Most people think of Woolworths as a giant grocery supermarket with many adjacent liquor outlets. It is engaged in a price battle with Coles and there are few suburbs that do not have a large branch of both conglomerates vying for industry dominance.
Woolworths is also the largest gambling business in the country. It owns fifty-six pubs in New South Wales and these are home to 1461 poker machines. The turnover exceeds $78 billion annually and each year seems to break fresh records.
One of the peculiarities of the New South Wales tax system as it applies to poker machine profits is beneficial to Woolworths. For tax purposes each pub is regarded as an individual business and consequently they are untaxed on takings of under $200,000. Progressive tax rates then come into play and a pub that takes between $200,000 and $800,000 pays 33 per cent tax.
The higher the turnover, the greater the tax. Pubs with pokie profits under $4 million pay 36 % tax and those above that pay fifty percent. Poker machines are a very rewarding source of income for their owners and this graded tax scale was intended to protect the small pub with just a handful of poker machines.
Had the tax man lumped all those Woolworths owned pubs together for tax purposes it would have delivered a very different outcome. As a single business it would have attracted a tax of just over a hundred million for the 2016/17 tax year instead of the $72.5 million under this staggered ownership arrangement.
A few years back, the asking price for many pubs was in the doldrums and Woolworths management decision to acquire ownership was a very smart business move. They foresaw the progression of poker machines from clubs to pubs and now they are reaping the benefits of that forward planning. They have also diversified their investment portfolio. As that old saying goes. Not all their eggs are in the grocery basket !
We recently had an example of the risks of diversification. Woolworths decided to emulate Coles move to establish a stand alone hardware chain and this failed to find favour with the public. The entire Woolworths organization made a crippling loss in one year and that hardware chain was immediately discontinued. The company quickly returned to profit.
Many people are unaware that Woolworths own pubs and profit from gambling on poker machines and that does not exactly fit the image they hope to project as the " fresh food people " ! There is a growing movement to ban poker machines because of their addictive nature and the damage they do to living standards. It is noted that they are concentrated in low socio-economic suburbs.
It seems that Woolworths may be viewed differently by different social groups. This gambling arm may attract criticism from customers with high social values, but be applauded by investors who see value in their shareholding !
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