Sale postponed plans for superstores

Trevor Coates thinks Woolworths was the most logical bidder for Progressive’s New Zealand assets. Picture / Glenn Jeffrey

Big-box superstores and city convenience outlets were on the agenda for supermarket operator Progressive Enterprises before Aussie giant Woolworths struck a deal to buy the company.

But Trevor Coates, chief executive of Progressive's parent Foodland, said Woolworths could yet build on more than 18 months of planning to create as many as 10 large-format stores of up to 10,000 sq m, carrying up to 40 per cent general merchandise.

"There is certainly an opportunity in general merchandise and Woolworths, with Big W, has experience in general merchandise," he said.

While Woolworths had pursued standalone general merchandise stores in Australia, Foodland believed they needed to be integrated with grocery to capture foot traffic in New Zealand.

It had also seen opportunities in new concepts and new brands, such as standalone convenience stores and Countdown-branded petrol stations.

The deal struck last month will instead see Foodland broken up and sold. Australia's Woolworths will get its New Zealand assets - including the Foodtown, Countdown and Woolworths chains - and some Australian supermarkets. Grocery wholesaler Metcash Trading will get most of Foodland's Australian assets.

Court and shareholder approval look set to drag the break-up into September. But the deal seems highly likely to be consummated, despite Foodland's board remaining open to any superior proposal.

Coates said all the major shareholders he met last week - owners of up to 45 per cent of Foodland's shares - supported the deal.

Foodland has not received any more approaches since the Metcash-Woolworths deal was announced.

Coates said Woolworths was probably the "most logical" bidder for the New Zealand assets.

He predicted the major changes Woolworths would bring were superior systems - Foodland had been set to invest in a five-year, $65 million upgrade of its technology - and supply-chain expertise.

"With scale, and that expertise, they can drive value for the customer," he said.

Coates said it was still too early to say what the deal would mean to Foodland's 19,000 New Zealand staff. He has had no indications of Woolworths' plans but believed it would seek continued growth.

As an expert observer, Coates poured cold water on stories Woolworths was also considering buying The Warehouse and played down supplier fears that Woolworths would muscle prices lower with its buying power.

He said Progressive sourced most of its goods locally and use of local suppliers was a factor that most retailers knew contributed to success.

"There is also a real opportunity for New Zealand suppliers to grow their market [to Australia] through the entry of Woolworths," he said.