Coriolis

What to expect for Christmas…

TVNZ’s Close Up programme interviewed Coriolis Managing Director Tim Morris about the impending Christmas shopping season.

Smaller pack sizes

RadioLive interviewed Coriolis Managing Director Tim Morris on the reduction in pack sizes. The interview was triggered by the news of Tip Top ice cream reducing the size of some of its packs by 20%. Great quotes included: “Obesity is an issue – maybe we shouldn’t be eating as much of it” and “You’ve only got two opportunities in a market economy – you either put the price up or the amount of product goes down.”

The petrol play

From “The petrol play: Can Infratil and NZ Super carry off Shell?” in today’s The Independent:

Tim Morris, retail analyst at Coriolis Research, reckons Infratil and NZ Super are making an ”eminently sensible” long-term investment buying the Shell assets. On the retail side, Morris says the items most commonly sold – cigarettes, newspapers, drinks and icecreams – are high-margin ones.

Data provided to the Ministry of Economic Development last year by the Motor Trade Association and Shell showed the gross profit from service station shop sales was about $250,000 to $300,000 annually, topping the gross profit from fuel sales, which, assuming a 4 cents per litre retail margin and sales of 2.5 million litres of fuel, would be $100,000. This suggests retail sales provide up to three quarters of gross profits.

Despite this, Morris argues New Zealand is well off the pace in terms of best practice in forecourt retailing, set by Britain’s Tesco and assorted US operators. “So there’s a lot of opportunity for improvement.” Still, he questions what Infratil and NZ Super know about retailing that others don’t. Expansion into petrol retailing by discount retailer The Warehouse or the two big supermarket companies could pose a threat, Morris says. In Australia, supermarket chains Coles and Woolworths have more than 40 per cent of the retail petrol market through deals with Shell and Caltex respectively.

Buyers and retailers likely to be conservative this Christmas

Radio New Zealand interviewed Coriolis Managing Director Tim Morris on the likely impact of the current economic slowdown on shoppers and retailers this Christmas. Predictions included less inventory in the country leading to fewer pre-Christmas sales and less un-sold product remaining after Christmas relative to last year. If Tim is right, you will want to get in there early on Boxing Day.

Zumbo on prices

Coriolis Managing Director Tim Morris fielded three interviews today – Radio NZ, RadioLive and bFM’s Sustainable Simon – on the story in the Australian press on food inflation. Research by competition lawyer Professor Frank Zumbo, using OECD data, came to the conclusion that since 2000 the price of groceries in New Zealand have risen by 42.5% and those in Australia by 41.3%.

Costco report public release

Five years after it was published, we have finally released our legendary Costco reports for complementary reading. This is your chance to read the report that has been required reading for the leadership of every major retailer, manufacturer and fund manager in Australia and New Zealand.

Costco in Australia

The first report, Understanding Costco, is a 229 page review of the history and development of the Wholesale Club store format, from its early beginnings as a spark in Sol Price’s eye to it current global roll-out.

The second report, Costco in Australasia: Are they going to stock-up?, is a 59 page report focused on the likely development of the Costco in Australia and New Zealand. It also looks at likely responses by both retailers and manufacturers.

Anyone who was at the opening of Costco in Melbourne in August (or who has visited the store since) will agree that Australian consumers have no trouble understanding Costco. Based on the experience of Aldi, we expect Australia will be the most successful market Costco has ever entered.

Please note both reports are large and you may want to right click and choose “Save file as…”

Supermarkets rebranded in $1b overhaul

From today’s NZ Herald:

“It’s Countdown but not as you know it… Progressive Enterprises, owner of the Woolworths, Foodtown and Countdown brands, has announced it is uniting all its supermarkets under one Countdown banner…

The new Countdown logo

Retail analyst Tim Morris of Coriolis Research said Progressive, owned by Woolworths Limited in Australia, was employing the same strategy it had used across the Tasman. It had aimed at the mid to lower market there and had rebranded supermarket groups it had acquired as Woolworths.

New Woolworths logo

“I think they looked at their positioning in Australia and said ‘what brand in New Zealand best fits that and the strategy we want?’.”

