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Final Report
9 October 2012
Economic Assessment of Proposed
Richmond New World
Prepared for
Foodstuffs (South Island) Limited
Authorship This document was written by Fraser Colegrave and Stephen Hoskins. For further information, please contact Fraser at the details below: Email: fraser@covec.co.nz Web: http://www.covec.co.nz/team/fraser-colegrave Mobile: (021) 346 553 DDI: (09) 916 1969 © Covec Ltd, 2012. All rights reserved. Disclaimer Although every effort has been made to ensure the accuracy of the material and the integrity of the analysis presented herein, Covec Ltd accepts no liability for any actions taken on the basis of its contents
Contents
Executive Summary 1
1 Introduction 5
1.1 Context 5
1.2 Scope and Purpose of this Report 5
1.3 Site Visit 6
1.4 Response to Property Economics Report 6
1.5 Future Alterations and Additions 6
1.6 Structure of this Report 6
2 Methodology 7
2.1 Steps in the Analysis 7
2.2 Base Year of Analysis 7
2.3 Customer Segments Included in Analysis 8
2.4 Estimating Average Spend by Segment 8
2.5 Scenarios 9
3 Rival Stores 10
3.1 Map of Existing Grocery Stores 10
3.2 Estimated Store Sizes 11
4 Trade Catchment 12
4.1 Estimated Catchment 12
4.2 Alignment with Census Area Units 13
5 Customer Analysis 15
5.1 Demographic Profile 15
5.2 Population and Household Projections 16
5.3 Visitor Night Projections 17
6 Catchment Expenditure 19
6.1 Expenditure Scenarios 19
6.2 Current Expenditure 19
6.3 Catchment Sales vs Expenditure 20
6.4 Projected Future Expenditure 20
6.5 Comparison with Property Economics Report 21
7 Potential Trade Impacts 23
7.1 Approach to the Analysis 23
7.2 Estimated Turnover of Rival Stores Without New Store 23
7.3 Estimated Turnover of New Store 24
7.4 Effects on Rival Store Sales 25
7.5 Sensitivity Tests 26
7.6 Conclusion on Trade Impacts 26
8 Retail Distribution Effects 27
8.1 Approach 27
8.2 Meaning of Retail Distribution Effects 27
8.3 Could the Fresh Choice Continue to Trade? 27
8.4 If Fresh Choice Stays Open, is there Likely to be a Problem? 28
8.5 But, What if the Fresh Choice Did Close? 28
8.6 What if the New World Located in the CBD Instead? 31
8.7 Conclusion on Retail Distribution Effects 32
9 Benefits of the Proposal 34
9.1 Customer Net Benefits 34
9.2 Optimal Land Use 36
9.3 Other Benefits 37
Appendix: Creating Population Scenarios 38
Appendix: Estimating Average Expenditure 39
Executive Summary
Context
Foodstuffs South Island Limited (Foodstuffs) wishes to develop a modern New World
supermarket in Richmond, Tasman district. The new store will comprise roughly
3,800m2 of gross floor area (GFA), with a possible further 400m2 of ancillary retail.
Scope and Purpose of this Report
This report analyses potential adverse economic effects resulting from trade
competition, also known as retail distribution effects. In addition, it identifies a range of
proposal benefits.
Steps in the Analysis
Following are the key steps in the analysis.
1. Describe the proposed development
2. Identify rival stores and the likely trade catchment
3. Analyse catchment demographics and customer growth
4. Forecast catchment supermarket expenditure
5. Assess potential trade impacts, and any flow-on effects
6. Finally, consider proposal benefits
Rival Stores and Estimated Catchment
The following map identifies the estimated catchment. This reflects (i) the location of
rival stores,(ii) residential settlement patterns, (iii) transport networks, and (iv)
commuting patterns. The green star represents the new store, the red stars represent
nearby supermarkets, and the blue stars represent nearby Four Square stores.
