Warehouse Group prepares to push further into grocery market

The Warehouse Group says it is ready to increase its food retailing game. Photo / Supplied

The Warehouse Group is gearing up to push further into the grocery space, but chief executive Nick Grayston says lack of wholesale supply at commodity prices is a barrier.

The retail group, which operates The Warehouse, Stationery Warehouse, Noel Leeming, Torpedo7 and online business TheMarket, first dipped its toes into food retailing and the grocery market in 2006.

It operated three Warehouse Extra stores selling groceries and frozen food in Sylvia Park, Te Rapa and Whangarei, but exited the market in 2009 as a result of poor returns.

However, about 18 months ago it revisited the category and has again been increasing its focus on the grocery business, growing its product range within its The Warehouse stores.

Grayston said it had long been the Warehouse Group's desire to "supply value" in this area, in the same way it did in general merchandise and apparel.

"We are stepping it up, we've been aggressive as prices have gone up in the duopoly and it is an area that we believe we have a responsibility to help Kiwis," Grayston told the Herald.

"We're really looking for the outcome of the pressures the Government is putting on the duopoly. We've been in conversation with both members of the duopoly and we need access to equitable wholesale prices so that we can offer that value to our customers."

The Warehouse has been increasing its range of groceries in Warehouse stores and now has a wide range of goods outside of staples such as bread, eggs, butter, and milk, in all 89 of its red shed stores.

Grayston said its commitment to keeping prices low for food and grocery items since the cost of living crisis began had been "incredibly well received".

"We're increasing our projections, we're increasing our private label offer in TheMarket Kitchen - we have 35 items of core products, around 25 per cent less than the branded alternatives."

Grayston said it was taking the group a while to increase its grocery offering largely down to the lack of access to wholesale prices for grocery items, but this area remained a major focus in the months ahead.

"We want to be able to offer more things at great value and that is why we need access to wholesale.

"We will never be another Countdown or New World, New Zealand doesn't need that, but Kiwis do need access to commodity-priced groceries and everyday value and we are committed to doing that."

The group will be dedicating more space in its stores to stock more grocery items and will be expanding its private label TheMarket Kitchen offer.

"We're going to focus on having killer prices on the things that are most needed and most frequently sought after. We're going to be more productive in that space."

Until it got its grocery business to scale, lack of access to commodity prices of groceries and the supply chain was its biggest hurdle, Grayston said. "Those will be enablers for us and supercharge our ability to offer value."

Some of the Warehouse's groceries are parallel-imported, which is why they are offered at such low prices.

However, Grayston said the majority of its food items had deliberately had margins slashed.

"There's been a lot of publicity around the profit margins made by the duopoly - we are not looking to make those fat margins - we want to offer value, so we are taking shorter margins to offer commodity prices."

Grayston said the group had experienced good growth in its food and grocery category so far and it expected to see significant sales growth in the current financial year.

It estimates that it has saved Kiwis $2.7 million by offering low prices on the staple groceries of bread, butter, milk, Weet-Bix and coffee.

Nick Grayston, chief executive of The Warehouse Group. Photo / Supplied

The Warehouse Group this morning released its annual results for the 12 months ending July 31, posting an annual net profit of $87m, down 19.3 per cent on last year's $107.8m.

The company had its Auckland physical stores closed for 23 per cent of the reporting period and battled rising inflation.

It achieved almost $3.3 billion in sales revenue across The Warehouse, Warehouse Stationery, Noel Leeming and Torpedo7 stores, despite sales at its three leading retailers decreasing over the year.

Group sales were down 3.5 per cent compared to $3.41b achieved in FY21.

Grayston told the Herald the group had expected the significant drop in earnings in the year.

"We knew that we'd gotten a tailwind from opening up after Covid lockdowns, we also said we didn't know the extent to which it would be. I've been pleased with the way the year has come out - it has been such a year of challenges - Auckland stores closed for 84 days, the rest of New Zealand for 21 days and then 71 days in the orange traffic light system as we come through the pandemic."

Despite the drop in earnings this year, Grayston said sales were up 7.3 per cent on 2019, pre-pandemic levels.

"I'm hugely pleased with the momentum we have, the fact that we have continued to deliver and in fact accelerated our delivery of transformational initiatives, we feel like we are on track and to have maintained trading [at a high] level despite [Covid] is a huge achievement."

The Warehouse said its decrease in profit could partly be attributed to an $11.4m expense due to its SaaS accounting treatment of cloud computing software arrangements.

Sales at The Warehouse division decreased 4.3 per cent to $1.7b in the year, while sales at Warehouse Stationery fell 9.1 per cent to $249.7m.

Noel Leeming's golden run halted, with the electronics retailer's sales decreasing 2.8 per cent to $1.1b.

Meanwhile, sales at outdoor equipment retailer Torpedo7 bucked the trend, increasing by 8.1 per cent to $171.5m.

The group will pay out a final dividend of 10 cents per share, taking full-year dividends to 20 cents per share.

Warehouse shares are trading at around $3.30 cents per share, down from a recent high of $3.75 earlier this month.