Why Woolworths is making a $10 billion move out of liquor and pokies

The Woolworths Group proclaims it celebrates “family-friendly values”.

Within its supermarkets the company has sought to demonstrate this commitment. Woolies gives out free fruit to kids, for example, and no longer gives out plastic bags.

Its goal, the group states, is to “inspire our customers to consume all of our products in a healthy, sustainable way”. It’s a noble goal – but one undercut by its profits from pubs and pokies.

The company announced yesterday it will separate from its liquor and gaming businesses. This should be be welcomed as a bold step showing its stated commitments aren’t just PR gimmickry.

The company’s hotels division encompasses 323 licensed venues, many operating poker machines. Its liquor retailing division is bigger still, and includes the well-known brands Dan Murphys, BWS, and Cellarmasters.

Alcohol and gambling both represent significant social problems in Australia. The number of alcohol-induced deaths in 2017 – 1,366 – was the highest in two decades. Per capita gambling losses are the highest in the world.

Just last month, several Woolworths-owned hotels in New South Wales were accused of serving free drinks to encourage patrons to continue gambling.

As much as Woolworths might have done to ensure these business divisions operate as responsibly as possible, there is a stigma associated with their profits. They do not fit easily with “family-friendly values”.

Reputational risk

Continuing to operate these businesses would represent a clear reputational risk for Woolworths at a time when consumers increasingly expect organisations to walk their talk and demonstrate they make a positive impact on society.

This trend in consumer sentiments is demonstrated by the result of Swinburne University’s Australian Leadership Index. The index is based on a nationally representative survey run quarterly. It tracks consumer perceptions about whether organisations show leadership for the greater good.

At the aggregate level, perceptions of big companies like Woolworths are consistently negative. More consumers think they do little to nothing to contribute to the greater good than those who think they make a positive impact. There is clear desire for businesses to contribute more to society.

Research by global professional services firm Accenture indicates 61% of Australian consumers consider a company’s ethical values and authenticity when making their purchasing decisions, and 40% have boycotted a company over its actions on a social issue. Younger consumers are particularly adamant that companies have clear social values.

The Woolworths Group will first combine its pubs and liquor retail divisions into one, then spin off that division into a separate company, listed on the Australian Stock Exchange.

It will be Australia’s largest drinks and hospitality businesses, with expected annual sales of up to A$10 billion.

Losing the revenue will cost Woolworths. But the potential long-term benefits are considerable.

The separation presents an opportunity for the group to create a clearer perception among consumers of the company’s values – a smart move in an evolving marketplace of empowered consumers demanding organisations be social leaders.

By Jason Pallant, Lecturer of Marketing, Swinburne University of Technology

This article is republished from The Conversation under a Creative Commons license. Read the original article.