Giant grocery buy-up signals lower prices

Picture / Kenny Rodger

New Zealand shoppers may get lower grocery prices after Australian supermarket giant Woolworths struck a $2.67 billion deal to swallow three big New Zealand supermarket chains.

Cheaper petrol, discount stores and large supercentres - direct competition for discount retailer The Warehouse - are also possibilities after the deal which creates one of the biggest food operators in the world.

The Australian company, until now unrelated to the New Zealand supermarket which shares its name, yesterday agreed to buy local supermarket operator Progressive Enterprises from its Australian owner Foodland, with a number of Australian supermarkets.

Progressive owns Foodtown, Woolworths and Countdown and operates the SuperValue and FreshChoice franchises.

Together the chains employ about 4000 workers and last night their union said talk of the deal had unsettled staff.

Woolworths chief executive Roger Corbett said his company would be the biggest food operator in Australasia, selling about $37 billion of groceries and other goods a year.

With huge buying power and the introduction of Woolworths' efficient technology and distribution systems to its new business, Australian analysts said the deal meant grocery prices would fall.

Mr Corbett said the takeover would bring benefits to local shoppers.

"This will result in a more competitive market in New Zealand - to the advantage of New Zealand consumers."

But David Russell, chief executive of the Consumers' Institute, said the move could be a double-edged sword for shoppers.

Woolworths was known for its aggressive pricing, which could increase competition and knock dollars off the shopping bill.

But the company's ability to do that was created by dealing with a limited number of suppliers. This could see brand choice reduced.

"It's really a 'wait and see' situation, but the clout Woolworths has is potentially good news in terms of prices."

The "wildcards" of The Warehouse and German discounter Aldi were also likely to impact on the competitive nature of the traditional two-horse grocery business in New Zealand.

Mr Corbett said the new Woolworths chain might also offer cheaper petrol.

Although Progressive and its competitor, Foodstuffs, already offer discounts on petrol for shoppers, those schemes are still very small.

Woolworths had found the widespread petrol discounting scheme it operated in Australia appealed to its customers there.

"I daresay it will have some appeal in New Zealand," Mr Corbett said.

The company will also look at moving beyond groceries.

In Australia Woolworths operates one of the country's larger superstore discount chains, Big W.

"There's obviously a lot of opportunity in general merchandise in New Zealand," said Mr Corbett.

Supercentres with a supermarket and Big W under one roof, as happens in Australia, would be high on the list for assessment but freestanding discount retail stores would also be considered.

Foodland boss Trevor Coates has said the two will continue talks over Progressive's 18,000 New Zealand staff, but Mr Corbett said he was in the business of giving people jobs - by implication rejecting major job cuts, although he was not specific.

"I don't envisage very much change," he said.

The National Distribution Union, which represents 4000 Progressive workers, said talk of the deal had unsettled staff.

Judy Attenberger, national retail sector secretary, said the union was to begin negotiating a new collective agreement next month and wanted to know who it would be dealing with.

"We always knew it was going to be sold and Woolworths is preferential to someone with little or no supermarket experience. But we want it over and done with because there's a lot of uncertainty."

The deal is not yet 100 per cent done, but Woolworths' Australian rival Coles Myer ruled itself out of the running yesterday.

Mr Coates said the company was "not soliciting" other offers. It had refused any negotiations including break fees and would keep a data room open for would-be buyers.

The two Woolies

What Woolworths gets

* A 45 per cent share of New Zealand's grocery market.

* 150 supermarkets trading under the Countdown, Foodtown and Woolworths banners.

* About 20,000 staff.

* 22 Woolworths Quickstop and Micro convenience stores, an online shopping service, meat processing plants, warehouse operations and support offices.

Woolworths in Australia

* Operates more than 1600 stores in Australia.

* Employs more than 145,000 people and has annual sales of $27 billion.

* Brands include Woolworths, Big W, Safeway, Food For Less, PowerHouse, Tandy, Woolworths Ezy Banking and GreenGrocer, among others.

* Has more than 300,000 shareholders. Over 90 per cent of them are "mums and dads" with fewer than 5000 shares.