The Supermarket Industry Past Present & Future
Straight after the First WW.Lots of Small Stores-Bought from a wholesaler.Multiple ownership getting discounts from those wholesalers.
J Heaton Barker (Sec of Auckland Master Grocers Assn) formed a little buying group to be able compete:start of Foodstuffs.Idea then spread to other regionsWellington and ChCh in 1928 etc.That is why there are 3 Foodstuffs companies today.
In 1925 4 Square was developed so group became more of a marketing group as well.
Group was pretty small under the end of WW2 where returning servicemen went into the grocery business using their repatriation grants.
The next major development was self service which was developed in the early 50's.Went away from where everything was served to you.4 Square were the major innovator in this development.
Next development was the introduction of the Supermarket which extended the range of products into a "one stop shop"- Meat Produce etc.First was Foodtown by Tom Ah Chee in 1957 in Otahuhu.Foodstuffs got into the act with New World in 1963,although the early stores were dual branded.
Next development was the introduction of segmentation in the marketfirstly with formats like Cut Price Stores in the 70s,followed by 3 Guys,followed by Pak n Save in 1985.undoubtedly PNS has been the biggest influence on the supermarket industry in the last 20 or years.
Most recent development is the hypermarket opened in June at Sylvia Park.Progressive have also announced plans for hypermarkets,which is basically a discount department store bolted onto a supermarket.Jury still out.Common in some countries, notably France and USAless common and less successful in other countries(UK and Australia.)
So that is a very quick and much summarised history of our industry.So what does it look like today?
1.It is largeAnnual sales well in excess of $10 billion.Large employerprobably around 50,000.downstream effects also considerable.Probably 70% of sales grown or manufactured domestically.
2.Supermarkets dominated by 2 playersFoodstuffs and Woolworths.Share 56.9% with WW at 47.1%.Share has increased reasonably steadily from early 90's where it was in the low 40's.
3.There are a number of other participants who don't get measured.Butchers Produce Bakers Candlestick makers,convenience.Depends on categoryeg Cigarettes supermarkets sell less than 30% where as in laundry powder in excess of 95%.Foodstuffs is a major supplier to the convenience channel thru Gilmours Toops Trents.
4.Is this channel growing?Don't believe so,but certainly more organised.Mad Butcher has taken share of traditional butchers not supermarkets.
Let's return to the 2 main players.Very different business models
1.Centralised overseas owned and controlled traditional corporate type player.
2.Decentralised NZ owned and controlled co-operatives operating thru individually owned and operated stores.
Unusual globally where market so concentrated and an "independent" player like Foodstuffs has such a strong position.Be fascinating to see how it plays out,but we are confident but not complacent.Confidence is based on being close to and knowing our customer, and focused on meeting their needs.
So what of the Future?I see three main trends: -
Firstly convergence where different industries and retail forms move together.The Warehouse Xtra store is an example, but think supermarkets and fuel, supermarkets and pharmacy, banking and insurance, and telecommunications and IT.
Convergence is constrained by the appeal to the consumer.That is why I think the jury is out on the Warehouse Xtra store.As another example, it would make a lot of sense from a customer perspective for supermarkets to start selling cars, but selling petrol is a logical extension.
Second trend is specialisation.This is the trend for large retail formats to develop that are very tightly focused on doing an exceptional job in one category.As an example, our recently announced Duffy & Finn's liquor group, and perhaps the fastest growing retail group in the States is PetSmart which is a very dominant format devoted to Pets and Pet accessories.
Specialisation is of course at the opposite end of the convergence spectrum, and my personal view is that the middle is not the place. You have to have a point of difference: being all things to all people is dangerous.
Finally and most obvious Globalisation.
It affects us in many ways, not only retailing but also procurement.China example.
Long speculated that Woolworths will be taken over by Walmart.Walmart has pulled out of Germany.
The interesting thing about this trend is that the further it goes the further you get away from your consumer.There are plusses and minus's to being global.You get the economies and dis-economies of scale, and I would argue that they come in equal measure, but you also get decisions about New Zealand being made not here, not in Sydney, but in Bentonville Arkansas.So from Foodstuffs point of view as a dedicated New Zealand company, we see both threats and opportunities in this trend, and being the optimists we are, we probably believe the benefits outweigh the negatives for us.
So to conclude I am passionate about my organisation.It has a long and proud history and I am confident but not complacent that it will have a long and proud future.
Finish with some observations about the business environment in New Zealand.
The main comment is we are grossly over governed increasing amount of regulation/intervention.Unfortunately each new intervention creates a need for more intervention to correct the unintended consequences of the original intervention.
I am far from convinced the Telecom decision, which has been applauded by business leaders is the correct one.Business needs investment and if returns are constrained by regulation then investment will also be constrained.Let me use another industry.The Pharmaceutical industry.Huge investment in R & D, and occasionally it pays off i.e. tamiflu.If Government decides to regulate the pricing of a medicine once successful where is the incentive for companies to invest in the R & D for their next?
I would argue that the cost of a company making so called monopoly profits is less than the opposite which will be a lack of investment in new initiatives.
So bringing it back to Telecom I struggle to believe that allowing someone free or subsidised access to someone else's network is going to improve telecommunications generally.The real gain must come from investment in that network which Telecom are now discouraged from making.
New Zealand has had a golden run for the last few years.I would argue that it is mainly as a consequence of the reforms of the 80's and 90's and not to the Government interventions of this decade.
