Woolies grasps liquor prize in virgin territory

The deal to buy the 45-year leases of Magnums Hotel in Airlie Beach and the Blue Pacific Hotel on Bribie Island for $12.5 million will give the joint venture the pubs as well as three bottleshops and the potential to open three more.

The purchase by Australian Leisure and Hospitality, Woolworths' hotel and gaming joint venture with hotelier Bob Mathieson, is regarded in the industry as timed to precede changes to creeping acquisition laws and a further tightening in liquor licensing.

It was willing to pay top dollar for the chance to expand its footprint into areas where it does not have a presence, grab market share and stay a jump ahead of Coles's revamped bottleshops.

Woolworths has also taken advantage of its ability to pay top dollar for pubs when most buyers are having trouble getting credit.

Liquor expansion has been a crucial source of growth for Coles and Woolworths. Most of Woolies' market share gains have been in liquor, not in its supermarkets, in the past three years.

Coles and Woolies have made liquor their focus, increasing their combined market share from 32 per cent to 52 per cent in the past four years, according to Citi research.

Woolies now holds 279 pubs through the ALH venture. It also has 1138 bottleshops across the country, including 100 Dan Murphy stores, 610 BWS stores and 428 Woolworths/Safeway liquor stores.

In the first half of this financial year it opened more than 30 new BWS and Woolworths Liquor stores.

ALH's chief operating officer, Ross Blair-Holt, told the Herald the company could boost the pub earnings through leveraging Woolworths purchasing power, its lower overheads and by increasing sales.

The three Queensland bottle shops, now supplied by rival Metcash, will be converted to Woolies' BWS brand.

The ALH pubs generate annual sales of $1.1 billion, and Woolworths is expected to generates sales of more than $5 billion from its bottleshops this year.

Mr Blair-Holt confirmed the sale was at a yield of 7 per cent, which is regarded as a low yield.

This means the purchase price was about seven times net profit, which reflects how values are under pressure.

On Bribie Island the purchase allows Woolworths to take on its main rival, Coles, head-to-head. Coles is the only other hotel and bottle shop owner on the island.

The chief executive of National Leisure and Gaming, Andrew Jolliffe, said he was happy with the sale price.