The supermarket giant is capitalizing on online dominance, but experts have questioned the move after past failures outside the supermarket sector.
Woolworths is gearing up to take on Amazon, Kogan and Catch with plans to buy Australian online retailer MyDeal for a staggering $243 million.
The deal, announced by the supermarket giant to its shareholders, involves Woolworths taking an 80 percent majority stake in MyDeal for $1.05 a share, up 63 percent from the company’s last closing price on the stock market, where it was 65c.
MyDeal’s share price has fallen dramatically after it listed on the Australian Stock Exchange in December 2020, where the stock hit a record $1.71.
Woolworths has announced the move as a greater choice for customers with MyDeal hosting 1,900 retailers offering six million products, but analysts have raised the alarm about the deal.
The experts questioned the agreement, highlighting Woolworths’ poor track record with non-food companies.
“Over the years, Woolworths has struggled to generate returns in non-food companies – Masters, Dick Smith, Big W – so we wonder why they would allocate capital this way,” said financial services firm Barrenjoey analyst Tom Kierath.
“Especially when Woolworths’ excellent food business has been making cost missteps lately. This acquisition appears to be a tacit admission that the Woolworths market is not gaining momentum.”
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In September, the supermarket giant launched its daily marketan online marketplace featuring items in categories such as household, health and beauty, pet care, babies, and toys.
It is designed to allow customers to search for additional products while doing their normal shopping online.
Woolworths’ move means it will compete with Kmart owner Wesfarmers, which runs Catch.com, which was snapped up for $250 million in 2019, US giant Amazon and Australian Kogan for online dominance.
But experts were also concerned that MyDeal, which launched in 2011, reported a loss of $5.8 million last fiscal year, despite a boom in online shopping during lockdowns and with one million active users.
“We can’t help but think that if it didn’t make money during the Covid period, it will ever happen? said Mr Kierath.
“Based on SimilarWeb’s traffic, MyDeal has generated approximately 870,000 visits in the most recent four-week period, compared to eBay’s 12.6 million, Amazon 8.1 million, Kogan 1.6 million and Catch 1.7 million.
“Traffic has decreased significantly in recent months as the economy got going again.”
Craig Woolford, an analyst at the financial firm MST Marquee, also warned that the battle to have the best offer, price and service online would be costly.
The deal was described by Morgans analyst Alex Lu as “somewhat curious” as he said Woolworths was taking on a general store business at a time when consumers were worried about spending as the cost of living skyrockets.
Woolworth’s foray into previous non-food territories saw a fire sale of electronics retailer Dick Smith to private equity investors in 2012, the Masters cut homeware expansion and a $300 million write-off for online company EziBuy.
The supermarket also withdrew from an $850 million bid for Priceline in January.
Brad Banducci, CEO of Woolworths, said MyDeal would expand the group’s online capabilities in furniture, homeware and other bulky goods and Big W’s general merchandise.
He said the addition of MyDeal marked “a further step toward delivering a more holistic customer experience across food and everyday needs and materially expanding our market capabilities, especially in general merchandise.”
Sean Senvirtne, founder and CEO of MyDeal, said the company was “excited” to partner with Woolworths.
“It will help support the growth of our retail platform by accessing Woolworths Group’s capabilities in e-commerce, supply chain, retail, loyalty and more,” he said.
MyDeal reported gross transaction value of $260 million in the 12 months to March 31, 2022 and recently launched an experiences marketplace called Amazed.com, which sells operations from more than 250 suppliers, including Melbourne Zoo, Global Ballooning and Experience Co.
The acquisition must be accepted by MyDeal’s shareholders, with court approval and approval from the Australian Competition and Consumer Commission to proceed.
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