“It’s music to the ears of shoppers pushing trolleys down grocery aisles. There is little prospect of big grocery bill increases as competition forces the two big supermarket chains to keep a lid on prices… Progressive Enterprises is part of the way into a $1 billion five-year transformation of its 152 Foodtown, Woolworths and Countdown supermarkets to one brand – Countdown…
Tim Morris of retail analysts Coriolis Research, said the $1 billion spend-up was the latest round in the knock-down, drag-out fight between Progressive and co-operatively owned Foodstuffs, which has sales of around $8 billion a year.
“It’s a bit like trench warfare,” he said. Morris said revamping a supermarket chain was working for Progressive.
“They’re not revolutionising the planet. A smartened up Countdown is not going to get people running down the street but remodels are always a good spend.”
“You may not realise it sitting over your cereal bowl each morning, but the battle for your breakfast dollars is intense… Tim Morris of Coriolis Research, which analyses the supermarket sector, said every time there’s a recession, sales of private label goods increases. In the UK, they now account for more than 50% of sales. Whether New Zealand goes that way, from below 15% now, is moot. Morris said private label success is inversely proportional to the amount of innovation in the market – and New Zealand has some very innovative players. Morris cites Tasti Products and Vogel’s as two local firms disrupting the status quo. Tasti, he says, “flies under the radar” but has done really well both locally and in Australia.”
From an article in today’s Herald: The Warehouse today opens its first new Auckland store in four years, hoping winter will hit soon and banking on the Avatar effect to help accelerate the group’s sluggish climb out of the recession. The store opposite the St Lukes shopping centre will carry most of The Warehouse range within a “compact” 2000sq m building. It is the part of a 15-store renovation and expansion throughout the country over the next five years, adding to the existing 86 stores…
Coriolis Research retail analyst Tim Morris said since The Warehouse had practically saturated the New Zealand market, and having been burned by its forays into Australia and groceries, it was left with only incremental growth options.”
Tim points out he also mentioned that this move was very sensible and completely in line with the moves of leading global mass merchants like Target and Wal-Mart.
The NZ Herald today published two related articles (article 1) (article 2) on the New Zealand supermarket sector, both of which quoted our very own Tim Morris extensively.
“Last year an Australian academic caused a stir with a study that appeared to show food prices have risen in Australia and New Zealand by more than 40 per cent over the past decade – well ahead of most countries in the developed world. Frank Zumbo, an associate professor in the School of Business Law and Taxation at the University of New South Wales, says the only unique factor he was able to pinpoint to explain the sharp rise was the lack of competition…
Tim Morris of Coriolis Research is highly critical of Zumbo’s study. While he admits the New Zealand food price index did show a big rise between 1998 and 2008, he believes this can mostly be explained by a boom in global dairy and meat prices, and other factors such as the drought in Australia…
“At the end of the day, if the things [Zumbo] was saying had any basis in reality these guys would be making lots of money, and they’re not,” Morris insists.
Analysis of Woolworths’ annual reports does indeed show that its normalised New Zealand dollar earnings before interest and tax have remained almost constant at around 4.2 per cent of overall sales each year for the past four years…
However, according to general secretary Robert Reid, Woolworths put extra pressure on its New Zealand managers by including a huge amount of goodwill on its balance sheet when it acquired Progressive for $2.5 billion at the end of 2005. Morris agrees it probably paid too much…
Morris says consumers simply have to get used to the idea that local prices are often affected by export prices, and that supermarket pricing is often about balancing those fluctuations. While it is certainly true that supermarkets tend to wring higher margins out of fresh produce, that’s only so they can offer other goods at or below cost, he says.
Green MP Sue Kedgley argues that such practices are effectively a tax on healthy eating. And she has warned that many local growers are choosing to get out of the industry rather than continue to see their own margins eroded.
The collapse of the New Zealand garlic industry is a case in point, she suggests. Most garlic now sold in New Zealand is from China, and local onion growers are understandably nervous that the Chinese have applied to bring in onions as well.
Morris argues that such swings and roundabouts don’t have much effect on the overall economics of grocery retailing in this country.
“From the publicly available information, there is no evidence that supermarkets in New Zealand are any more profitable than supermarkets anywhere else,” he insists. “Sure, competition is good, and more competition is better. But you’ve got to balance that among 4.3 million people. We are in line with other peer-group countries. You find a similar situation in Norway, Finland and Switzerland.”
There is, however, one important difference: there are five main competitors in Norway and Finland, and four in Switzerland. According to Coriolis’ own research, New Zealand is the only developed country to have just two.”
Big two supermarket chains locked in fierce food fight
The grocery industry, lest we forget, is basically trench warfare, Tim Morris insists. As managing director of Auckland-based consultancy Coriolis Research, Morris has been analysing the food industry for more than 20 years.
In the United States, supermarkets have been losing sales to hypermarkets, warehouse clubs and drug stores for more than a decade, he observes. Globally, the main chains are consolidating and fighting a fierce battle over a shrinking market share.
New Zealand might be a bit behind that trend, but we’re already down to two main players who between them are scrapping over a pretty mature market, he suggests.
If you really want to get him going, just whisper the words “cosy duopoly”. ”Woolworths imagined in their mind they were going to come into New Zealand and romp home, and to date they’ve had their head handed to them on a plate,” he exclaims.
“They have now stopped the bleeding, but there will be lots of fighting and waves of troops into the trenches to achieve not a lot. They battle over very marginal market share gains and most of the gains they get are from opening new stores. The reason Foodstuffs has succeeded over the past decade is they have opened over 30 new stores, while Progressive has opened a net of none.”