The new apple logo links the company to its Australian cousins, where Woolworths supermarkets are also gradually receiving the new symbol.

Mr Morris said it was unusual for supermarket operators overseas to have more than one brand in a market, and there was now little differentiation between the Woolworths, Foodtown and Countdown offerings anyway. “Why bother having all that additional infrastructure?”"

Giant sweet offer involves New Zealand

From today’s Dominion Post:

“Global food giant Kraft is trying to gobble up chocolate company Cadbury in a $24.6 billion deal…

Coriolis Research retail analyst Tim Morris said the global food industry was in “terminal consolidation”, because it was hard to expand otherwise. “Chocolate is an area that is very attractive, because it is much more resistant to [competition from] store brands,” he said. A small range of brand products seem to hold out against store brands, from razors, to shampoos, sweets and chocolate.”

“Chocolate is the only drug that is only addictive for women,” he said. “They are significant consumers of chocolate, the bigger blocks [especially].”

Tasty winners in tough times

From today’s Dominion Post:

“Domino’s this week claimed to be out-selling Restaurant Brands-owned Pizza Hut, although it did not give sales figures. Pizza Hut has 93 stores to Domino’s 77, but Pizza Hut average store sales were significantly lower than Domino’s according to Domino’s boss Don Meij.

That is a seismic shift in the $300 million a year, 400-store pizza sector in just a few years. Last year Pizza Hut sales were down to just $64 million from $89m in 2006, a 27 per cent slump. Pizza Hut and Domino’s probably have about 23 per cent each of sales, with Hell not far behind, according to Coriolis Research retail analyst Tim Morris.

In business terms, Domino’s is eating Pizza Hut’s lunch. Pizza Hut has suffered falling same-store sales for about four years, although it doesn’t seem to be losing market share as fast as it was. Mr Morris says Pizza Hut dominated the market in New Zealand just five years ago. The only competition was from single locally owned operators or small chains.

But Domino’s came in and has been on “an incredible growth curve” with a simple business model, like Subway, and excellent processes. It also bought Pizza Haven which gave it some scale.

Domino’s success relies on its cheap prices, heavily undercutting Pizza Hut and anyone else. With discounts, a large pizza can be as cheap as $6 the same as a single order of takeaway fish and chips. “The quality is not dire. They do well with university students, men between 15 and 25,” Mr Morris says…

Mr Morris said Domino’s has come on strong in New Zealand and started the idea of delivery-only outlets 30 years ago in the United States. They are the global leader in that sector.” Read the rest here.

Too big for its burgers?

From today’s Dominion Post:

BURGER beast McDonald’s may have bitten off more than it can chew by embarking on an aggressive growth phase, with some analysts questioning the logic behind its latest $100 million expansion drive.

The fast-food giant last week announced plans to open 30 new restaurants and hire 6000 new staff by 2011 in a bid to boost market share, but with fast food sales flat and competition on the rise, its motives have been called into question.

Coriolis Research retail analyst Tim Morris says the latest growth pitch to New Zealanders was simply a stunt to win over potential franchisees with visions of pockets lined with profits.

“Some mutant appears from outer space selling fried insects and says we’re going to have 600 restaurants in two years; it’s the basics of a franchise model, paint an attractive picture for potential franchisees,” he said. ”You give me your franchise fee and you can be part of my exciting growth story, but whether it succeeds or not, who the hell knows.”

It’s not the first time McDonald’s will have aggressively tried to snare market share. In 1991 the company had just 53 New Zealand outlets. The number tripled to 145 by 1998, but it has reduced to 143 since.

Two years ago the total food service market was worth about $8 billion a year in New Zealand, with fast-food making up a quarter and the hamburger-related sector worth about $500m.

Growth in the fast-food sector, say analysts, is being driven by Asian cuisine like sushi, the renaissance of takeaway pizza joints such as Domino’s and sandwich maker Subway. Burger outlets are lagging behind.

“McDonald’s will struggle not to cannibalise themselves or reach some point of diminishing marginal returns. They reached that point a decade ago and the number of stores stopped increasing,” Mr Morris said. ”Now to suddenly embark on a massive growth phase, I mean, wow, why? It’s a bold move and the jury’s most definitely still out.”

