“Predictable decline” in Endeavour retail revenues

Revenues at Endeavour Group’s retail arm, which consists of bottleshops BWS and Dan Murphys, have declined after an elevated performance during the COVID-19 pandemic.

Retail revenues reached $2.5 billion for the first quarter of FY23, a 6.2 per cent decline on the same period last year, Endeavour told the ASX this morning. It is a seemingly small decline but one that factors in the heightened performance of Endeavour’s retail outlets during the pandemic lockdowns.

COVID-19 saw a huge uptick in retail revenue for Endeavour Group, but this latest dip was labelled as “predictable” by the company, as it “cycles[s] the unique peaks of COVID-19”. Endeavour CEO Steve Donohue explained that the company expected this decline to ease going into the second quarter.

On a three-year basis, headline sales were up 13.9 per cent compared to Q1 FY20, and online sales have grown 50.3 per cent when compared to pre COVID-19 levels.

“This consistently strong sales performance reflects our improved customer benefits of consistent investment in strategic initiatives and the value of our industry partners,” Donohue said in an investor call this morning.

“It also demonstrates again, the natural hedge between our retail and hotel businesses as we move beyond COVID into a new operating environment.”

As expected, given that much of the country was still in lockdown this time last year, Endeavour’s Hotels business saw a major rebound, growing revenues 90.8 per cent in the quarter to $538 million.

Premiumisation and Pinnacle

In good news for a number of brewers, especially at the bigger end of the market, Endeavour has seen little change in consumer buying habits despite hikes in excise.

“What we’ve seen across the market is that that price increase flowed through and held..[but] what it hasn’t seemingly done is affect consumers’ long term trend appetite for new and premium and craft,” Donohue said.

Pinnacle Drinks, which consists of its premium Paragon wine business as well as own-brand drinks across product categories and has been a consistently strong performer in the group, is “tracking marginally ahead,” he said.

“An important part of Pinnacle is the partnerships that we have… Better Beer – that’s an example of something that we consider a Pinnacle product – it’s not just an Endeavour owned-portfolio.”

Answering an investor question with regards to the role of Endeavour-owned brands within the lower value space, Donohue explained that Pinnacle products had tended to lean towards the lower value end of the market.

“We’ve historically had an over-index of entry price points or lower price points through that owned end of the portfolio,” he said.

“So we think that stands in good stead, noting that a lot of our efforts have been going into tapping into the higher price points, the more premium craft proven price point, so we think we’re well placed.

“The team is able to move very fast based on what we see customers’ behaviour changes looking like so we’ll pivot, be agile, create new products and brands on a needs basis, and we’ve got a strong track record of doing so.”

Donohue made some observations about the ongoing trends towards premiumisation, suggesting that craft products are still a robust segment.

“What has been interesting to observe is the continued appetite from customers for what we describe as drinking better, and that is historically included low and no alcohol…but also that propensity to want to enjoy a local product or a craft product or something new that you have tried before that perhaps is more premium than the last thing you try – that broadening repertoire of customers,” Donohue explained.

“[There’s a] real commitment to supporting local businesses which] has continued to play forward.

“I’m hopeful that will place forward through the Christmas trading period. All indicators suggest that it will do, I think it’d be interesting to observe what happens in a post Christmas environment. It’ll be more unknown era that we step into.”

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