Dan Murphy’s needs to innovate to keep up

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Woolworths CEO Brad Banducci has said that Dan Murphy’s needs to reposition the business and innovate in order to keep up with consumer needs, which are changing very quickly.

Banducci made his comments during the Woolworths results presentation for the first half of FY19, which showed a disappointing result for Endeavour Drinks Group, with a small sales increase and a fall in earnings before interest and tax (EBIT).

“Endeavour Drinks’ result was below expectations, with sales increasing by 1.8 per cent and EBITS decreasing by 6.4 per cent in the half,” Banducci said.

“This doesn’t include New Year’s Eve and if it had been included our sales for the half would have increased 2.5 per cent and EBIT would have still gone down, but by four per cent.

“A number of factors contributed to the lower result including the timing of New Year’s Eve, inclement weather especially around key events like the Spring Carnival and key Christmas trading weeks and a lower growth market.

“These factors particularly impacted Dan Murphy’s given that Dan’s is highly leveraged to events.

“Steve Donahue has assumed the role of interim Managing Director of Dan Murphy’s and will continue to work with the Dan Murphy’s team to position the for the next horizon of growth. We have clear plans in place focused on localising range, rebuilding the Discovery experience and being digitally-led.”

Speaking about the focus that repositioning will take, Banducci said that innovation and improving the delivery of digital products would be key, with Dan Murphy’s looking at the success BWS has had in this area.

“The real issue in the drinks business is the consumer is changing very quickly and we need to innovate our business to keep up with their changing needs. That is the real challenge; it’s the challenge for Dan Murphy’s going forward and it’s still a much-loved brand in Australia, it is our highest value brand in terms of consumer resonance, but in all parts of our drinks business we need to innovate.

“The key forms of innovation for our customers are continuing fragmentation of categories and consumer moves to lighter, styles and accessibility is key. Then critically important in this category, perhaps even more important than food, is the whole topic of convenience and people wanting it now. It is a relatively particularly bulky good to take to the home so it does fit particularly well with some form of delivery, whether on-demand or traditional home delivery.”

He added: “BWS has really led the charge for us here, with over 500 BWS’ now with on-demand home delivery. Jimmy Brings has been important for us and shown us what is possible and that continues to grow very pleasingly as part of the BWS proposition. Now, in the last six weeks transferred a lot of that BWS into Dan’s with the launch of Dan’ on-demand as well as making our pick-up experience a  30-minute experience in Dan’s.

“So a lot of work there is not getting the traction we would like right now in sales numbers, but will be a key part of our future.”

Banducci also gave his outlook for the remainder of the financial year and that challenges that the Endeavour Drinks Group will face.

“We expect the more subdued consumer sentiment to continue through the half, however it would be fair to say that trading to date in the second half has improved on Q2, primarily due to the more settled weather we’ve experienced in most of Australia.

“Endeavour Drinks needs to evolve its offer to meet our rapidly changing customer expectations and to capitalise on its market leading position and the resonance that particularly the Dan Murphy’s brand has with our customers. We have strong plans in place to ramp up our digital, delivering on range, service and discovery and we expect to make good progress over the course of H2, but expect our overall EBIT for F19 to be below the prior year.”

Overall the Woolworths Group delivered sales of $30.6bn, up 2.3 per cent for the first half, as well as EBIT of $1.4bn, up one per cent and an overall net profit of $979m, also up one per cent on the previous year.

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