Saturday’s New Zealand Herald quotes Coriolis:

“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.”

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.

One plus one – does it add up to higher prices?

“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.

“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.”

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.”

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.