Retail Liquor Real Estate Keeps Bubbling Despite Tighter Times

Beer—and liquor in general—has often been labelled recession-proof. And while the economy might not be quite in that state, retail liquor real estate is booming. According to the latest report from Colliers, the buyer pool and active mandates for discount liquor store investments in the past three years have “increased materially, buoyed by a boost in sales performance and growth in market share”. Colliers director of retail middle markets Tim McIntosh says that investor depth for retail liquor investments has increased broadly. “We have observed the greatest increase in buyer demand for the Dan Murphy’s covenant, and this has been particularly apparent from the private investor buyer category,” he says. Drivers of this interest, McIntosh says, include the strong trading and low risk of discount liquor stores, with the country’s biggest retail liquor companies, Coles and Endeavour Group, listed on the ASX and posting consistent profits. ▲ Roy Morgan research says 13.7 million Australians (67.6 per cent) 18-plus consumed alcohol in an average four-week period in the year to March, 2023. Head of property at Endeavour Drinks Matt Toohey says that, as the leading retail drinks operator in Australia, the group has a long-term strategy. “We know liquor retail is a very resilient sector, and with Australians always seeking new and interesting drinks, it should come as no surprise there is growing interest in the space,” he says. “In the first quarter of the 2024 financial year, we added seven new BWS stores to the network and one new Dan Murphy’s. On average we target around eight new Dan Murphy’s stores and 20 new BWS stores each year.” Importantly in the world of property, because of their extensive market share and links with the major supermarket chains, liquor stores have strategic store networks in prominent locations with underlying land value and long-term redevelopment potential. Online vs bricks and mortar In the retail liquor landscape, 56.3 per cent of the market belongs to Endeavour Group, which was owned by Woolworths Supermarket Group before it was demerged in 2021, and Coles Liquor, owners of the First Choice, Liquorland and Vintage Cellars brands. Endeavour’s biggest offerings are Dan Murphy’s and BWS—it owns 1071 stores nationwide, as well as the Jimmy Brings online retail brand. “[Retail liquor operators] are a committed tenant once open and trading, and my understanding is that [Dan Murphy’s] hasn’t closed a store its opened across Victoria,” Colliers’ McIntosh says. ▲ There are 270 Dan Murphy’s retail liquor outlets in Australia. “In recent years, there has been an upward trend in sales growth, driven at a macro level by population growth and inflation, while more recently consumer behaviour and less discretionary spend is seeing discount liquors value arbitrage hold greater value for consumers. “Larger discount liquor store investments have a strong correlation to traditional supermarket and shopping centre investors, based on the comparable investment characteristics and the Dan Murphy’s covenant at a similar calibre to Coles and Woolworths. “This trend illustrates how the covenant has become more highly regarded and drawing a premium as a consequence.” One might think with the onward march of online shopping, however, that bricks and mortar stores are on the way out, but this may not be the case. “Like Woolworths and Coles, discount liquor is also adapting to omni-channel sales and integrating both online and ‘direct-to-boot’ sales,” McIntosh says. ▲ According to the Australian Institute of Health and Welfare, Australian alcohol consumption by sales volume has been steady for the past 30 years. Endeavour’s Toohey says that the pandemic was a major driver of online sales across its retail brands. “But we have seen a return to bricks and mortar during the past 12 months in particular,” he said. “We are focused on delivering great omni-channel experiences for our customers, which in basic terms is all about ‘clicks and bricks’. “For example, at our first quarter trading update, we shared that 8.7 per cent of our total retail sales were generated through our e-commerce channels, with double digit online sales growth in Dan Murphy’s driven by the convenience of pick-up at store, which comprised a record 70 per cent of Dan Murphy’s online orders placed in the quarter.” Investment and developer potential McIntosh says that investors are actively pursuing this rapidly growing retail sub-sector that provides strategic underlying land value, anchored by AAA covenants with attractive rental growth and growing exposure to last-mile logistics. But there are some unique features when dealing with a product like alcohol. In Queensland for instance, to own a bottleshop one must first have a commercial hotel license, and there are a maximum of three bottleshops allowed within 10km of the venue. Retail liquor operators often have a large portfolio of hotel and pub premises, and prior to the divestment of the Endeavour business, Woolworths was the largest owner of pokies in Australia due to its hotel ownership. Endeavour also includes the Australian Leisure and Hospitality Group (ALH Hotels) with 349 venues in Australia, including 137 in Queensland. “Hotels and bottle shops go hand-in-hand,” says Endeavour’s Toohey. “A large portion, around 45 per cent, of our group sales are generated from hotels with associated liquor retail stores. “There are obvious synergies from sharing licences, leases, logistics, customer presence and overheads.” ▲ The Endeavour-owned Australian Leisure and Hospitality Group (ALH Hotels) has 350 licensed venues across the country. And developers are clearly seeing the worth of retail liquor in mixed-use and retail developments. Central Element recently announced the signing of Dan Murphy’s to its $180-million Pienza development . “Central Element considered a number of anchor tenancies for Pienza, however, saw the greatest alignment with Dan Murphy’s vision to enhance the Neutral Bay town centre through a premium and innovative store concept,” the company told The Urban Developer. “The Dan Murphy’s will align strongly with the proposed tenant profile for ground floor.” When it comes to deciding if Endeavour will take on an opportunity, Matt Toohey said that there are a range of factors considered. “Ultimately we’re focused on delivering stores in locations that will meet customer needs in terms of convenience and accessibility,” he says. “We have a lot of experience in mixed-use developments—we have opened two new Dan Murphy’s stores in Spotswood and Epsom, and another is due to open in Woolooware in January. “Urban growth corridors are a focus for us, as well as ample carparking and general amenity. We also have regard to any impact a new store will have on our existing store network and of course apply a very disciplined approach regarding achieving our financial hurdles.” ▲ Dan Murphy’s will be a major tenant of Central Element's luxury Pienza development in Neutral Bay, which is due to complete in 2024. Overall, then, retail liquor provides a promising opportunity for existing investors and future developments. “The large format retail (LFR) sector is rapidly evolving and expanding at a faster rate relative to the already established supermarket industry,” says Colliers’ McIntosh. “The compelling aspect of discount liquor investments is that while it fits in the category of LFR it is also non-discretionary with sales showing resilience in different market cycles.” Matt Toohey says that Endeavour plans to capitalise on this opportunity in the next year. “We are seeing customers return to the brands they know and love—and this means the classic beer brands,” he says. 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