New supermarket monopoly conspiracy theory

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Ultimate Geek
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#2691965 13-Apr-2021 12:05

Mahon:

The Government has launched an enquiry into our supermarket duopoly. Like most of the other enquiries over the last few years not much will come of it. This is certainly an impressive industry to be in especially during covid. I would imagine record profits are being recorded.

Not so. The very reason we have just two chains is that profits are not good enough to warrant a third entrant. There are several Australian chains (such as Coles) that have the massive wherewithal to do this and have not.

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Fred99

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#2691975 13-Apr-2021 12:40

sbiddle:

supermarket these days costing in the vicinity of $30m - $50m it's not a game you enter unless you're very good at it.

If anybody wants to give it a go, this new (2015?) local medium sized supermarket in a high income area has failed spectacularly, management taken over by Foodstuffs, continued to fail, converted to a 4 Square, closing down for good in a few days.
Foodstuffs are apparently looking to "repurpose" the building. Into what though?
I can think of a few reasons why it failed. The store has parking below and shop above, this never works in Chch. It's also on the wrong side of the road, people shop on their way home from work or dropping kids off to school, for most that would mean a wait before a right turn at the lights. It also catered to a boutique demographic, had a great selection of wines, beers, and deli items, but the fresh produce section was too small and limited, IMO.

Fred99

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#2692003 13-Apr-2021 13:03

OldGeek:

Fred99:

Remember "3 Guys" supermarket that tried to enter the NZ market? That failed, the assets IIRC bought by Progressive, then absorbed/rebranded.

3 Guys was founded by Albert Gubay. Details here: Founder of New Zealand Retail Grocery Deep Discounting Dies - MSC NewsWire.

At the time, a friend of mine's father was somehow financially involved with Gubay when things didn't quite work out for 3 Guys as hoped. He ended up vanishing into thin air, his family never heard from him again. AFAIK he's still "missing" assumed living overseas with whatever cash he could lay his hands on before the banks took the family home etc. leaving them penniless. The banks even pestered my friend for years afterwards, despite the fact they had no idea - and was a teenager at the time.

mattwnz

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#2692032 13-Apr-2021 14:09

tdgeek:

mattwnz:

It is not OT. A lot of things are going up in price and likely food could go up a lot. Then we are going to hear compliants about supermarket prices again. We surely didn't think we could print a hundred billion plus dollars and pump up house and asset values without potentially massive inflation occurring?

I think it is referred to as Stagflation

I don't know how businesses are going to handle all the increased costs and where the money is going to come from.

With these price increases, I wonder how much of this is businesses clawing back lost income from the lockdowns/unemployment. I would if I was in business. While a consumer may spend his pent up lockdown cash, that doesnt mean every shop will get those lost sales back.

Also the minimum wage has increased so additional costs, and many of super market workers will be on the min wage. Plus lots of additional costs with shipping etc. I think people need to expect to be paying a lot more for things like food. Not sure if the reserve bank is going to let inflation climb a lot, or if they will increase interest rates to try and slow it down. But if interest rates go back up then some people may have probelm wit houses they have overpaid on. Everything is linked.

antonknee

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#2692057 13-Apr-2021 14:36

mattwnz:

Also the minimum wage has increased so additional costs, and many of super market workers will be on the min wage. Plus lots of additional costs with shipping etc. I think people need to expect to be paying a lot more for things like food. Not sure if the reserve bank is going to let inflation climb a lot, or if they will increase interest rates to try and slow it down. But if interest rates go back up then some people may have probelm wit houses they have overpaid on. Everything is linked.

Incidentally at Countdown, many of their team are on well above minimum wage (they pay a living wage to team with 12 months service). Can't say the same for New World and Pak n Save - but I'm told their owner/operators are 'stingy' and unionisation efforts struggle on the back of the cooperative model.

Handle9

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#2692075 13-Apr-2021 15:06

sbiddle:
Mahon:

The Government has launched an enquiry into our supermarket duopoly. Like most of the other enquiries over the last few years not much will come of it. This is certainly an impressive industry to be in especially during covid. I would imagine record profits are being recorded.

As somebody who spent 30 years in the industry and still has good links to it I see it the exact opposite way.

When the report is complete I can see people being shocked when they discover the true profit margins of the industry as a whole. The ROI isn't great compared to many other parts of the retail sector due to the intense competition, and when you're looking at a large supermarket these days costing in the vicinity of $30m - $50m it's not a game you enter unless you're very good at it.

While the gross margin of supermarkets isn't all that high it's a business with amazing cashflow. It uses its suppliers as a bank but collects payment upfront. The use of rebates, merchandising charges and other mechanisms to obscure true margins will make an enquiry pretty challenging.

As a result it's ROIC is excellent.

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Fred99

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#2692083 13-Apr-2021 15:22

Countdown turns over 6.7 billion, has 18,000 staff. a $2/hour (ie 10%) pay increase for staff increases costs by say $75 million, which would be an increased cost of 1% that they'd need to pass on to maintain net margins. It will of course be less than that because many of their 18,000 staff are part time.

Compared to other factors, prices from suppliers increasing because of commodity price variation etc, shipping costs, the impacts of minimum wage increases are probably little more than background noise.

OTOH small businesses with higher labour cost relative to turnover do get hit harder, probably why I've noticed a significant increase in prices at restaurants etc, even though food prices haven't gone up much.

wellygary

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#2692085 13-Apr-2021 15:32

Fred99:

OTOH small businesses with higher labour cost relative to turnover do get hit harder, probably why I've noticed a significant increase in prices at restaurants etc, even though food prices haven't gone up much.

You don't pay for food at a restaurant, you pay for the place to sit, and the people to cook it, bring it to you and wash your plate afterwards.