In fact, Progressive has opened two new stores in the past six months. And it has started to compete more vigorously with independent bakeries, butcheries and fruit and vegetable sellers, as well as the farmers markets and other outdoor markets that have grown enormously in recent years.
So far, however, the Commerce Commission has refused to consider these rivals as direct competitors, pointing out that for most people, the one-stop convenience of supermarkets is hard to beat.
Morris reckons Asian supermarkets now account for at least 5 per cent of sales in Auckland, but he concedes Foodstuffs and Progressive still have a huge stranglehold nationally. In 2005, he estimated that between them they controlled 78 per cent of all retail food purchases in New Zealand.
An article in today’s The Independent discusses moves by fast growing New Zealand clothing manufacturer Icebreaker to move into retail stores. The article quotes Coriolis Managing Director Tim Morris:
“Jeremy Moon aims to double Icebreaker revenues within three years. His ambition comes on the back of the merino clothing manufacturer expanding its direct retail outlets… Coriolis Research analyst Tim Morris says the move is a natural step. ”Most apparel makers who have a brand like Icebreaker have a direct outlet. Anyone in this space ends up with a mixed strategy.”
This morning’s Radio New Zealand Morning Report featured a story about the opportunities for the proud new owners of Shell NZ – Infratil and The NZ Superannuation Fund. ”The managing director of the research company Coriolis says margins on petrol sales are slender and profits are typically made from products such as drinks, phone cards, coffee and cigarettes. He says Shell has lagged in this regard and must do better to improve its margins. “I don’t think Shell is out there at the cutting edge. Probably if you had to pick you would say BP does a better job than anyone else right now. But isn’t that what makes the opportunity. You can do a lot more than is currently being done.”
Tim comments he pointed to Tesco Express in the UK and 7-Eleven in Japan as closer to the cutting edge globally in convenience retailing.
“A takeover of the big Red Shed was on the cards in 2008, when Woolworths and Foodstuffs, which each own 10 per cent stakes, made separate bids, but these were quashed as The Warehouse could not be ruled out as a significant supermarket competitor in future.
Rumours of fresh bids have begun to circulate but analysts are at odds as to whether anything will come of it.
Craigs Investment Partners analyst Mark Lister says the supermarket operators are well-positioned following the downturn but any takeover activity in the short term is unlikely, while Coriolis Research retail analyst Tim Morris says neither operator can make a move while the other holds 10 per cent.”
Tim comments: Do reporters in New Zealand fact check? Foodstuffs bought 10% of the Warehouse in Jun/Jul 2006 and Woolworths Australia in Sep 2006. I’ve been pointing out to reporters for almost 3 1/2 years that 10% is a blocking stake, unless you have a “special scheme.” However, under the law as it stands a special scheme can’t be created purely to allow an acquisition and can be challenged in court. But every time you tell this to a reporter, it is somehow new news.
“Coriolis Research retail analyst Tim Morris said Briscoe had produced a good result with Duke pushing hard to adapt to changing conditions. ”He’s pulled a rabbit out of the hat and credit to him for it. I think it’s a sign of management adapting to the environment,” he said.
Morris said it could be another nine months before the wider retail sector pulled out of the doldrums. ”If you made it past Christmas then you’d have passed the worst of it.”
Coriolis Research retail analyst Tim Morris said Briscoe had produced a good result with Duke pushing hard to adapt to changing conditions.
“He’s pulled a rabbit out of the hat and credit to him for it. I think it’s a sign of management adapting to the environment,” he said.
Morris said it could be another nine months before the wider retail sector pulled out of the doldrums.
“If you made it past Christmas then you’d have passed the worst of it.”
Today’s New Zealand Herald quotes Coriolis Managing Director Tim Morris in an article on the woes of the retail sector.
“Tim Morris, a retail analyst with Coriolis Research, is not so sure. ”There’s a lot of people who’ve been hanging on by the skin of their teeth or the sufferance of their bankers. ”New Zealand often lags these things, we could have another bad year and we could see another round of this.”
Because of the slowing property sector retailers selling products to do with home formation have suffered more than most, such as furniture retailers, hardware stores and flooring specialists, he says. In contrast food retailing has been strong because people still need to eat. You don’t see any supermarkets falling over, he points out.
Tim Morris, a retail analyst with Coriolis Research, is not so sure.
“There’s a lot of people who’ve been hanging on by the skin of their teeth or the sufferance of their bankers.
“New Zealand often lags these things, we could have another bad year and we could see another round of this.”
Because of the slowing property sector retailers selling products to do with home formation have suffered more than most, such as furniture retailers, hardware stores and flooring specialists, he says.
In contrast food retailing has been strong because people still need to eat. You don’t see any supermarkets falling over, he points out.”
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.”
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.
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.
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.
The U.S. Department of Agriculture’s Foreign Agricultural Service today published a report for American food exporters on the New Zealand market. It quoted from a number of pieces of Coriolis research.
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%.
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.
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.
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From 
“At the end of the day, if the things [Zumbo] was saying had any basis in reality these guys would be making lots of money, and they’re not,” Morris insists.
An article in today’s The Independent discusses moves by fast growing New Zealand clothing manufacturer 
This morning’s Radio New Zealand Morning Report 
From “The petrol play: Can Infratil and NZ Super carry off Shell?” in today’s The Independent:
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.
The U.S. Department of Agriculture’s Foreign Agricultural Service today published a 
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.