Pub baron predicts economic challenges for 12-18 months

Billionaire Bruce Mathieson.
Billionaire Bruce Mathieson.

Pub baron Bruce Mathieson has seen it all in more than four decades in the hotel industry, and has no doubt COVID-19 is the worst economic situation he has experienced.

At least 80 of the hotels he jointly owns with Woolworths in Victoria are currently shut due to COVID-19 restrictions, and he has grave fears about the economic damage the coronavirus is causing not just now but also well into the future.

“I’ve been through credit crunches and recessions, but this is no doubt the worst times I’ve seen,” Mathieson tells The Australian. “And this isn’t over yet, that’s for sure.

“Obviously no one saw this coming, but it is a bad one and we won’t be out of it for a while. The true damage probably won’t come for another 12-18 months when you’ll have unemployment higher and other factors. It will be some time until we’re opened at full capacity too.”

He said the Australian economy was already relatively sluggish before the pandemic hit earlier this year, citing an example of many tenants at shopping centres near his Gold Coast homes having rental payment arrangements with landlords even before the subsequent retail downturn that smashed earnings for many.

Mathieson’s wealth is mostly derived from his pubs and poker machine joint venture ALH, jointly owned with Woolworths.

He was set to emerge with his biggest deal yet in the middle of this year: about $2bn in cash and assets from the merger of ALH with the Endeavour liquor chain. The new Endeavour Group was set to be listed on the ASX and Mathieson was to have a 14.6% stake, but COVID-19 has pushed those plans back into next year at the earliest.

In the meantime, some ALH pubs have reopened but the business stood down thousands of staff at the height of the pandemic. In better news, the liquor sales part of the business via the Dan Murphys brand has achieved strong sales in recent months.

As part of its wider financial results, Woolworths reported last week that ALH’s earnings before interest and tax fell 51 per cent in the 2020 financial year to $172m.

Mathieson estimates he has at various times owned and run more than 900 pubs around Australia since 1975, surviving the sale of much of his portfolio in the 1980s after a dispute with banks and then thriving with the Woolworths joint venture for much of the past two decades.

He still believes pubs are a solid investment, pointing out that many are in prime locations on high streets or in suburbs around the country. It makes them good property sites at the very least and in a regulated market that is tough for new entrants.

But tougher economic conditions currently or about to be experienced could provide a buying opportunity for cashed-up individuals or families who could snap up pubs from owners who find themselves stretched financially.

The pub market has been overheated in recent years, with consortiums of buyers paying top dollar for hotels around Australia — a situation Mathieson says could now present an opportunity.

“You make your money on entry. It is all about the price you pay, isn’t it? At times like these you can make good money.

“I do think some people could (be forced to sell). Look at some of the consortiums that own pubs now, there’s four or five people in there. One of them might have money issues and then they have to sell.

“So everything could snowball from there and it could be a buying opportunity. Hotels are a relatively stable sector usually with good cashflow. We’ll see it come back eventually.”

Mathieson wants to be at the forefront of any buying activity but admits COVID-19 means he has to change his usual buying style. Previously, he would drive to look at prospective sites or fly interstate to check out potential deals.

But the pandemic means he’s stayed close to his Gold Coast mansion and, in the belief that COVID-19 will be around for a while yet, he and wife Jill have vowed never to travel overseas again.

Mathieson also owns large tracts of land on Melbourne’s fringes and the Gold Coast, and his ASX-listed shareholdings include pharmaceutical company Mayne Pharma, which has fallen about 25 per cent since January 1. Mathieson is a non-executive director.

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