Tim adds that prior to the Mutant Fried Insects comment he cited a wide range of franchised fast food concepts that had quoted big growth figures only to fail to achieve them, including Red Rooster and Papa John’s. Obviously supporting facts were not newsworthy enough.

Recession red cards Ali’s fledgling furniture stores

The chain of bargain furniture stores co-founded by All Black lock Ali Williams a year ago is closing down due to poor sales…

Retail analyst Tim Morris of Coriolis Research said with the downturn in the property market and immigration, any sector affected by home formation was suffering at the moment. Everything from real estate agents to whiteware was hurting. The latest retail statistics show appliance retailing down 6.6 per cent in January.

Mr Morris said in a recession consumers traded down. Furniture was a segmented sector, and while more affluent consumers may buy cheaper products, those at the lower end of the market may not buy at all. ”It’s probably hurt across the board. It is such a discretionary spend,” he said.

Discretionary spending holds key to Pumpkin Patch

Today’s NBR article, Discretionary spending holds key to Pumpkin Patch profits, quotes Coriolis Managing Director Tim Morris on expectations for Pumpkin Patch results released tomorrow:

“Coriolis Research head Timothy Morris says: “The key question is whether children’s clothes are a discretionary spend.”

He adds that he had been given the impression that a key element of Pumpkin Patch’s sales was grandparents buying for grandchildren.

Mr Morris says as Pumpkin Patch was really an international player, New Zealand’s retail economy only had some impact on the results.

“The UK and the US are both in a bit of a pickle. Australia is still doing all right –they’re six months behind New Zealand on catching the global flu. The question is how badly are they going to catch what is going around?” he says.

New Zealand retailers had said the Christmas period was alright, which boded well for the company’s sales figures, he says.”

Progressive may be counting down

A Macquarie analyst report in Australia, discussed the future of the three existing Woolworths brands in New Zealand (Woolworths, Foodtown and Countdown), triggered a Dominion Post article, Progressive may be counting down. This article quoted Coriolis Managing Director Tim Morris:

“Tim Morris, of retail research company Coriolis, said that when Woolworths bought Progressive three years ago many people expected them to rebrand all of the supermarkets as Woolworths.

“But when they did their research they [probably] found that Woolworths was not a strong brand in Auckland and had an association with being the highest-priced supermarket in New Zealand,” he said.

Progressive has converted two of its stores its flagship Greenlane store in Auckland and one at Botany Downs into Countdowns.

It was positioning the Countdown brand somewhere between the budget Pak ‘n Save and the more upmarket New World both brands of its rival Foodstuffs, Mr Morris said.

With nearly 150 supermarkets nationwide, even at a rate of 15 supermarkets a year, it would take Progressive about a decade to totally rebrand to Countdown, he said.”

Tim notes that not included in the story, but also discussed were (1) the history of the Roelf Vos, Purity, Fleming, Food For Less and Safeway brands in Australia under Woolworths, (2) the ongoing reduction in the number of supermarket brands in New Zealand (e.g. Big Fresh), and (3) past Coriolis consumer research on price perception by supermarket brand.

Historic Coriolis reports, including 2003, 2005 and 2008, have more on the subject for those interested.

Briscoe satisfied with year-end result

An article in today’s NZ Herald discussing the latest results of the Briscoe Group said:

“Briscoe satisfied with year-end result… Briscoe Group delivers its full year result on March 16. In September it reported that its net profit for the first six months of the year was $3.09 million, down from $10.53 million in the corresponding period in 2007.

Managing director of Coriolis Research, Tim Morris, said Briscoe Group was operating in two particularly tough retail sectors and yesterday’s sales figures could have been much worse.

Homewares stores such as Briscoes and Living & Giving were suffering from the housing market downturn.

“We’re just not seeing household formation or immigration, or people moving and upgrading, renovating, that kind of thing. That’s had a knock-on effect on all of those sectors.” The sporting goods sector was also struggling because it was a discretionary spend.”

Hold the crayfish, bring the bangers

In an article titled Hold the crayfish, bring the bangers, Coriolis Managing Director Tim Morris is quoted:

“Consumers are abandoning the hunt for fine food as they seek ways to reduce their weekly food bills, one retail analyst says.

