Acquisition paves way for Woolworths expansion

Wines displayed in la Bordeauxthéque at its grand opening party, in the newly-launched French department store Galeries Lafayette, in Beijing on Feb 27, 2014. [Photo/chinadaily.com.cn]

Woolworths Liquor Group, a leading global drinks retailer and the top seller of alcoholic beverages in Australia, on Wednesday announced the $25 million acquisition of Summergate Fine Wines & Spirits and Pudao Wines as it seeks to expand in the Chinese market.

According to The Sydney Morning Herald, Woolworths Managing Director Brad Banducci said that Summergate, a major alcoholic drinks distributor in China, increased sales in the past three months despite a tough market.

The acquisition comes amid a new era of consumer-driven demand. The government's austerity campaign and a slowdown in consumption have left China's wine market in weak shape, according to Jin Peng, a veteran wine distributor based in Beijing.

He said the impact has been more pronounced among large distributors.

"It is harder for big ships to turn around," said Jin.

WLG, a unit of Woolworths Ltd that comprises an alliance of drinks companies covering retail, online, production, supply, sourcing and distribution, sees the deal as a small step into China, according to Chief Executive Officer Grant O'Brien.

"We have a conservative investment lens, particularly in relation to international acquisition opportunities. Summergate is predominantly a distribution business and fits well with our supply chain and liquor capabilities," O'Brien said.

Banducci said the negotiations took almost a year, and the signing of a free trade agreement between China and Australia was an added bonus over the past few weeks as negotiations were finalized.

"The FTA has made it all the more interesting," he was quoted as saying. The pact will "absolutely" enhance the deal.