AVC takes over Coles pubs in Queensland

Australian Venue Co has inked a deal to manage Coles' Spirit Hotels group.

AVC currently owns about 60 pubs, clubs, bars and restaurants around Australia and will add Coles' 87 Spirit Hotels venues in Queensland, including around 3000 poker machines, to its portfolio.

The new business is called Queensland Venue Co, with Coles and AVC owning an equal number of shares. the transaction is expected to complete prior to the end of the 2019 financial year.

Under the deal, Coles will manage the day-to-day operations of the 243 retail liquor stores in Queensland and 10 retail liquor stores attached to Spirit Hotels in Western Australia and South Australia.

Coles will take the profits from the bottle shops and receive about $200 million cash as part of the deal, while AVC will take the profits from the hotels and gaming operations.

Coles noted: "To comply with applicable liquor and gaming laws, all primary functional assets, including the licences and authorities, will be held by Queensland Venue Co. The JV Company’s board will have ultimate oversight and responsibility for compliance with applicable laws affecting both businesses."

Coles CEO Steven Cain said: “The agreement with AVC will enable each party to bring relevant expertise to the joint venture. Over the past 12 months Coles has undertaken an extensive review of its Spirit Hotels business to identify a suitable partner. AVC is a highly experienced and responsible operator of quality hospitality venues with their current portfolio of more than 60 hotels. AVC has plans to grow the hotel portfolio in Queensland which will in turn provide Coles with the opportunity to further grow its retail liquor business in that state.

“I would like to thank all Spirit Hotels team members for their outstanding efforts in growing and improving the business over the past few years and, in advance, for their continued focus and commitment during the transition to the new structure.”

The company advised that the deal is expected to result in an associated book loss on sale of approximately $20
million.

"The net impact on the Liquor segment had the transaction been in place for the 12 months ended 30 December 2018 would have been a reduction of both revenue of approximately $300 million and EBIT of $13 million," it added in a statement. 

The Australian Financial Review noted: "The deal initially will dent Coles' liquor sales by $200 million and earnings by about $13 million, or 15 per cent on a pro forma basis."

However, it will provide Coles with the opportunity to expand its network of bottle shops in Queensland. Under Queensland's liquor licensing laws, businesses must hold commercial hotel licences to operate retail liquor outlets. Operators can run up to three stores within a 10-kilometre radius of a pub.

AVC has plans to buy more pubs in Queensland and, as part of the terms of the joint venture, Coles will have the right to operate existing bottle shops attached to new hotels or open new bottle shops using the liquor licences attached to new hotels.

AVC will fund the purchase of new pubs, while Coles will fund the purchase or development of new bottle shops.

It will be the first time Coles has expanded its network of bottle shops in Queensland since 2005 and 2006, when it bought 90 hotels for about $800 million.