Editorial: Bargains in store for consumers

Opinion

On the face of it, the grocery supermarket business in New Zealand would seem to have about six thriving competitors. In fact, we have had two: the Foodtown, Woolworths and Countdown chains are owned by Woolworths Australia while New World, Pak'N Save and Four Square stores belong to the New Zealand co-operative Foodstuffs. It takes only two to wage a keen competition, even when the contest is between an Australasian Goliath with annual revenues around $32 billion and a domestic David with a turnover of $6 billion. Foodstuffs still claims 57 per cent of the local market.

Nevertheless, the entry of a third player, The Warehouse, which opens its first "hypermarket" today in the new Sylvia Park shopping centre, will be welcomed by consumers. The Warehouse's move into groceries has already shaken up the existing players, as evidenced by Foodstuffs' announcement yesterday of a bid for 10 per cent of The Warehouse shares.

A year ago, soon after Woolworths Australia had bought its three New Zealand supermarket brands from their previous Australian owner, it was Woolworths which seemed to be interested in The Warehouse. The Warehouse share price briefly soared on word from Woolworths that it was assessing a move into the general merchandise market here. It has given no further sign of a serious move in that direction even as The Warehouse was gearing up to enter its market.

If the Foodstuffs bid succeeds it might hope to make an ally of the Big Red Sheds against the might of the Australian giant, and against the prospect, which Foodstuffs thinks strong, that Woolworths Australia will eventually be taken over by even larger world players, Britain's Tesco or the largest of them all, Wal-Mart.

The remorseless globalisation of the grocery business is being felt by all supermarket suppliers and all other retailers of consumer goods. The plight of suppliers was highlighted in this country last week with Woolworths' demand for double the discount (to at least 10 per cent) it has been getting from suppliers. The company appears to be bringing New Zealand trading terms into line with its Australian rates. But with only two major customers, wholesalers here have little choice but to take the cut in their margins. The Food and Grocery Council's commercial director Lindsay Davidson, told the Weekend Herald that smaller suppliers are in "real grief - they just don't have the ability to find 10 margin points."

Customers will share the benefit, though, if Woolworths passes on some of the extra discount. The bulk buying power of supermarkets has been an undeniable boon to general living standards even if it threatens the livelihoods of other retailers. The arrival of The Warehouse in the supermarket trade will be of cold comfort to providers of the few remaining household or personal goods that have not yet felt the hot breath of the discount barns on their core business.

Pharmacies, liquor stores and petrol stations have felt it, yet the humble suburban wine shop has shown that all need not be lost to economies of scale. Good wine shops have survived successive waves of price competition, first from deregulated liquor outlets and more recently from supermarket wine sales. Good wine shops can compete on service, which in their case means being able to recommend a genuinely good, reasonably priced wine of the kind the customer is seeking.

More areas of retailing may be forced to improve customer servicing if they are to compete with supermarket prices. If they do, the consumer stands to win both ways.