Is Woolworths Limited about to sell its Liquor business?

Credit: Scott Lewis

Woolworths Limited (ASX: WOW) has renamed its Woolworths Liquor as Endeavour Drinks Group – with some suggesting it’s the precursor to a demerger, IPO or sale.

The supermarket retailer told suppliers and partners of the name change on Wednesday, according to the Australian Financial Review (AFR), which will take effect from June 1.

Endeavour will incorporate Woolworth’s brands: Dan Murphy’s, BWS, Cellarmasters and Langtons. Woolworths’ general manager merchandising and marketing, Rose Scott said the company wanted a new name that would differentiate its liquor business from its supermarkets food business.

The term ‘liquor’ doesn’t fully encompass how our customers feel about our business. Liquor is a dated term. ‘Drinks’ is more aligned to the social atmosphere our customers want to associate with beer, wine, cider, RTD (ready-to-drink) and glass spirits,” Scott added. “We need to separate our ownership from the strong customer facing brands that sit underneath it.

Woolworths’ liquor business has been a strong performer over the years and should generate well over $8 billion in sales in the 2016 financial year, after reporting $4.4 billion in sales for the six months to end of December 2015, up 4.9% over the previous year.

The beleaguered company announced in January that it was ending its foray into the Home Improvement sector and was scrapping its Masters hardware businesses to focus more on its core operations.

Woolworths’ supermarkets are struggling against heavy competition from rival Coles – owned by Wesfarmers Ltd (ASX: WES), a revival at Metcash Limited’s (ASX: MTS) IGA independents and the growing threat from discounter Aldi. Same-store-sales growth has struggled to remain positive while Woolies has been steadily losing its dominant market share.

Discount department store Big W is also struggling to remain relevant, with sales falling in the last half year by 3.9% and same-store-sales growth down 4.5%.

A stronger focus on its struggling operations could see Woolworths decide to offload its liquor business, but it probably represents a similar story as Bunnings does to Wesfarmers. Why sell such a strong performing business, particularly when your other businesses are struggling?

Well, the AFR reports that the value of the liquor business is not represented in the group’s market value, and some shareholders are apparently pushing for the retailer to spin off all or part of the business.

Foolish takeaway

Despite the news, it seems highly unlikely to me that Woolworths will sell its highly-performing liquor business just to appease some shareholders.

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Motley Fool writer/analyst Mike King owns shares in Wesfarmers and Woolworths. You can follow Mike on Twitter @TMFKinga

The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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