The Woolworths Group Ltd (ASX: WOW) share price is up following news that it has bought MilkRun.
MilkRun used to be a grocery delivery service that tried to deliver groceries to inner-city customers in less than 10 minutes. It used a number of warehouses to store groceries near metropolitan customers. But, it didn’t stick to the 10-minute delivery goal for long.
Woolworths acquires MilkRun
According to reporting by The Guardian, and various other media outlets, the supermarket business has bought the business two months after it stopped doing deliveries.
Woolworths already runs a similar service called Metro60, which aims to deliver groceries in less than one hour.
The supermarket giant is planning to combine the two customer bases and fill orders from its Metro-branded stores, which are inner-city shops that are smaller than the full-size supermarkets.
The Guardian reported that Milkrun had raised more than $75 million from investors. The Australian Financial Review reported that Woolworths has spent around $10 million on the business, which reportedly wasn’t actually wound up.
The founder of MilkRun, Dany Milham, who was formerly the boss of furniture and mattress company Koala, said:
MilkRun pioneered rapid grocery delivery in Australia, and I’m pleased to see the brand continue in Woolworths hands.
What could this mean for the Woolworths share price?
If the acquisition was indeed $10 million, then it’s a very small deal for Woolworths considering the supermarket giant is currently valued at more than $46 billion.
I’m not sure how much volume Woolworths is going to be able to generate from this. It could depend on the cost for customers, but if it doesn’t cost much then Woolworths may not make much extra profit.
It’s interesting to see that Woolworths has been fairly active with acquisitions over the last few years, investing in pets and retail advertising. The bolt-on acquisitions do make sense for the business.
I think Woolworths is a solid defensive business, though I wouldn’t say it’s cheap. However, food inflation is helping the business earn stronger profits. There are other ASX dividend shares I’d concentrate on first, or wait until food inflation calms down.
