Submitted by Joe Hendren on Thu, 12/11/2009 - 3:08pm.
The best thing to have in business, South Island hotels entrepreneur Earl Hagaman once mused, is a monopoly. At the time he was intent on buying the Christchurch Casino because of its protected monopoly status. Compared with owning and running hotels in a highly competitive market, owning a monopoly like the casino was a business dream, Mr Hagaman reasoned.
By that logic, the next best thing must be a duopoly, where two big players have the market sewn up. This is the case in the New Zealand grocery market, where home-grown co-operative Foodstuffs and Australian-owned Progressive Enterprises dominate. Figures from the Organisation for Economic Co-operation and Development (OECD) show the giants are enjoying a very happy duopoly.
According to the OECD, grocery prices have risen 42 per cent in New Zealand in the past decade, while those in Australia, which also has a market dominated by two players, have risen 41 per cent. By comparison countries with more competition – Britain and the United States – have experienced more moderate rates of grocery price rises.
On the face of it there appears to be no shortage of competition between our big two. Both advertise extensively, constantly refreshing their offerings and rethinking their approach. The owner of Timaru's New World, under the Foodstuffs banner, has spent a small fortune redeveloping the Highfield supermarket and its mall and is taking on another 75 staff. You don't do that if you're not sitting pretty in a comfortable duopoly.
Likewise Progressive is spending up large to rebrand its Woolworths stores and its Church Street supermarket has just had a makeover.
While the big two argue their competition is cut-throat the suspicion is that it's become more of a handbags-at-dawn affair than a pitched battle. Critics believe they are going through the routine while protecting established positions which see the consumer lose out.
That is what the Australian Government believes and there has been a lot of jumping up and down about the OECD figures, and talk of bringing the "blowtorch" of competition to the incumbents.
In New Zealand The Warehouse had a crack at the duopoly and failed miserably. Supermarkets do have competition in the form of alternative meat and fruit and vegetable outlets, but there is precious little competition in terms of groceries.
In Timaru consumers have the option of a farmers' market. If the success of the first one, last weekend, is anything to go by, the supermarkets' traditional market is being nibbled around the edges. But until The Warehouse gets its act together, or someone else arrives, there seems precious little consumers or the Government can do.
Submitted by Joe Hendren on Tue, 10/11/2009 - 4:23pm.
The wallet has been a bit lighter over the past 10 years if new figures are anything to go by with food prices both in New Zealand and Australia rocketing up more than 40%.
And experts say it's because New Zealand has only got two major supermarket chains, with a stranglehold on prices.
Statistics prove the cost of food in New Zealand has increased more than almost anywhere else in the 30 countries that make up the developed world.
The OECD figures show Korea had the biggest grocery price hikes over the past decade, 48%. In New Zealand, they went up 42% and Australia was close behind on 41%, all significantly higher than the OECD average of 33%.
A competition expert at the University of New South Wales, Frank Zumbo, says it's not fair on consumers on both sides of the Tasman. "We're paying more than competitor countries and the reality is consumers are being ripped off," he says.
He says consumers are being ripped off because both in New Zealand and Australia two supermarket heavyweights have a stranglehold on shoppers' wallets. Zumbo says Coles and Woolworths control 80% of the Australian grocery market.
In New Zealand, Foodstuffs owns Pak 'n' Save and New World, and Progressive Enterprises runs Foodtown, Countdown and Woolworths.
Hamish Wilson of Consumer New Zealand says this does lead to a lack of competition. "There've been some attempts by people like The Warehouse to try and break into it but it's pretty difficult," he says.
And it seems the increases are not going all the way down the food chain. Ken Robertson of Horticulture New Zealand says vegetable and fruit growers probably have not seen any real price increases in the past 10 years.
ONE News approached both chains. Progressive would not appear on camera but says consumers are getting a fair deal. Foodstuffs agrees. "It is an intensely competitive industry. We certainly don't meet with Progressive and agree price increases or nothing like that," says Tony Carter of Foodstuffs.
In Australia, the government says it's going to take its "competition blowtorch" to the industry. Until that happens in New Zealand, the advice to consumers is to shop around.
Consumer Affairs Minister Heather Roy says the Australians have their blowtorch and National and the Act Party have their regulations bonfire. She says she wants more competition and they are working on taking out some of the red tape and compliance costs to encourage more competition for New Zealanders' dollars.
Zumbo is advocating a marketplace similar to Britain's where four or five big players share about 60% of the market. He says letting rivals such as Aldi have a greater market share is the only way consumers will get a fair go.
Submitted by Joe Hendren on Mon, 02/03/2009 - 11:00pm.
THE decision by the retail giant Woolworths to accelerate spending on store upgrades, new stores and systems for its ailing New Zealand supermarkets and Dick Smith businesses has ignited concerns about the size of the outlay in this economic climate.
The Merrill Lynch retail analyst David Errington said yesterday that while he was pleased with the company's progress, the aggressive push to expand its New Zealand stores and Dick Smith by increasing investment was a worry. It appears that Woolworths is in a hurry … and we are concerned that being in such a hurry could cause the company some short-term turbulence. We have concerns with throwing a lot of money into NZ and [Dick Smith electronics] … particularly in current economic conditions and [given that Woolworths is not the leader in those market segments]."
Woolworths should not increase its spending so quickly but improve its businesses more incrementally, he said. Pumping more money into its two weakest divisions could be "throwing good money after bad",
Woolworths had $930 million in capital expenditure in the first half across all its businesses, compared with less than $300 million by Coles.
