The Government is hoping that supermarket reforms announced this week will tempt another player into the supermarket sector in New Zealand.
When she unveiled plans for an “express lane” for supermarket developments and other policy changes to boost competition, Finance Minister Nicola Willis said five players, as well as Costco, had expressed interest.
But who could our new supermarket player be?
Experts say there are a few potential options.
Night ‘n Day operator wants separation forced on major brands owned by Foodstuffs and Woolworths. (Source: 1News)
An existing New Zealand business
One option is that a business already in New Zealand might branch out into grocery, or expand its current offering significantly.
Retail expert Chris Wilkinson said the ideal solution would probably be a partnership through The Warehouse because it already had accessible sites at locations around the country, which were typically well located with nationwide coverage.
“I think that the most logical move to get penetration and to achieve success would be a New Zealand brand, The Warehouse or whatever, partnering with some sort of supplier or developing some supply arrangement with a brand that could develop that consistency and continuity,” Wilkinson said.
“We’ve already seen The Warehouse struggle with grocery and in many cases they’ve pulled out their fresh produce… it would be a step change in how it delivers to market, so that’s not going to be a switch you can turn on overnight.”
Damien Yeo, a senior analyst at Fitch Solutions company BMI, agreed that The Warehouse was an option and said Night’n Day could also expand its operations.
Otago University marketing senior lecturer Rob Hamlin said in the UK and Ireland, major supermarkets were branching out into more non-food items, which reflected The Warehouse’s offering.
“The Warehouse has actually got quite a lot of its distribution situation already set up,” Hamlin said.
“So, I would have thought that if you’re going to see somebody enter the food market, they’re likely to do it from an established platform like The Warehouse, or much less likely, but possible, would be one of the other house goods or do-it-yourself chains.”
Costco
Willis said Costco had indicated it wanted to open more sites around New Zealand.
Wilkinson was not convinced that was practical.
“The reality is that big organisations like Costco need that critical mass. Christchurch is there, with the critical mass, places like Wellington don’t have the space at the moment.”
A new local business
Labour’s Peeni Henare has indicated that his party would like to see an iwi-led supermarket operation enter the market. It is understood that Waikato Tainui had some work underway. It has been approached for comment.
University of Auckland marketing expert Mike Lee said this would be a good option.
“At the regional level, where there is a need for more job opportunities and where food growing areas are already nearby,” Lee said.
University of Sydney supermarket expert Lisa Asher said a local player would be preferable.
“There is strong academic evidence that locally grown supermarkets, not just retailers but supermarkets, have a greater chance of success than a foreign entrant,” Asher said.
“They understand the customer. They understand the landscape and they can curate according to that.”
She said, if the barriers to entry could be addressed in a meaningful way, and a group of “really enthusiastic entrepreneurs” could get some financial backing, that would be a good solution.
“I think we’ve had too long a period in New Zealand where competition is disappearing and this idea that you can start your own business – that’s not even a consideration for anyone anymore, and I think that that’s really sad.”
Hamlin said there could be an opportunity to set up a venue where a lot of smaller sellers could operate under one roof.
The Finance Minister is seeking to drive competition. (Source: 1News)
“A builder, an area in which individual traders can rent space with a carpark outside or nearby.
“One example of that working is the farmers’ market in Dunedin, which happens every Saturday morning. Every Saturday, several thousand people go to the railway station in Dunedin because everybody’s there and they do a lot of their high-end, high-margin shopping for the week there.”
He said Melbourne’s markets were another good example.
An international player
Lee said Aldi would be a likely candidate.
“They are already well established in Australia, and their model, which focuses on easy-to-ship and non-perishables, might make expansion slightly easier and quicker.”
Hamlin was sceptical because he said its discounter model would be difficult to bring here.
“They don’t compete head-on… the problem from New Zealand’s point of view is that while they would offer marginally cheaper groceries, the population of New Zealand has been well trained to pay far too much for their groceries.
“And the discount is not going to spoil that market. It’s just low enough below the big boxes to make their business model work.”
ACT leader David Seymour has mentioned wanting to get Walmart into New Zealand.
Asher said that would be a difficult situation to manage.
“If the GDP of the nation in US dollars is $260 billion and Walmart turns over $648 billion, New Zealand’s productivity is a fraction of that company.
“There is no way the New Zealand Government would even be prepared for some of the requests that would come from a company of that size.
“The concessions that would have to be made.”
Maybe no one
Asher said the barriers to entry still had not been addressed.
“Until this occurs, no one’s coming to save the country from a situation created by successive governments.”
The issue was raised after a damning inquiry into Australia’s supermarkets. (Source: 1News)
Wilkinson said there were significant hurdles. “You’re going to need to establish a logistics operation, and then the size of the prize is not really there.
“In the likes of Australia and the UK, you’ve got growth of residential areas, you’ve got intensification… Australia is probably quite a good example because you’ve got new suburbs that spring up. In New Zealand, we just don’t have that scale,” he said.
“I think we’re all really struggling to work out who would be interested because even with significant incentives, New Zealand is a very costly market to service for those organisations… the logistics for one, the yields likely from those sites, it just really doesn’t stack up in terms of a significant commercial proposition for these businesses despite the fact we wish it would happen.”
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