Figure 1: Rival Stores and Estimated Trade Catchment
Economic Assessment for the Proposed New World in Richmond 1
Catchment Size and Demographic Profile The catchment comprises 12 census area units, with a combined population of 28,310 people and 10,930 households in 2011. Overall, the catchment’s demographic profile closely matches the national average. Approach to Estimating Supermarket Expenditure This report estimates supermarket expenditure separately for households, domestic tourists and international tourists, and then combines them to produce the catchment total. Three scenarios are run to test sensitivity. For each scenario, we first project the size of each market segment, and then overlay estimates of average expenditure. Current Catchment Expenditure Current catchment expenditure ranges from $105 million under the low scenario to $112 million under the high. Households account for 85% to 90% of this, domestic tourists 8% to 11%, and international tourists only 2% to 3%. Projected Future Expenditure Under the low scenario, catchment expenditure grows 2.4% per annum to reach $169m by 2031. Under the medium scenario, it grows at 2.9% to reach $193m, and under the high scenario it grows at 3.3% per annum to reach $217m by 2031. Just as households account for most current expenditure, they also account for the majority of growth. We note, by way of comparison, that these growth rates are higher than those projected by Property Economics for food retailing in their recent report to Council. There are two key reasons. First, Property Economics assumed that real household expenditure would grow at 1% per annum for all retail categories, but the average for supermarkets since 1997 has been 1.5%. Second, they assumed that 11% of all retail expenditure would be lost to online retailers by 2036. This seems unlikely for retailers of perishable goods. If this online retail adjustment is ignored, Property Economics expenditure projections for supermarkets fall within ours. Likely Turnover of New Store and Trade Impacts The turnover of the new store has been estimated at $26.8 million for its first full year. This is based on a GFA of 3,800m2 and an assumed sales rate of $7,000 per square metre. Resulting trade impacts have been assessed based on each rival store’s (i) proximity to the new store, and (ii) the degree of market overlap. That is to say, stores that are closer or that target similar customer segments will experience greater effects. The analysis shows that the greatest impacts will be borne by the two supermarkets in Richmond. In fact, together, they are expected to account for 60% of all revenue diverted from rival stores. Among these, the Fresh Choice is assumed to bear the highest trade competition effect, because it has a more similar market focus than the PAK’nSAVE. Beyond these two stores, trade impacts seem minor. In fact, the only trade impact that could conceivably give rise to retail distribution effects - the relevant test under the RMA – is that on the Fresh Choice Richmond. For this reason, the rest of the analysis focuses on potential flow-on (retail distribution) effects associated with that store. Economic Assessment for the Proposed New World in Richmond 2
Analysis of Retail Distribution Effects
The definition of retail distribution effects adopted in this report was taken from the
landmark Wairau PAK’nSAVE case. This confirmed that effects ordinarily associated
with trade competition must be ignored, and that flow-on effects must be significant
before they can be regarded as anything beyond those ordinarily associated with trade
competition.
Having set the scene, we then considered whether the Fresh Choice could sustain its
estimated trade impact of 26.6% (a fall from $33.4m to $24.5m). The short answer is yes,
not least because the post-entry sales level is well above that deemed “sustainable” by
Property Economics. According to their definition, a store of this size could comfortably
trade at a level of $22.5 million (9% lower than our post-entry estimate). However, we
submit that the Fresh Choice could trade at even lower levels, because the sustainable
sales rate set by Property Economics is significantly higher than the actual sales rates for
many successful stores. We therefore do not expect the Fresh Choice to close, and thus
do not expect the new store to cause significant retail distribution effects.
For the sake of completeness, however, we also considered the possible implications of
store closure. This could play out a few different ways. First, the Fresh Choice could be
replaced by a new supermarket, which is likely to be beneficial (over the longer run) as
the existing store is 26 years ago old. Second, given the size and location of the tenancy,
a new department store might appear. This would probably also be beneficial given the
shortage of this important retail category in the district.
The likelihood of attracting a quality tenant in the unlikely event of Fresh Choice closure
seems good, too. This is because the mall has both an impressive sales performance, and
an excellent reputation. For instance, the New Zealand shopping centre database,
maintained by the Property Council, shows that Richmond mall has the third highest
sales per square-metre (beating all the Westfield malls in the process). In addition, it was
judged the third-best medium sized mall in the country in a recent review of 32 malls by
RCG.1 Hence, the closure of Fresh Choice would be unlikely to result in a prolonged
vacancy, in which case any retail distribution effects would be minor and short-lived.
Notwithstanding the strength of this conclusion, we then took the analysis to its logical
conclusion by considering the possible effects of a prolonged vacancy. This could
potentially give rise to retail distribution effects according to our definition if the Fresh
Choice was a critical anchor tenant for the mall. This, in turn, raised the interesting
question of whether supermarkets actually are important anchors.
