Perth pub owners expect further mergers and buyouts as Australian Venue Co, Endeavour loom large

Pub and bar owners expect more mergers and acquisitions across Perth’s hospitality sector in 2024 after big deals from one of the country’s largest hospitality groups — itself the subject of a buyout. Continued purchases by Australian Venue Co across the city, including The Court in Northbridge, have sparked speculation about plans to bolster its local portfolio, which now numbers 23 — up from just nine in mid-2021 — and how its major rival, Endeavour Group, will respond. At the same time, local owners are eyeing further opportunities amid strong population growth and talk of rejuvenation at Crown Perth persists. AVC executives declined to be interviewed for this story but the company’s dramatic ramp-up in Perth over the past 12 to 18 months puts it firmly in the picture as the dominant player in the sector. Further adding to talk about AVC’s future moves is the purchase in September by private equity giant PAG for a reported $1.4 billion. Others are also speculating about the response from Endeavour — its ALH Hotels division owns 27 venues in WA but it declined to renew a lease at the Captain Stirling Hotel in Nedlands after 25 years. Australian Securities Exchange-listed Endeavour — battered late last year by bids to topple its board chair amid disquiet about its direction — is progressing a national hotel renewal program. Amid cost-of-living pressures, executives are positioning its hotels as affordable destinations. UBS analyst Shaun Cousins expects this “recycling” of sites to be a feature of Endeavour’s operations in the future, including giving up leases as they expire and selling surplus land for redevelopment. “As EDV becomes more disciplined in its use of capex, updating venues across at least two key revenue streams (accommodation, bar, food and gaming) . . . we expect more leases will not be renewed,” Mr Cousins said last month. Endeavour told analysts last month that it generated 38 per cent — or $132 million — of its WA revenue from hotels in the 2023 financial year, with the remainder from its liquor stores Dan Murphy’s and BWS. WA’s return on investment is 27 per cent — higher than the 19 per cent in the rest of the country where gaming makes up 15.6 per cent of revenue. WA’s ban on gaming in hotels and licensed premises means venues cannot rely on passive income and, which has resulted in a stronger food and beverage offering than seen in many venues in the Eastern States — while tightening restrictions are making gaming tougher over there. Bankwest Spend Trends data shows spending volumes at hotels and motels — dominated by bottle shops and pubs — was down just one per cent between November 2022 and November 2023. The average spending was down 2 per cent, but the number of customers increased about 4 per cent. “The general fundamentals of the economy seem pretty strong — everyone’s got a job, it feels like you’re making money on the house,” Tim McLernon, owner of Three Pound Group — which encompasses The Reveley, The Camfield, Stables, The Elford and Good Company — told The West Australian. “I think general consumer sentiment out there is good and hospitality has always been pretty resilient if you’ve got those two factors.” AVC’s interest in WA made sense given regulation around gaming in the Eastern States was increasing, Mr McLernon said, and many of those operations lost money on food and beverage. “In Perth, the competitive standards have to be good, the returns you make on food and beverage are much better. AVC is close to 30 (venues) over here — it’s been an attractive buy for them; well-managed, well-run venues that easily (run) without too much trouble.” With its bolstered WA operations, AVC’s pre-tax profit in the year to July 2, 2023 jumped to nearly $64m, up from $30.2m a year prior, according to corporate filings. Revenue from food and beverage jumped to $896m from $534m. It’s this “destination” factor many venues have — and an expectation that WA incomes will remain higher, and cost-of-living pressures lower, than the rest of the country — that industry pundits believe is driving much of the interest from giants like AVC. Despite an overall lower population, the likelihood of going out is higher — and the population growth is proportionally stronger. While many owners are aware of cost-of-living pressures, which have had an impact on sheer numbers of patrons, they’re also optimistic that mooted interest rate cuts in 2024 will bulk up discretionary spending. “The optimist in me says that interest rates . . . will probably have to come down, and will benefit us as long as our property market’s valued so much lower (than Sydney and Melbourne),” said Nokturnl co-owner Ross Drennan. Nokturnl owns The Old Synagogue in Fremantle, The Beaufort, recently opened The Station in South Perth and in March is scheduled to open Stories at Yagan Square. Mr McLernon expects more buyouts and mergers or acquisitions in the new year. “Once you get to be a multi-pub group, it’s always in the back of your mind that one day an equity event happens,” he said. “(We) may see the smaller groups with four or five pubs merging to create groups to be more attractive.” Nokturnl co-owner Drew Flanagan agreed there was “a lot more value over here”, and the lower cost of operating in Perth allowed for greater opportunity — but also meant competition was fierce. “There’s no shortage of options . . . it does make you try and deliver the best product you can and be on top of your game because if you don’t, there’s plenty of other options for customers,” he said. Locally-grown Nokturnl’s investment in Yagan Square will be closely watched given the ill-fated Market Hall experiment, with State Government hopes of the group’s successful run with other venues translating to the heart of the city. Mr Flanagan said the opening — and settling in The Station — would take much of their focus for the bulk of the year and ensuring the group’s operations of “four pretty large venues” were well-balanced. There remains an appetite to keep growing, he said, contingent on the existing venues performing well.