It took five weeks for Dan Murphy’s owner Endeavour Group to dust itself off from a nasty brawl with the founding fathers of its business and show investors it was heeding the lessons that had sent the stock to a record low.
Former Woolworths CEO Roger Corbett – who turned Dan Murphy’s into a liquor juggernaut under his stewardship – and billionaire Bruce Mathieson, who set up the pubs and pokies side of the business, had lost the battle against Endeavour’s board at the October shareholders meeting.
But the war was far from over, and Endeavour chairman Peter Hearl knew it.
Mathieson – Endeavour’s largest shareholder – may not have garnered the support of other major investors with his boardroom brawl but the dissatisfaction was clear.
So it was a rather contrite Endeavour chief executive Steve Donohue who fronted analysts and investors at the Forest Hotel in suburban Sydney in early December. He had fresh performance targets which signalled they had been listening to what had been some blistering feedback.
“We want to acknowledge that we clearly have more to do to deliver the performance and shareholder returns that investors expect,” Donohue said.
He is now targeting over $290 million in cost savings by fiscal 2026, and promising to be better with allocating capital to get better returns from its businesses – especially the pubs and pokies assets.
It will all help Endeavour towards an annual target of at least 10 per cent shareholder value creation by 2026.
“It really lays out our financial ambition for Endeavour,” Donohue said.
The ambitious targets would never have been enough to save chairman Hearl, who announced his retirement plans just days into the new year.
But it does set the stage for a reckoning over Donohue’s stewardship of the business since its spin-off from Woolworths in 2021.
He will be under pressure to perform this year, with Endeavour’s new chairman Ari Mervis taking the reins in April.
The fact that Mathieson’s son, Bruce Mathieson Jr, stood down from the board along with Hearl indicates the willingness of the Mathieson family to make peace. But also their confidence that Mervis will do what is necessary to ensure the business gets back on track.
Jefferies analyst Michael Simotas noted that Mervis and another new director, Peter Margin, have considerable experience in consumer and alcohol businesses.
“We view Endeavour Retail as one of Australia’s best retail franchises, which deserves a higher trading multiple if it can improve execution,” Simotas says.
The December update from Donohue also included the promise of a renewed focus on the Dan Murphy’s brand. It is a major potential flashpoint with Mathieson and Corbett who used the recent performance of the liquor business – easily the most valuable in the Endeavour portfolio – to attack its board last year.
Their premise was a simple one. Endeavour’s board and management do not have the experience to see that they are taking Dan Murphy’s down the wrong path and losing the competitive advantage it has as the liquor industry’s dominant force.
“Dan Murphy’s is a wonderful business if you stick to the principles,” Corbett says.
These principles were the same ones he was adopting at Woolies: Get the goods from the supplier to store shelves with as little handling as possible to drive efficiency and use this to drive sales growth and market share via low prices.
“You keep your logistics costs down, much below your competitors because you’re handling in bulk … and the economies of scale that it gives you are enormous,” he said.
“If you don’t understand the principles, and you don’t religiously stick to them, and you haven’t got the skills to apply them, well, then you’re in trouble. And that’s why Dan Murphy’s is in trouble,” he says.
Endeavour’s response is a simple one. Things have changed a lot since Corbett was in charge at Woolies between 1999 and 2006. Beer ruled the roost in terms of alcohol consumption, and VB accounted for one out of every four beers sold in Australia.
Fast-forward to the post-pandemic market and Roy Morgan’s most recent alcohol consumption report shows only 32 per cent of Aussie drinkers are drinking beer in the year to March 2023.
By comparison, 44 per cent were drinking wine and more than 20 per cent consuming ‘ready to drink’ products which were barely a rounding error during the Corbett era. The latter includes alcoholic/hard seltzers which were only launched in 2019.
It is a very different competitive landscape and it requires different weaponry.
Donohue emphasised the advantage it gets from Dan Murphy’s loyalty program to build relationships with its customers and keep up to date with these fast-changing trends.
“The demands of customers today are changing very rapidly. We use data to deeply understand our customers and guests,” he told the investor day in December. These loyalty members currently account for 80 per cent of transactions which represent 90 per cent of Dan Murphy’s sales.
The tough bit is for Donohue to put his new plan into action, get the results, and lift the share price out of the doldrums. He will front investors on Monday, February 26 for the half-year results and everyone will be watching closely.
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Source: Thanks smh.com