Woolworths Getting Out of the Gambling Business
Supermarket chain Woolworths is distancing itself from pokies. The company’s Australian Leisure & Hospitality Group will merge with Endeavour Drinks and likely be sold off in 2020. This new entity is worth $11 billion, and its 12,000 pokie machines rank it third in Aussie gaming.
Woolworths entered the gambling industry in 2004, partnering with hotel owner Bruce Mathieson to own ALH. Now the company is focused on getting back to the basics of their food and retail businesses. Only a few years ago, they also cut ties with Masters, a failed hardware chain that cost shareholders $2 billion.
The move comes as the gaming industry across Australia endures growing pressure. Even moderate critics agree that annual losses of $24 billion by citizens may be too steep. Combine that with a study showing over 40% of pokie revenue comes from those with a serious gambling addiction, and it all adds up to a major problem.
A Continual Headache
Pokies are a major source of profit for Woolworths, but they’ve also provided a recurring headache. Many anti-gaming activists feel that a trusted national brand shouldn’t be involved in gambling
Australia leads the world in gambling losses to the tune of $1,000 per person (on average). Punters over the age of 55 have the worst luck, but plenty of other groups are close behind. This is a potential public relations nightmare, especially for a supermarket giant.
While their reputation has suffered, Woolworths has also faced some legal issues. New South Wales gaming regulators are currently investigating more than 50 establishments run by ALH. According to a whistleblower, employees provided customers with free alcohol to keep them playing pokies.
In New South Wales, it’s a criminal act to provide discounted or free liquor to induce gambling. If found guilty, the venues in question could face fines of more than $100,000. While the amount of the fine would be nothing, it does serve to further tarnish their community standing.
Woolworths denied the accusations, saying it doesn’t provide free alcohol at any of their venues. According to a statement, “What we’re focused on with ALH is to continue to enhance its responsible gaming practices and quality service at the hotels.
Added Pressure from Coles
In March, Coles announced a $200 million deal to give up control of 87 hotels and 3,000 pokies. This move immediately shifted pressure to Woolworths, as the two control 80 percent of the Aussie supermarket industry.
Coles earned an annual $185 million from their pokies, which is substantially less than their competitor. Still, it drew praise from the Alliance for Gambling Reform and others, leaving Woolworths to take a greater degree of criticism.
Prior to leaving the gaming business, Coles called upon five pokie manufacturers to add harm-prevention modifications. Topping the list was a maximum wager of $1.
What the Near Future Holds
Shareholders of Woolworths conduct their annual meeting in November, and they’ll be asked to approve the move at that time. Hotels and drinks should merge later in 2019, while the demerger involving gambling is expected to finish in 2020. The latter comes with a price tag of $275 million.
So far, investors seem pleased with news of the demerger. Following the announcement, company stock rose 3.3% up to $34.
ALH and Endeavour accounted for 30% of the company’s total earnings last year. Together, they’ll become the nation’s largest hospitality and alcohol service.
Online pokie devotees have nothing to worry about, and even land-based casino patrons should be unaffected. The demerger by Woolworths mainly impacts those who play at smaller venues like pubs.
The new owner of all those pokies, however, is unlikely to send them to a warehouse. Expect another gaming operator to spring up within Australia, albeit within an era of greater scrutiny and regulation.