While the Property Economics report certainly seems to suggest that supermarkets are
important anchors, we disagree. This is because, even though supermarkets are large
and generate significant patronage of their own, we believe that only a limited amount
spills-over to nearby stores (a defining feature of anchor stores). There are two reasons
for this. First, few household have the financial means to undertake comparison
shopping at the same time as grocery shopping, because doing so would overstretch the
1 http://rcg.co.nz/blog/new-zealand%E2%80%99s-leading-shopping-centres-2012
Economic Assessment for the Proposed New World in Richmond 3
family budget. Second, few people wish to undertake further shopping having
purchased groceries, as the goods are usually heavy and perishable.
Our hypothesis was confirmed by research supplied to us by Foodstuff’s Auckland
during the course of this report. The data, which have been compiled from a survey of
3,500 customers across seven New World stores, showed that supermarkets generate
very limited opportunities for cross shopping.
In short, supermarkets are fairly ineffective anchor stores, so even the unlikely prospect
of the Fresh Choice tenancy remaining vacant for a prolonged period is unlikely to have
significant flow-on (retail distribution) effects according to the definition adopted here.
We therefore conclude that any retail distribution effects will be minor and short-lived.
Benefits of the Proposal
Not only is the proposal highly unlikely to generate any retail distribution effects, but it
will also generate a number of important benefits. For instance, every customer that
frequents the new store must perceive a benefit from doing so; otherwise they would
not switch from their existing store.
We developed a model to estimate these customer benefits. It suggested that they could
be around $1.4 million in year 1 – based on 700,000 transactions and an average benefit
of $2 – climbing to $3.4 million by 2031. Total customer benefits over 20 years are
estimated to be $16.9 million in net present value terms.
Other benefits that cement the importance of the proposal to the district include:
• Optimal land use – the proposed development represents a ‘highest and best
use’ of the land, and thus improves economic efficiency of the local land market,
• An increase in local grocery competition, which will create incentives for
competing stores to “lift their game”, to innovate and to refine their offerings.
• Stimulation of the local economy, not least by creating jobs both during
construction and also over the longer term.
Conclusion
This report has undertaken a detailed analysis of potential retail distribution effects
associated with the proposed development (beyond those normally associated with
trade competition, which must be disregarded). It has found that such effects are highly
unlikely, and even if such effects did eventuate, would be minor and short-lived. In
addition, it has considered the possible benefits associated with the proposal. These are
significant, particularly the direct benefits to customers of the new store, the general
increase in grocery competition, and the local economic stimulus..
On balance, we consider the proposal to reflect an efficient use of a scarce land resource,
and to be an important addition to the local network of grocery stores. Indeed, as the
first supermarket to be built in Richmond since 1996, the development even seems
overdue and will provide a healthy dose of competition. We therefore recommend that
resource consent be granted.
Economic Assessment for the Proposed New World in Richmond 4
1 Introduction
1.1 Context
Foodstuffs (South Island) Limited - Foodstuffs – wishes to develop a modern New
World supermarket in Richmond, Tasman district. The new store will comprise around
3,800m2 of gross floor area (GFA), with a possible further 400m2 of ancillary retail.
The map below identifies the proposed store’s location, which is situated at the
intersection of Bateup Road and State Highway 6 – commonly known as Three Brothers
Corner.
Figure 2: Site Location
1.2 Scope and Purpose of this Report
The main purpose of this report is to analyse potential adverse effects resulting from
increased trade competition, also known as retail distribution effects. To provide
balance to the debate, however, it also briefly identifies a range of benefits associated
with the proposal
Economic Assessment for the Proposed New World in Richmond 5
1.3 Site Visit
During the course of writing this report, we visited the site, and also visited a number of
competing stores. This provided invaluable context to our desktop analyses, and helped
clarify a number of important issues.
1.4 Response to Property Economics Report
In August 2011, Property Economics prepared a Richmond retail demand and capacity
assessment for Tasman District Council. While that report did not specifically focus on
supermarkets, a number of its conclusions have direct implications for this proposal. For
instance, Property Economics suggest that future supermarket developments be
restricted to the central business zone or the proposed (but not yet developed)
Richmond West Development Area (RWDA).
While this report does not seek to provide a detailed critique of Property Economics’
report, a number of its findings do need to be addressed. We therefore contrast and
compare our findings with those of Property Economics at various stages of the
analysis, particularly towards the end.
1.5 Future Alterations and Additions
As with any supermarket, the new store may eventually need to be altered to
incorporate the latest thinking and design and/or expanded to keep pace with demand.
Whatever the reason, such refinements are inevitable, and are unlikely to cause any
adverse effects provided they are (i) sympathetic to the local built environment and (ii)
appropriate given the overall supply/demand balance.