Spending by Woolworths was 45 per cent up on the $639 million it spent in the same period last year. Over the full financial year total capex is expected to be almost $2 billion, compared with $1.1 billion a year for Coles Group businesses, which are owned by Wesfarmers.
On Friday the chief financial officer, Tom Pockett, implied that capital expenditure would also exceed $2 billion next financial year. The Woolworths decision to increase its capex comes as its British peer, Tesco, cut its allocation by about 11 per cent to less than £4 billion ($9 billion) this year, and Wal-Mart in the US said it would spend about 13 per cent, or about $US13 billion ($20.5 billion), less this year.
In its first-half result announced on Friday Woolworths said earnings in its New Zealand supermarkets fell 8 per cent and at its Australia-New Zealand Dick Smith business 27 per cent.
Woolworths supermarkets in New Zealand slashed grocery prices to win market share from the market leader, Foodstuffs, triggering lower earnings.
Costs also rose due to compulsory increases in the minimum wage for its youngest staff, and the introduction of a superannuation scheme.
Mr Errington criticised the Woolworths decision to buy the New Zealand business for $2.5 billion. "Woolworths bought a distressed, run-down asset a number of years ago, and the business is not improving." The first-half earnings of $NZ92 million ($71.5 million) did not support the $NZ2.8 billion of funds invested and was an unacceptable result, he said.
Submitted by Joe Hendren on Wed, 04/02/2009 - 11:00pm.
The Foodtown and Woolworths supermarket brands may vanish from New Zealand under a cost saving strategy by Progressive Enterprises.
Supermarket retailer Progressive Enterprises is on the verge of collapsing its three supermarket brands into one chain - the Countdown brand, reports The Independent business newspaper, citing research from Australia.
The move would see the end of the Foodtown and Woolworths brands in New Zealand, leaving just Countdown to be rolled out in a revamped store concept to compete against rival Foodstuffs' Pak'n Save, New World and Four Square chains. The concept, called 2010c, is also being rolled out in Australia by parent Woolworths.
The Independent cites documents from Macquarie Research Equities which say Progressive "appears poised to collapse its tri-banded retail offer into just one brand after just two store trials of the Australian 2010c format''.
Progressive announced this week it will spend $200 million refurbishing and upgrading back-office systems in existing stores and building three to five new supermarkets each year, but it made no mention of store branding. The company has already spent $320 million in New Zealand on refurbishment since Woolworths bought the business three years ago. It has also rebranded two prominent Auckland Foodtown stores in a new Countdown format.
Woolworths (Progressive's Australian parent company) released second-quarter sales results last week revealing poor New Zealand performance, fuelling speculation it needs to do something to turn the business around.
New Zealand sales in the second quarter were expected to increase by 6 percent compared to the same period last year but they lifted only 3.9 percent to A$1.1 billion ($1.27 billion).
Adding fuel to speculation about a collapse of the brands is Progressive's managing director Peter Smith's response to the Macquarie report this week, said The Independent. Smith didn't deny the report, saying only there was no news to announce.
Statements by Woolworths' chief executive Michael Luscombe have also been interpreted as indicating a brand change. He was asked by Credit Suisse analyst Grant Saligari during a webcast where Progressive was in repositioning the New Zealand supermarkets business. "We've got no doubt that the new store format is the way to go,'' said Luscombe.
"The two stores that we put on the ground as our tests have been performing very well. They were existing stores that were big stores with big numbers and they've been doing very, very strong double-digit growth since that opening. "So we've got the right format, we just need to now get the critical mass of them out there.''
Rival Foodstuffs boss Tony Carter said he had heard the rumours about Progressive restructuring its branding but declined to comment further.
Woolworths paid $2.5 billion in 2005 for Progressive and signalled it would turn around the business within three years by using the Australian model of bulk buying on both sides of the Tasman, centralising distribution systems, lowering margins for suppliers while increasing its own margins, and introducing its own brands with the result of lowering prices for customers. But the plan met with a backlash from suppliers and Progressive's workers, and more customers have moved over to Pak'n Save.
Progressive's profit growth has slumped to under 4 percent in the last two quarters at a time when total grocery and supermarket sales have increased by more than 5 percent in the period, according to the Department of Statistics. Progressive owns 148 Countdown, Foodtown and Woolworths supermarkets. Woolworths will post its half-year results on February 27.
Submitted by Joe Hendren on Sun, 01/02/2009 - 11:00pm.
Supermarket chain Progressive Enterprises is planning to spend up to $200 million on new supermarkets and refurbishing existing stores during the next five years.
Owned by Australian-based Woolworths Ltd, the company today said it had spent $320m on a large programme of work during the past three years, since Woolworths bought Progressive in late 2005. That work included installing new ordering, merchandising, point of sale and back office systems, as well as store refurbishments and buying land and buildings for new supermarkets.
Progressive employs more than 19,000 staff nationwide and owns 148 Countdown, Foodtown and Woolworths supermarkets.
Spending of $150m to $200m would fund the development of three to five new supermarkets each year for the next five years, and refurbishment of 18 to 20 stores every year for the next three to five years.
Progressive said it also intended to integrate back office support services including accounting and information technology to Woolworths' shared services platform, establish new functions in-house which were previously outsourced at high cost, and invest in improved supply chain systems.
Progressive managing director Peter Smith said the company expected to increase its total staff numbers in 2009. Each new store would add at least 120 new jobs once opened, he said.
While about 100 support positions could be affected by proposed changes, the company was working on alternative career and job opportunities within Progressive and the greater Woolworths Ltd group.