Despair at the dairy

By Karyn Scherer

Anish Bhamji and his wife Sultana used to have what they considered the perfect life.

For the past six years, they have been the proud owners of the Ardmore Dairy, a busy corner store in the heart of swanky Herne Bay in Auckland.

Their hard work and friendly manner has been recognised by their customers, who have regularly voted the shop as Auckland's best dairy in the Metro magazine readers' poll.

Over the past year, however, the couple have noticed fewer customers dropping in for a packet of fags or a litre of milk. They blame the new petrol station which opened last year just down the road.

It is fair to say they were not jumping for joy when BP and Woolworths announced two weeks ago that from next month, a four-aisle Woolworths will open on the petrol station's forecourt, as part of a trial which could eventually see up to 40 such mini-marts established through the country. The stores will not only sell about 3000 items at supermarket prices, they will be open 24 hours a day.

While it is yet to be seen whether the joint venture will prove a success, the Bhamjis acknowledge they have been caught up in a trend which is changing the face of retailing.

"It's just one of those things that had to come," says Mr Bhamji. "It's already happening overseas."

Major suppliers say there are just over 2000 dairies in New Zealand. It is noticeable, they agree, that their share of the market has gradually declined as supermarkets have moved to seven-day trading and permanent late nights, and petrol stations have moved in on their patch.

Less than 100 remain members of the Retail and Mixed Business Association, which represents the sector. Twenty years ago, says the association's national secretary Bruce Woodley, the association had 500 to 600 members.

"I think the situation is getting quite desperate in some cases."

To some, the trend is simply the inevitable result of social changes such as increasing numbers of working women, and a more mobile population.

Nevertheless, similar trends overseas have sparked long and loud complaints from small, family-owned businesses that the big chains are becoming too big and abusing their market power.

Increasing concern in rural Australia that the corporate chains have reduced competition through aggressive takeovers and predatory pricing has led to a Senate inquiry into the sector.

The inquiry, which is due to report on June 10, has been asked to consider the devastating effect the big three retailers - Coles, Woolworths and Franklins - have had on small businesses, jobs, families, and local cash flow.

In Britain, the Office of Fair Trading has been calling for a similar inquiry for some time, amid concerns about the power and profitability of the four main chains.

It is an argument you are more likely to hear associated with a chain such as The Warehouse in this country. And indeed, there have been rumours for some time that The Warehouse has been eying the grocery market.

New Zealand's big three grocery retailers - Woolworths, Progressive and Foodstuffs - do not believe the rumours. They also point out that the situation is very different here than in most countries.

While it is true that three-quarters of the $9 billion that is spent on groceries each year goes to the major chains, a large chunk of it goes into the tills of owner-operated businesses.

The Grocery Marketers Association, which represents suppliers, says Foodstuffs has snared 58 per cent of all wholesale sales of dry goods.

Foodstuffs' main brands are New World, Write Price, and the spectacularly successful Pak'N Save. It also has about 750 superettes and dairies, including Four Square and On the Spot, as well as wholesalers Toops, Trents and James Gilmour. It is run as three separate, regionally based cooperatives and is wholly New Zealand owned.

Progressive, which is majority owned by Perth-based wholesaler and retailer Foodland, runs the Foodtown, Countdown and 3 Guys chains, as well as a clutch of Cash and Carrys. Its share of wholesale sales has dropped significantly in recent years to about 26 per cent.

The remaining 16 per cent is taken by Woolworths NZ, which is wholly owned by Hong Kong-based company Dairy Farm International. As well as Woolworths, it owns the Big Fresh and Price Chopper chains. It also supplies Challenge petrol stations' groceries.

Industry observers attribute Foodstuffs' success to a long period of stable management, good strategic planning, and its ability to sit on blocks of land long before they are needed.

The chief executive of the Retail Merchants Association, John Albertson, says its success is quite amazing. "It would be one of the few cooperatives to have lasted as long as it has."

But Progressive's new chief executive, Ted van Arkel, is convinced its dominance will not last. Suppliers, he says, prefer to deal with chains, not individual owner-operators. They like chains' rigid rules on product display.

On one point, all three organisations concur. The tiny profit margins of supermarkets (most keep just 1.5c to 2.5c of every dollar that passes through their tills) is evidence the New Zealand market is extremely competitive.

The chief executive of the Consumers' Institute, David Russell, does not dispute the point.

"It's tough if you live away from a large supermarket, but in the major population centres you find quite fierce competition between the supermarkets."

Like many other industry observers, Russell finds the Australian inquiry bizarre, especially the suggestion that the major chains should be forced to divest. Such moves are not in consumers' interests, he says.

The managing director of Foodstuffs Auckland, Hugh Perrett, says the number of dairies and Four Squares in the group has dropped "very significantly" in recent years. But the situation is quite different to Australia's, he says.

"I think the problem in Australia isn't so much that Coles and Woolworths are so good, it's that the independents are rather poor," he says. "They're baying and crying about it being unfair, but it's really the fact that they haven't done their job properly."

Woolworths' director of strategic business development, Des Flynn, agrees. "The independents in Australia haven't been forward-enough looking, and have allowed themselves to be destroyed."

Mr Flynn says Woolworths' joint venture with BP is an example of how the industry has reacted to changing times.

"The convenience aspect of supermarket shopping has become significant enough for us to say if we don't do something different to cater for the needs of those people, then they're going to abandon us."

But Wellington dairy owner Naginbhai Patel says the supermarkets and petrol stations are very much mistaken if they think existing convenience stores are going to give up without a fight.

Mr Patel remains a member of the Retail and Mixed Business Association.

Most dairies, he says, realise they have to smarten themselves up to compete these days. Many have formed buying groups that enable them to strike cheaper wholesale deals, and some are opening even longer hours to get more sales.

His own dairy, just outside the Wellington central business district, is a good example. He and his wife used to work from 7 am to 10 pm seven days a week. They now stay open until 11 pm or even midnight some days.

"Dairies are under pressure, but it doesn't mean they'll close down," he says.

"A lot of businesses are owned by families. They might be earning 50c an hour, but they like that lifestyle."

Many also come from an ethnic background that values hard work and self-reliance. Their lack of marketable skills means they would otherwise be on the dole.

"It's not luxury living, but it's better than being on a benefit."