Unfortunately, it is difficult to say much more than this given the uncertain nature and
timing of any such changes,. Suffice to note, however, that they are highly unlikely to be
any real cause for concern, and almost certainly would not reach the relevant threshold
for adverse effects under the RMA. We therefore do not consider them any further in
the rest of this report.
1.6 Structure of this Report
The remainder of this report is structured as follows:
• Section two briefly describes the methodology used in this report
• Section three identifies stores that are likely to compete with the new store
• Section four estimates the likely trade catchment for the new store
• Section five analyses the two key customer segments – households and tourists
• Section six estimates current and future catchment supermarket expenditure
• Section seven considers potential trade impacts on rival stores
• Section eight assesses the likelihood of any retail distribution effects
• Section nine briefly identifies the key benefits of the proposal
Economic Assessment for the Proposed New World in Richmond 62 Methodology
This section briefly describes the methodology used in this report.
2.1 Steps in the Analysis
The figure below shows the key steps in the analysis.
Figure 3: Key Steps in the Analysis
Describe the •The first step is to describe the proposed
proposed development to put this report in context
development
Identify and anlyse •Stores that are likely to compete with the new
competing stores development are identifed and mapped.
•The likely catchment for the new store is
Identify the likely
identified based on a range of factors, including
trade catchment
the location of likely customers and rival stores.
Identify and analyse •Future customers are segmented, and their
customer segments composition and future size is assessed.
Forecast catchment • Catchment expenditure to 2031 is projected
expenditure via a detailed supermarket expenditure model.
Estimate turnover of •The turnover of the new store in its first full
the development year of operation (2014) is estimated.
•The level of trade diverted from rival stores is
Estimate turnover
estimated based on a range of factors, inluding
diverted from rivals
relative location and market focus.
• The likelihood of flow-on (retail distribution)
Assess potential
effects arising from trade competition is
flow-on effects
assessed in detail.
•Finally, to add balance to the assessment, a
Consider the benefits
number of benefits associated with the
of the proposal
proposal are also briefly discussed.
2.2 Base Year of Analysis
The analysis has been set to a base year of 2011 to enable the use of data reported at 5-
yearly intervals, such as population projections. However, the relevant base year for
Economic Assessment for the Proposed New World in Richmond 7assessing initial competitions effects is 2014, the assumed first full year of operation
Foodstuffs confirm this is the most likely scenario.
2.3 Customer Segments Included in Analysis
While retail impact assessments sometimes model every possible customer segment –
namely residents, businesses, and tourists – this report considers only residents and
tourists. This is because very little information exists on supermarket and grocery
expenditure by businesses.
To ensure that all expenditure is captured in the model, however, business expenditure
has been grouped in with household expenditure. This approach produces accurate
results provided population and employment continue to grow at similar rates, as they
are expected to do in the target catchment.
2.4 Estimating Average Spend by Segment
The following chart shows the calculation of average expenditure by customer segment.
Figure 4: Calculation of Average Tourist and Household Expenditure in 2011
While this yields reliable estimates of average household spend at the national level,
household spend does vary with income. The appendix shows how we have adjusted
these figures to account for the slightly lower-than-average income of our catchment.
Economic Assessment for the Proposed New World in Richmond 82.5 Scenarios Because future supermarket expenditure depends on so many unknown factors, we have used three scenarios to capture the likely range. Each scenario comprises a large number of inputs and parameters, as shown in section 6.1. Economic Assessment for the Proposed New World in Richmond 9
3 Rival Stores
This section briefly identifies likely rival supermarkets and grocery stores.
3.1 Map of Existing Grocery Stores
The following map locates likely rival stores. These include 10 supermarkets (red stars),
and six Four Square stores (blue stars). While the latter are unlikely to compete for
‘main-order’ shops, they will compete for ‘top-ups’, hence their inclusion.
Figure 5: Location of Existing Rival Stores
Figure 5 shows that there are eight supermarkets in fairly close proximity to the site
(denoted by the green star), with a further two about 35km away in Motueka. The
closest competitors are the Fresh Choice Richmond and the PAK’nSAVE Richmond,
which are both about 2 kilometres away. Given their proximity, these two stores are
expected to bear the brunt of competitive effects. This is discussed further in section 7.4.
Economic Assessment for the Proposed New World in Richmond 103.2 Estimated Store Sizes
The following table summarises the estimated gross floor areas of competing stores.
These have been derived from information provided by Foodstuffs, the New Zealand
Shopping centre database from the New Zealand Property Council, building consent
data, and aerial photographs.
