus on their core competencies, whilst having joint oversight over the entire operation.”
The joint oversight means Coles cannot fully claim to no longer be involved in gaming, though it can accurately claim to no longer be profiting from it.
A Coles spokesperson said: “Spirit Hotels has never been material to Coles’ earnings. Following the transaction, Coles will not receive any earnings from hotel.”
Acknowledging the structure, the Coles spokesperson went on to say that: “Coles remains committed to industry best practice in responsible service of alcohol and responsible gaming operations.”
The transaction is likely to be completed by the end of the 2019 financial year, subject to regulatory approval and some individual landlord negotiations pending.
Coles said liquor and gaming regulators had been “engaged and indicated they have no objections with the structure.”
Coles punts pubs and pokies in $200m joint venture dealhttps://t.co/6Yr59SsAtw
— Brisbane Times (@brisbanetimes) March 5, 2019
This recent deal negotiated by Coles is certainly a change in tact from what their new chief executive Steven Cain told The Sydney Morning Herald in February.
Mr Cain gave no indication that the company will relinquish ownership of its 3000-plus poker machines, instead stating that the company needs a “strategic reset” that will bring on new investments to counter increasing costs and slowing sales momentum.
Mr Cain took Coles’ top job in September 2018 and delivered his first earnings result since the supermarket was demerged from parent company Wesfarmers in November 2018.
“We need to look closer at our cost base, so that we can afford to invest in the future,” Mr Cain said.
“We’re going to have to invest a significant amount of money over the next five years to take advantage of the opportunities ahead of us,” he said.
Coles’ earnings were not growing at a fast enough pace for parent company Wesfarmers, who cut ties recently.
Coles’ earnings grew 125 per cent between 2009 and 2016, but they have fallen 19 per cent since then.
It’s sales growth had dipped 1.3 per cent in the three months to December according to recent reported, despite its wildly successful Little Shop toy promotion and giving away plastic bags after Woolworths had banned them.
Management of Coles had repeatedly indicated that it was ethically uncomfortable with the company’s 3000-odd poker machine ownership spread among pubs and clubs, when it was owned by Wesfarmers.
Mr Cain was reluctant to agree with this notion, instead declining to repeat the same concerns and talking down the prospect of a sale in the short term.
If it did offload its pubs, it would likely be in a joint-venture structure, which has eventuated with this recent move to join AVC.
Coles reported net half-year profit after tax of $381 million for the six months to December 31, down 29 per cent from the same period a year ago.
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