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…”
“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?”"
“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].”
“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.
“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.”
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… 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.”
“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.”
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.
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.”
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 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.
“The Christmas sales period could save retailers from a terrible year as household costs fall, but salvation is far from certain. Hallenstein Glasson and Briscoe Group yesterday posted drops in quarterly sales, as shops continued to feel the effects of a downturn in consumer spending…
Analyst Tim Morris, of Coriolis Research, said retailers were in a “weird period” now after over a year in the doldrums.
“If you look at last year, the economy was slowing, and there was a slowing in retail, but then we had a cracker Christmas, on target almost with previous years. But then all of the money oxygen came out of the retail sector in January, February and March.”
Signs of a recovery reversed again when the US economy struck trouble. “I don’t think this Christmas is going to be as big as last Christmas in terms of just absolute dollars, let alone any inflation-adjusted dollars.
“I think this Christmas we’re going to see people in the middle and upper incomes starting to have some concerns – ‘hold on a minute – the value of my house is down, the value of my share portfolio is down. I have some questions about my job therefore maybe I just won’t reach quite as deep into the pockets to spend’ – all of those things add up,” Morris said.”
Woolworths bid farewell to one of its oldest veterans as the company released its first quarter results today… The company has posted revenues of $A12.8 billion for the first quarter, a boost of 9.6% over this time last year…
Mr Luscombe said discretionary spending would continue to be influenced by macro-economic factors in global financial markets and projects sales growth for the year to remain in the single digits.
Whether this guidance offers any clue to the Woolworths’ attempted takeover of The Warehouse is unclear. The company withdrew its appeal to the Supreme Court over the Commerce Commission block last week, following The Warehouse’s dissolution of the Warehouse Extra concept, but refused to comment any further to NBR.
Tim Coriolis of Coriolis Research believes that now that the main competition block to the takeover is gone, there’s no reason Woolworths takeover attempt cannot continue.
“Money is not a problem [for Woolworths], no matter the economic climate,” he said.
“The glittering prize of 85 prime retail sites from Kaitiaia to Invercargill could be up for grabs again now that The Warehouse Group has abandoned its foray into fresh food and groceries. The retailer’s share price rose 40 cents to $3.49 on the announcement yesterday that it was pulling the plug on its three Extra stores in Whangarei, Auckland and Hamilton…
Tim Morris, from retail research company Coriolis, said bids for The Warehouse would be significantly lower than they would have been if the firm had abandoned Extra earlier. “If I was a shareholder in The Warehouse, which I am, I would be asking questions like, `Why didn’t you make this decision when the share price was at $7.50?”‘”
“The German retailer Aldi is aiming for up to 1000 stores in Australia, which would give it about 15 per cent of the grocery market, said the head of a company that specialises in helping food companies with growth strategies.
Speaking on the future of retail at a conference in Sydney yesterday, Coriolis Research’s managing director, Tim Morris, said the privately owned Aldi had underplayed its ambitions in Australia. “If they say something to the press, you can probably double it,” he said. “If they are talking about 400 to 500 stores they are probably thinking 1000
stores.”
Since entering the Australian market eight years ago, Aldi has opened 167 stores, claiming about 2.5 per cent of the grocery sector.”
“Retail analyst Tim Morris, of Coriolis Research, said clothing retailers appear to have not been hit as hard as other sectors in the latest Statistics NZ figures. Clothing retailing fell 5.9 per cent, but appliance retailing, and furniture and floor coverings suffered harder falls, down 15.2 per cent and 10.8 per cent respectively.
Morris said there were multiple streams in clothing retailing. “If you’ve got a job, you’ve got to wear tidy clothes to go to work and they only last so long, so there’s some pieces in that that are almost non-discretionary. There’s other bits that are retail therapy … It is a discretionary spend, but certainly it hasn’t shown any evidence of slowing as quickly as
some of the other areas.”
The turnaround in retailers’ overall fortunes has been swift, said Morris. He cited appliance retailing, which only recorded its first fall in sales in September last year. That fall was just 1.7 per cent. In March, the fall was 15.4 per cent. “We’re not talking about a small movement of a per cent here or a per cent there,” he said.
All sectors – apart from supermarkets and grocery retailing, cafe and restaurants, and automotive fuel – were charting falls. “It’s tough times out there in retailing and certainly from the look of this data, it looks like it’s getting worse not better.”
“As dust from a vicious legal battle settles, the supermarket industry has turned back to the real fight – earning a bigger share of consumer spending…
Tim Morris of Coriolis Research believes the Big Fresh concept died away because it lost its novelty. Like Disneyland, part of the attraction was scarcity. When stores cropped up nation-wide, the appeal became lost. Since 2000, four Big Fresh stores have gone leaving nine, which will be phased out within two years.
Progressive is undecided on whether it will discard the Woolworths or Foodtown brand. “It depends on location and what kind of store it is,” says van Arkel. “But we need to do some sort of rationalisation.”
But problems could arise wherever it turns. Woolworths has a high national profile but is slightly weaker in Auckland. On the flip side, Foodtown – New Zealand’s first supermarket – is strong in Auckland, weak elsewhere. But if a Foodtown replaced a Woolworths, “what would the Christchurches and Gores of this world think?” asks Morris.
“It’s something from Auckland. If they’d been shopping at Woolworths for 30 years, I don’t think they’d want an Auckland brand.”
Indeed, customer feedback will be the driving force behind any change. Focus groups and research company Colmar Brunton are advising the company, says van Arkel, “but it may be a process of evolution rather than revolution”. He concedes rejection of a nation-wide brand may result in Foodtown staying in Auckland, and Woolworths everywhere else.
Anyway, despite potential branding problems, the ultimate supermarket asset will always be location, says Morris, with price coming a close second. Consumers will pass one supermarket to go to another if the second is cheaper – sometimes. The rule of thumb, explains Morris, is that the second supermarket has to be at least 5 per cent cheaper before it entices the shopper.”
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