Table 1: Estimated Floor Space of Rival Stores
Rival Stores Address Estimated GFA
Supermarkets
PAK’,SAVE Richmond 216 Queen Street 4,930
Fresh Choice Richmond 216 Queen Street 2,550
Countdown Motueka 108 High Street 1,070
New World Motueka 271 High Street 3,280
New World Nelson 52 Gloucestor Street 3,450
Countdown Nelson Trafalgar Park 14 Paru Paru Rd 4,520
Fresh Choice Nelson 69 Collingwood Street 1,890
Countdown Nelson (St Vincent) 35 St Vincent Street 3,580
New World Stoke 107 Neale Avenue 2,750
Countdown Stoke 24 Putaitai Street 2,720
Four Squares
Atawhai Four Square 664 Atawhai Crescent 320
Brightwater Four Square 58 Ellis Street 290
Mapua Four Square 64 Aranui Road 310
Tapawera Four Square 92 Main Road 300
Upper Moutere Four Square 1386 Moutere Hwy 350
Wakefield Four Square 22 Edward Street 270
Total GFA 32,580
Economic Assessment for the Proposed New World in Richmond 114 Trade Catchment
This section identifies the likely trade catchment for the new store.
4.1 Estimated Catchment
The following factors have been used to define the catchment:2
• Current and future residential settlement patterns,
• The locations of competing stores,
• Proximity to arterial transport networks and public transport networks, and
• Commuting patterns
Following is our estimated catchment based on the key factors above. Just as before, the
red and blue stars indicate rival stores, and the green star the new store. However, the
corresponding labels have been suppressed to de-clutter the map.
Figure 6: Estimated Trade Catchment for Proposed Development
22In short: the more distant the competition or the more dispersed the settlement pattern, the larger the
catchment. Furthermore, the closer the development to arterial or public transport networks, the easier
the access and hence the larger the catchment. Finally, the closer to commuting routes, the more likely
that stores will be frequented on the way to/from work, and hence the larger the catchment.
Economic Assessment for the Proposed New World in Richmond 12An interesting feature of this estimated catchment is that it stretches a significant
distance towards the south west, but has very limited reach in the north east direction.
This is because Nelson City lies in the north east, and already contains six full-service
supermarkets. This intensity of existing competition will limit the willingness of
residents in that area to frequent the proposed development. However, we would
expect a small amount of trade to leak in. By contrast, the closest full-service
supermarket in the south west direction is the Westport New World, which is more than
200km from Richmond.
4.2 Alignment with Census Area Units
As illustrated below, the catchment boundaries have has been aligned with census area
units (CAUs) to facilitate the use of key datasets later in the analysis.
Figure 7: CAUs Comprising the Identified Trade Catchment
Table 2 lists the 12 CAUs comprising the catchment and shows their estimated resident
populations in 2011. Further demographic information is provided in the next section.
Economic Assessment for the Proposed New World in Richmond 13Table 2: Catchment Population in 2011
CAU Code CAU Name Population in 2011
581717 Aniseed Hill 790
581720 Hope 1,250
581726 Ranzau 780
581811 Richmond Hill 80
581822 Brightwater 2,060
581823 Wakefield 2,240
581825 Mapua 2,000
581836 Wai-Iti 5,540
581841 Golden Downs 930
581844 Tapawera 440
584201 Richmond East 6,260
584202 Richmond West 6,320
Total 28,690
Finally, the following map zooms-in on the area units closest to the proposed store to
show where the majority of its customers are likely to come from.
Figure 8: Close-Up map of CAUs in Proximity to the Site
Economic Assessment for the Proposed New World in Richmond 145 Customer Analysis
This section briefly analyses our two key customer segments – households and tourists.
5.1 Demographic Profile
The following table shows the demographic profile of the catchment. This is based on
the latest data wherever possible, but also uses census 2006 information where more
recent data is not yet available.