As the price of labour goes up, so does the menu price, unless you can find ways to cut back on the number of people you need to run the place, its also why supermarkets and other big format retail like self-checkouts...

mattwnz

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#2692161 13-Apr-2021 16:50

antonknee:

mattwnz:

Also the minimum wage has increased so additional costs, and many of super market workers will be on the min wage. Plus lots of additional costs with shipping etc. I think people need to expect to be paying a lot more for things like food. Not sure if the reserve bank is going to let inflation climb a lot, or if they will increase interest rates to try and slow it down. But if interest rates go back up then some people may have probelm wit houses they have overpaid on. Everything is linked.

Incidentally at Countdown, many of their team are on well above minimum wage (they pay a living wage to team with 12 months service). Can't say the same for New World and Pak n Save - but I'm told their owner/operators are 'stingy' and unionisation efforts struggle on the back of the cooperative model.

The living wage has also increased, but doesn't seem much more than the minimum wage these days. Labour has bumped up the minimum wage by quite a bit over recent years.

But as we are heading for stagflation, wages are going to have to go up a lot, which will result in more expensive goods etc. Or less staff will be employed and more self service checkouts.

Handle9

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#2692163 13-Apr-2021 16:53

mattwnz:

antonknee:

Incidentally at Countdown, many of their team are on well above minimum wage (they pay a living wage to team with 12 months service). Can't say the same for New World and Pak n Save - but I'm told their owner/operators are 'stingy' and unionisation efforts struggle on the back of the cooperative model.

The living wage has also increased, but doesn't seem much more than the minimum wage these days. Labour has bumped up the minimum wage by quite a bit over recent years.

But as we are heading for stagflation, wages are going to have to go up a lot, which will result in more expensive goods etc. Or less staff will be employed and more self service checkouts.

If it's stagflation where is the high unemployment?

mattwnz

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#2692166 13-Apr-2021 17:02

Handle9:

If it's stagflation where is the high unemployment?

We may not be there yet, and it is mainly just inflation, but we could be heading towards stagflation https://www.interest.co.nz/opinion/109901/roger-j-kerr-says-government-will-struggle-understand-current-deteriorating-economic . Hopefully something will be done by the government to prevent stagflation occurring.

The probably is the it is a K shaped recovery, so the people losing their jobs at the moment tend to be at the lower end, such in the the services and tourism industries.

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antonknee

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#2692182 13-Apr-2021 17:29

mattwnz:

The living wage has also increased, but doesn't seem much more than the minimum wage these days. Labour has bumped up the minimum wage by quite a bit over recent years.

Yeah it’s around 10% higher - $22.10 at the moment and $22.75 in September. However it’s not linked to minimum wage per se.

In Countdown’s case, they pay what was the living wage at the time the agreement was signed and there are step increases built in to that (ie they aren’t necessarily paying the $22.10 rate and don’t have to unless they choose to become Living Wage Accredited). Same with The Warehouse Group and their equivalent ‘career retailer wage’.

Without venturing into politics forum territory, I would say it’s a good thing we have a high minimum wage, and one that approaches a living wage. No one should work full time yet not be able to afford to live IMO. That our median wage is not much higher than our minimum is the real shame - a lot of very poorly paid people in this country.

Oblivian

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#2692192 13-Apr-2021 17:44

Well hasn't this drifted way off the product question at hand.

Alas. If one must focus on the details, consider shelf cost may be compounded. Not just the supermarket staff raising burden.

The produce pickers, the packers, the storemen at distribution, the drivers. If any of those below also need to raise costs to cover. Raw item's may have varied increase, not all set the same. The shelf one will be all those stacked as they go down the line + their own offset.

It's not just them thats gone up too. Like, lots. My local Chinese is up .50 min every dish. Subway... You name it.

sbiddle

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#2692202 13-Apr-2021 18:13

Oblivian:

The produce pickers, the packers, the storemen at distribution, the drivers. If any of those below also need to raise costs to cover. Raw item's may have varied increase, not all set the same. The shelf one will be all those stacked as they go down the line + their own offset.

Speaking to a few people still in the industry a few weeks ago I commented about the high prices of apples this year. While labour costs increased significantly with pickers, one of the biggest issues is the fruit that simply wasn't picked and has gone to rot so we're probably going to see pricing at a premium in part due to attempts at cost recovery across the whole supply chain.

antonknee

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#2692203 13-Apr-2021 18:17

floydbloke:

Something along those lines certainly appears to happen at DIY stores, i.e. you can only buy Ryobi at Bunnings.

It also seems that manufactures provide different SKUs for the exact same product to Mitre10 and Bunnings, to prevent exploitation of price matching and 15% discount I expect. I found this out when I was in the market for a bathroom tap. They both sell the Foreno brand. Identical looking taps with the same dimensions and speciifcations will have different sub-branding and part numbers.

It also seems that certain specific laptop model numbers from the 'big' manufacturers can only be found at specific 'tech' chains (NL, HN)

To bring the thread back on topic - absolutely. Retailers will negotiate for exclusive lines because these are defensible (don’t have to discount) or to lock in a brand proposition (we sell high end products you can’t get elsewhere). Exclusives tend to be margin rich.

Sometimes retailers will stop selling a product because it doesn’t turnover, or even as part of a larger negotiation tactic. A retailer I used to buy for was excellent at throwing the toys out of the cot and deleting entire ranges or brands to force the supplier into giving an extra .5% in margin.

In the case of Ryobi, it’s a long-standing arrangement - from their perspective it’s much easier to pick a partner you can work closely with on co-marketing, plus it gives you better control over your brand and pricing.

I would note that the guidance around the price policy for two of the retailers you mention does not actually require an exactly matched SKU - only that the item be equivalent brand and spec (what a consumer would consider to be a close substitute).

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