Woolworths moves into China drinks market

Woolworths has bought one of China’s major alcohol distributors in its first foray into the world’s second largest economy.

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The supermarket giant has bought Summergate Fine Wine and Spirits, only weeks after Australia signed a free trade deal with China.

Summergate was co-founded in 1999 by two expat wine enthusiasts, and distributes imported alcoholic beverages across China.

It also owns a retail business, Pudao Wines.

Woolworths has not revealed the cost of the acquisition, but it expects strong growth from Summergate.

General manager Ian Ford, an American who co-founded Summergate with his Kiwi business partner Brendan O’Toole, told AAP the business achieved annual sales of $US40 million ($A43.28 million).

Morningstar senior analyst Tim Montague-Jones said the sales figure suggests Woolworths paid between $US16 million to $US20 million.

“It’s just a small, little toehold into a potentially large market just to give them a bit of feel for that sort of environment,” Mr Montague-Jones said.

It could be a decade before Woolworths injected capital into the business, he added.

Mr Ford said Summergate and Woolworths shared a long term view on future opportunities, and have the resources and expertise to support accelerated growth.

Woolworths owns the Dan Murphy’s, BWS and Cellarmasters brands in Australia, which generated total sales of $7.4 billion in 2013/14.

Woolworths shares were up 59 cents, or 1.9 per cent, at $30.83 at 1545 AEDT.

Its move into China comes two years after Woolworths pulled out of India by selling its stake in Woolworths Wholesale to a Tata Sons-owned company.