Drinkers and gamblers looking to save money as cost of living pressures bite

A picture of the state of the drinker and gambler in the face of growing cost of living pressures has emerged as Endeavour Group reveals a switch in demand.

The owner of Dan Murphy’s, BWS and the nation’s largest network of pubs has reported a consumer shift to cheaper mainstream beer, including VB and Tooheys, with less money being spent on Father’s Day liquor gifts and gaming machines amid rising living costs.

Endeavour, which also owns wineries and the Langton’s wine auction house, released its first-quarter sales results on Monday to provide a picture of the state of the drinker and gambler in the face of growing cost-of-living pressures fuelled by rising interest rates, rents and inflation.

The switch to more frugal shopping patterns by consumers has seen demand increase for classic mainstream beers – often cheaper than more premium craft beers – such as Great Northern, VB, Tooheys and Hahn.

It has seen a similar pivot to cheaper brands at the supermarket, as recently testified to by Woolworths and Coles in their trading updates, but that pullback looks to also be emerging when shoppers visit a Dan Murphy’s or BWS bottle shop, or enter into one of Endeavour’s pubs.

“The volume declines have been consistent over a long period of time. They’ve accelerated somewhat in line with the increasing inflation so it’s been a long time since these categories have seen inflation at that level,” Endeavour chief executive Steve Donohue said.

“And what people are doing is spending the same amount but they are obviously getting less because prices have gone up. People are shopping more often and buying a little bit less each time they shop. So we can read into that what we will, in terms of the psychology of the customer living through cost-of-living pressures.”

Endeavour said that, in terms of products that, like cheaper beer, had also benefited from a search for value, Cotes des Roses and La Plancheliere rose and Rivka and Poliakov vodkas from the Pinnacle range, owned by Endeavour, were performing well.

The sales performance at Endeavour’s bottle shops and 354 pubs underwhelmed the market and missed some analyst expectations, sending its shares down more than 2 per cent to a new all-time low. They closed down 2.2 per cent on Monday at $4.91.

The fall sets the scene for a firey annual general meeting on Tuesday, when major shareholder Bruce Mathieson is likely to savage the board and attempt to elect his candidate, Bill Wavish, as a ­director.

Dan Murphy's new premium store in Lane Cove.

Mr Donohue pledged in a briefing with analysts to reinvigorate the business, both retail and hotels, along its existing strategies and said the company would probably slow down its pace of buying new pubs as it sought better returns from its existing network.

Mr Mathieson, who owns 15 per cent of Endeavour and has been running a bitter and public campaign against the board for a month, was quick to lash out at the retail sales performance (which suggests Endeavour has ceded market share to Coles’s liquor arms), its pubs operations and board oversight from chairman Peter Hearl.

“Endeavour’s results have once again vindicated my questioning of strategic direction and calls for Hearl to go. Another quarter of revenue not even near to keeping pace with inflation,” Mr Mathieson said. “After nine quarters of continuous loss, they’ve finally beaten Coles Liquor by a decimal point. They should be beating them by a country mile.

“Hearl’s hobbies in the retail business have failed spectacularly and it’s clear for all to see. Speciality revenue is going backwards and is in absolute free fall. When I said get back to everyday low prices I didn’t intend for Hearl to start with the share price.”

Shares in Endeavour, which spun off from Woolworths in mid-2021, have fallen 31.3 per cent in the past 12 months, fuelling anger from Mr Mathieson, who has suffered paper losses of hundreds of millions of dollars on his investment.

The company posted a 2.1 per cent lift in first-quarter sales to $3.09bn as shoppers searched for value when in one of their bottle shops and spent less on its more than 12,500 poker machines.

The trading update comes after Woolworths and Coles last week reported their quarterly sales updates, which showed a strong surge in consumers seeking out value, items on promotion and home brands.

Endeavour reported that retail sales – which covers its 1710 Dan Murphy’s and BWS stores – rose 1.9 per cent to $2.54bn, while total hotels sales climbed 2.8 per cent to $553m.

Its BWS convenience liquor stores and big-box Dan Murphy’s stores reported combined sales growth of 2.6 per cent in the quarter, while on a comparable store sales basis total retail sales grew by 1.2 per cent, while BWS and Dan Murphy’s combined comparable sales growth was 1.8 per cent.

Mr Donohue said consumers were looking for value when entering one of his company’s liquor stores, showing up in a shift to mainstream beer.

“In retail, customers are searching for value and discovery, which is reflected in shifting category trends, including higher demand for mainstream beer, rosé and pre-mixed drinks,” Mr Donohue said.

Endeavour shareholder Bruce Mathieson.

There was also pressure on ­Father’s Day expenditure, which traditionally sees strong sales for liquor gifts, with Endeavour commenting that sales growth moderated in August, with a softening in demand for Father’s Day gifts.

However, momentum trended up again through the last two weeks in September, and this had continued into the second quarter. In both brands, Dan Murphy’s and BWS, shopping frequency and average item prices increased, which more than offset a reduction in items per basket.

Average price inflation in the quarter moderated from a peak in the fourth quarter, to about 5 per cent year-on-year, driven primarily by excise increases in beer, spirits and pre-mixed drinks.

At its network of 354 pubs, sales in the first quarter increased by 2.8 per cent to $553m as weekly sales during the quarter remained relatively stable, with year-on-year growth in bars, food and accommodation, partly offset by a low single-digit decline in gaming. Sales momentum remained steady heading into the second quarter, the company said.

E&P Capital retail analyst Phillip Kimber said the sales results for Endeavour’s retail and hotels ­operations were below his forecasts and had decelerated over the quarter, with its Dan Murphy’s and BWS bottle shops trailing sales growth at rival stores owned by Coles.

Mr Kimber called it a “slightly disappointing” result, and it could spark further anger from the rebel Endeavour shareholders led by pokies baron Mr Mathieson at the AGM on Tuesday.

UBS analyst Shaun Cousins said Endeavour’s retail sales were above market expectations but below that of UBS’s, as same-store sales fell, with its hotels sales undershooting market and UBS expectations.

“In retail, Endeavour noted around 5 per cent inflation (excise and increased pre-mix prices), which indicates real like-for-like sales decline, with Endeavour noting fewer items per basket despite increased shopping frequency,” Mr Cousins said. “In hotels by category, bar, food and accommodation grew, while gaming revenue fell low single-digit, with this composition a negative margin mix shift for hotels.”

On an analyst call, Bank of America’s David Errington questioned how Endeavour could grow sales and profits at the retail businesses of Dan Murphy’s and BWS. “The view out there is that you guys have lost your mojo in Dan Murphy’s and BWS,” he said.

At the end of August, Endeavour’s pubs moved early to introduce reduced hours for its gaming rooms in Victoria, following the changes announced by the Victorian government, which Mr ­Donohue said led to a small fall in pokies sales.

This decision, as well as Endeavour’s recent poor financial performance and sliding share price, has lit the board battle now raging ahead of Tuesday’s annual general meeting.