Strong demand for craft beer, premium wines, spirits, gin, seltzers at Endeavour’s Dan Murphy’s, BWS stores

With pubs and hotels largely off limits during Covid, Aussies flocked to their local Dan Murphy’s or BWS store to pick up wine and craft beer.

Endeavour Group CEO Steve Donohue said the emergence of Omicron at Christmas hurt sales at its hotels and pubs as consumers were hesitant to visit. Picture: David Geraghty

Consumers are making tentative steps back to their local pubs but are still cautious about socialising so soon after the Covid-19 surge – preferring to pick up a bottle of wine or slab of beer at liquor outlets Dan Murphy’s and BWS.

Endeavour Group, the owner of 251 Dan Murphy’s and 1392 BWS chains, as well as a portfolio of 339 hotels, reported softened trading in January across its hotels and retail outlets due to this uncertainty but as restrictions were eased in February there was an ­improvement to trade.

Endeavour chief executive Steve Donohue, who on Monday unveiled his first interim result since the group demerged from Woolworths in June, said trading for the first six weeks of 2022 showed a 2 per cent fall in retail, with hotel sales 2.9 per cent weaker against the same time last year.

“January was generally quite tough,” he said. “It would be fair to say that the last couple of weeks of that six weeks are certainly better than the preceding four.

“It continues, I think, to go well, but we’ve also come to realise just how volatile things are and you can’t really bank on it not being another problem somewhere down the track.”

Endeavour posted a 15.6 per cent interim net profit lift to $311m as revenue of $6.337bn was down 0.3 per cent. The underlying earnings result was 15 per cent ahead of consensus forecasts. Investors rewarded the beat, sending Endeavour shares more than 10 per cent higher to close at $7.18.

The half was dominated by the disruptions caused by government-mandated closures and density limits, which played havoc with its entertainment venues, but it was bolstered by another strong performance by its outlets, which did a roaring trade as consumers drank and entertained at home.

And when they picked up a beverage from a Dan Murphy’s or BWS, shoppers were increasingly turning to higher-priced brands, especially across wine, gin and craft beer, to help bolster Endeavour’s margins and counter the slide in hotel earnings. Mr Donohue said its pubs and hotels business was particularly hard hit in the first half as there were multiple and extensive Covid-19 impacts in the first quarter, including lockdowns in the key markets of Victoria and NSW.

At its pubs and hotels arm, Covid-19 continued to have a significant impact on trading performance through the first half. Sales increased by 1.9 per cent to $680m. There were only 30 per cent of total trading days where all its hotels were open in this half year. Earnings for the division fell 0.8 per cent to $121m.

It was a different story for its retail arm, which picked up the slack from the hotels side of the business. Its retail arm, led by Dan Murphy’s and BWS, delivered sales of $5.7bn in the first half, slightly behind strong sales in the first half of 2021 but up 18.4 per cent on a two-year basis. Earnings increased 10 per cent to $461m. Margins were fattened by demand for premium brands as well as an easing of heavy discounting.

Gross margin for its stores was 141 basis points higher at 23.7 per cent, driven by the generally lower promotional activity in the market, trends to premium products and mix improvements through higher-margin new products, and growing demand for Endeavour’s in-house brands. Consumers continued to move to craft offerings, more premium wines and spirits, with gin and seltzers particularly strong. Beer and cider were the only major categories in decline compared to last year.

Mr Donohue said if many people decided to work from home this year and stayed away from the CBD, it could benefit the company’s hotels and pubs business.

“I guess what we would expect is that if there’s a return to those sort of high-density, high-capacity environments in CBDs, talking about social environments, offices, and those sorts of things, that would be more of a reversion to mean (performance) for us,” he said. “Whereas I think it’s more likely that people are inclined to stay local, more working from home, less inclination to go into the cities again, which I expect would deliver a bit of a net benefit to us because our hotel network is very suburban or regionally distributed rather than concentrated in urban areas.”

And as people did return to their local watering holes, this would probably trigger a retreat in sales at its retail outlets as the on-premise trade – which included cafes, bars and restaurants – took some of the volumes out of people drinking at home.

The company declared a maiden interim dividend of 12.5c a share, payable on March 28.