With the NZCC Market Study still fresh in our minds and a genuine political desire for the growth of competition in the NZ Grocery sector, The Warehouse Group and its CEO Nick Grayston have made clear that their recent expansion and re-focus on Groceries within the Warehouse is a priority strategy for the business.
Opinion Piece from Neil Arnold at Arnold Category Consulting
Why it matters
Based on a Grocery market in NZ valued at $22 billion, winning just a single share point of this market is worth $220 million of retail sales.
In the context of The Warehouse, a single additional share point could deliver sales growth of over 12 percent based on their recent results and growth drivers of this scale are few and far between.
So, the big question. Will the Warehouse make its Grocery 2.0 offer a success?
Having visited a range of stores in the last 2-3 months, the strengths of this new offer are:
Scale – The Warehouse now has already achieved a scale offer (89 stores) and is clearly the first new competitor to offer a scale alternative to the traditional Grocery retail partners. The national scale allows for advertising of the offer to gain awareness and support from shoppers on a scale no other new entrant can achieve currently.
Simplified Approach – Whereas the previous Warehouse Extra model looked to directly compete with a full-scale Grocery offer, the new approach is effectively a ‘store within a store’ approach with a clear destination in store and offering category breadth in terms of pantry categories but keeping the range per category tight and focused to keep costs and complexity low. This looks like a leaf out of the Aldi playbook but lead by brands.
Key Value Lines – The Warehouse has identified a small portfolio of Grocery lines that really matter to Kiwi shoppers. They have identified supplier partners and have launched a ‘Basics for a better price’ to engage and drive shopper footfall.
Supplier Willingness – Suppliers are looking for growth in a challenging market, and the perceived risk of supplying competitors to the traditional Grocer will never have been lower with the commitment to and progress towards a Grocery Supplier Code creating new confidence.
What could slow or stop this growth?
If this were easy, the Warehouse would have done this, so what are the potential headwinds and challenges?
Changing shopper behaviour – Shoppers tend to dislike change and become set in their ways. Visiting the traditional Grocery players is a learnt behaviour, and will take time to build a willingness to consider alternatives. That being said, a number of kiwi shoppers love to shop around and support a range of businesses, so the Warehouse could simply become a stop for many whilst visiting the Butcher, the Fruit and Veg shop and the Warehouse for pantry items.
Limited offer - Some shoppers love choice, and the limited offer of the Warehouse will not meet their needs. A mainly pantry focused offer and the inability to complete a full shop with limited chilled and fresh offers to date may prove too big a barrier for many seeking one-shop convenience.
What should you do next?
Based on the Warehouse’s commitment to this strategy, I am advising clients that their channel strategy must consider the Warehouse as a viable route to market, and a conscious decision to seek or not seek ranging, now needs to occur. For global suppliers, the Warehouses’ willingness to parallel import means you may not have control of their ranging decisions anyway.
Twenty years ago in Australia, many commentators would have questioned if Aldi could break and achieve in the Australian Grocery market. A market share estimated at 13 percent today suggest change is possible and may just take time to be achieved.
