Woolworths investors and anti-gambling activists that want the supermarket to get out of its controversial pubs business should not expect any movement on the issue soon, sources close to the company said, with management's focus instead firmly on fixing its loss-making Big W chain.
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The retail giant owns a majority state in ALH Group, which is Australia's biggest poker machine operator, with more than 12,000 machines across its 323 pubs and clubs.
That has long made it a target for anti-gambling campaigners, and The Age and the Sydney Morning Herald revealed this week that one of its major investors had joined that push.
Perpetual Investments, which is Woolworths' third largest shareholder, has told the company that it should sell its 75 per cent stake in ALH because it was a risk to its supermarket brand and reputation in the community.
As the largest investor in Tabcorp and the Star Entertainment casino group, Perpetual had no ethical qualms over investing in gambling companies and took its position on Woolworth's ALH stake purely on business grounds, the sources said.
There have been reports dating back several years that Woolworths and its joint venture partner, hotelier Bruce Mathieson, were looking to change AHL's ownership structure, including through a potential IPO.
But sources close to Woolworths said there was no transaction currently on the cards, and it would likely not look at any change in ownership until Woolworths boss Brad Banducci had dealt with Big W.
Department store retailer Big W has been the biggest pain point for Woolworths since it closed its disastrous Masters hardware chain in 2016.
The discount department store ran at a $110 million loss last year, and Woolworths expects it to lose another $80 million to $100 million last year.
Any move to divest from ALH will be complicated by liquor laws in Queensland, where bottle shop owners must also own a pub license.
Woolworths is in the process of closing 30 of its worst performing stores in an effort to improve returns.
Shutting the entire chain is not considered a likely option, as it has close to $2.7 billion of lease commitments it will have to pay out. Mr Banducci has said Big W would have to return to profitability before the company would consider selling it.
The risks to Woolworths' reputation from poker machines was highlighted last year, when it was revealed staff at ALH pubs were keeping personal information on high-turnover gamblers and giving them free drinks to encourage them to gamble more. The revelation prompted a number of investigations by state and federal liquor and gaming authorities.
Any move to divest from ALH will be complicated by liquor laws in Queensland, where bottle shop owners must also own a pub license. An outright exit from ALH would therefore create issues for Woolworths' network of several hundred BSW and Dan Murphy's liquor stores in that state.
Coles claims that it solved this problem earlier this year through a deal for its hotels arm. Under the deal revenue from its pubs and associated poker machines go to its joint venture partner, but Coles retains the right to run its Liquorland, First Choice, and Vintage Cellars bottle shops in Queensland.
Weighing up options for both Big W and ALH form part of a broader reassessment of Woolworths' portfolio, following the sale of its petrol station network to British giant EG Group for $1.7 billion last year.
The proceeds of that sale were shared with shareholders through a $1.7 billion off-market buy-back. Woolworths shares on Friday closed 91 cents, or 2.7 per cent lower at $32.70.
- SMH/The Age