The recession has prompted an about-turn in eating habits with Kiwis’ once-indulgent dining lifestyle quickly being replaced by a penchant for takeaways and supermarket shelves, Coriolis Research retail analyst Tim Morris said.

“In a downturn, people always trade down. That means fewer working lunches, fewer mid-week meals out. On the flipside, in principle it means growth for fast-food chains and supermarkets.

“We’ve moved into the traditional post-Christmas rain shadow when business is slow and money is tight. It’s more of a drought though this time round and we’ll certainly start seeing more liquidations across the retail and hospitality space.”

Towards Japanese private label success

One of our Japanese readers kindly sent us a copy of three Japanese reports which cite from our report, “Toward private label success.”

While we struggle to read them, we appreciate the publicity.

All of our readers should feel free to cite from our work. Please send us a copy if your work is in the public domain.

Bring it on, say retailers awaiting buying frenzy

The Sunday Star Times quotes Coriolis in a story titled “Bring it on, say retailers awaiting buying frenzy.” Retailers are hoping for four days of Christmas shopping frenzy as new figures reveal people are spending less than usual this festive season.

But even if shoppers come out in force ahead of Christmas Day, Boxing Day is set to be a bargain bonanza as nervous retailers look to slash prices to entice customers before the economic recession worsens…

However, retail analysts say that the Boxing Day sales are where people could get some great bargains and it is the time to beat the expected New Year price surge for big-ticket items…

Retail analyst Tim Morris, of Coriolis Research, told the Sunday Star-Times the last seven days of the year will be the final chance for consumers and retailers to do well in the face of a worsening economy and the falling dollar.

But Morris warned that not all Boxing Day bargain-hunters will find what they’re looking for. He said retailers are carrying less stock than usual because of warnings about tougher economic times.

Although times are getting tougher for retailers, the pain isn’t evenly spread. Morris said the effects of the New Zealand recession and global financial crisis are hitting hardest in urban areas and in the north of the country.

“Across all retail, the south is doing better and the more rural areas,” said Morris, adding that urban professionals, whose jobs were more likely to be tightly linked to finance and trade, were feeling the pinch most and cutting back on spending.

Christmas sales come early

Today’s New Zealand Herald featured an article titled “Christmas sales come early” in which Coriolis Managing Director Tim Morris is quoted:

“The economic downturn and added competition are causing retailers to offer bargains in Christmas week…

Retail analyst Tim Morris, of Coriolis Research, said the deep discounting which began as early as November was just a sign of things to come.

“Some of the retailers are definitely trying to move product now because they can see that it’s going to be easier to sell something before Christmas than it’s ever going to be able to sell in January or February.

“With financing drying up, if you hit a rough patch, the banks aren’t going to be there to bail you out. And so I think there’s a few around right now that are living at the discretion of the banks. I think we’re going to see a few people drop their pants early in terms of sales, looking at the number of signs around.

“People who are leaving their shopping to the last minute may actually be the ones that get the best deals.”

The latest Statistics NZ inflation data

Radio Live’s Bill Ralston conducted an interview with Coriolis’ own Tim Morris on the latest Statistics NZ inflation data showing continued increases in food prices. While Bill asked if the supermarket duopoly was to blame, Tim pointed the finger at the falling New Zealand dollar and American attempts to make fuel from grains (actually more like turning subsidies into fuel – a dubious economic proposition).

The arrival of Specsavers

The arrival of the United Kingdom’s leading optical chain in the New Zealand market prompted TVNZ ONE News to conduct an interview with Coriolis Managing Director Tim Morris.

If you wear glasses and you’re sick of paying too much for them, change is on the way. New Zealand’s $300 million optical industry is in for a shake-up with the arrival of a big new global player. They’re the world’s largest privately-owned optical group and Specsavers has big plans for the local market…

“The economy’s slowing, people are feeling the pinch in their pocketbook, and here’s a chance to get your eyeglasses for a little bit cheaper. So I think they’re probably going to do very well in the current climate,” says Tim Morris, Coriolis Research Analyst.