Table 3: Catchment Demographic Profile
Demography Catchment Tasman New Zealand
General
Population in 2011 28,310 48,000 4,392,330
Household in 2011 10,930 19,100 1,635,900
Average Household Size in 2011 2.7 2.5 2.6
Age Profile
0-9 years 14% 13% 14%
10-19 years 15% 14% 14%
20-29 years 9% 9% 14%
30-39 years 11% 11% 13%
40-49 years 16% 15% 15%
50-64 years 21% 22% 18%
65 plus years 15% 16% 13%
Household Income Profile
Median (pa) $49,400 $43,000 $51,400
$0-$30,000 29% 34% 29%
$30,001 - $50,000 22% 23% 20%
$50,001 - $70,000 19% 18% 16%
$70,001 - $100,000 17% 14% 16%
$100,001 or More 14% 11% 19%
Employment
Employed Full-time 52% 51% 50%
Employed Part-time 18% 17% 15%
Unemployed 2% 2% 3%
Not in Labour Force 29% 30% 31%
Ethnicity
European 78% 77% 61%
Mäori 5% 7% 13%
Pacific Peoples 1% 1% 6%
Asian 1% 1% 8%
Other Ethnicity 14% 14% 11%
Qualifications
No Qualification 24% 25% 22%
Secondary School 36% 35% 35%
Trade/Vocational 22% 21% 18%
Bachelor Degree 8% 7% 10%
Higher Degree 3% 3% 4%
Other 7% 9% 10%
Home Ownership
Residents Own/Mortgage 79% 76% 66%
Rent 21% 24% 34%
Overall, the catchment profile closely matches the national average. However,
household incomes are slightly lower, household sizes are slightly larger, home
ownership is significantly higher, and a much higher proportion identify as European.
Economic Assessment for the Proposed New World in Richmond 155.2 Population and Household Projections
The following chart shows the population projections associated with each scenario.
Further details are provided in Table 4.
Figure 9: Projected Catchment Population by Scenario
40,000
Official Estimates Projections
38,000
36,000
Projected Catchment Population
34,000
32,000
30,000
28,000
26,000
24,000
Low
22,000 Medium
High
20,000
2006 2011 2016 2021 2026 2031
Year
The population projections above were converted to households using projected trends
in average household size. The resulting household projections are shown below.
Figure 10: Projected Catchment Households
20,000
Historic Projected
18,000
16,000
Projected Catchment Households
14,000
12,000
10,000
8,000
6,000
4,000
High
2,000 Medium
Med
0
2006 2011 2016 2021 2026 2031
Year
Economic Assessment for the Proposed New World in Richmond 16Table 4: Summary of Population and Household Projections
Population Projections Average Household Projections
Year Low Medium High Hhld Size High Medium Med
2011 28,310 28,710 29,100 2.63 10,780 10,930 11,080
2012 28,590 29,070 29,540 2.61 10,950 11,130 11,310
2013 28,870 29,430 29,980 2.60 11,110 11,330 11,540
2014 29,150 29,790 30,430 2.58 11,280 11,530 11,780
2015 29,430 30,150 30,870 2.57 11,460 11,740 12,020
2016 29,710 30,510 31,310 2.55 11,630 11,940 12,250
2017 29,970 30,860 31,750 2.54 11,790 12,140 12,490
2018 30,230 31,210 32,180 2.53 11,950 12,330 12,720
2019 30,500 31,560 32,620 2.52 12,110 12,530 12,950
2020 30,760 31,910 33,050 2.51 12,270 12,730 13,190
2021 31,020 32,260 33,490 2.49 12,440 12,930 13,430
2022 31,280 32,600 33,930 2.48 12,600 13,130 13,660
2023 31,540 32,950 34,360 2.47 12,760 13,330 13,900
2024 31,800 33,300 34,800 2.46 12,930 13,540 14,140
2025 32,060 33,650 35,230 2.45 13,090 13,740 14,390
2026 32,320 34,000 35,670 2.44 13,260 13,950 14,630
2027 32,550 34,320 36,090 2.43 13,410 14,130 14,860
2028 32,780 34,650 36,510 2.42 13,550 14,320 15,100
2029 33,010 34,970 36,930 2.41 13,700 14,520 15,330
2030 33,240 35,300 37,350 2.40 13,850 14,710 15,570
2031 33,470 35,620 37,770 2.39 14,000 14,900 15,800
% p.a. 0.8% 1.1% 1.3% -0.5% 1.3% 1.6% 1.8%
5.3 Visitor Night Projections
The following chart shows the domestic visitor night projections for each scenario for
the Nelson-Tasman tourism region. Each scenario shows a slight decline to 2016 –as per
the official projections – with moderate growth thereafter.
Figure 11: Projected Domestic Visitor Nights (for Nelson-Tasman)
1,200,000
1,000,000
Projected Domestic Visitor Nights
800,000
600,000
400,000
200,000
Low
Medium
High
0
2011 2016 2021 2026 2031
Economic Assessment for the Proposed New World in Richmond 17The following chart shows the international visitor night projections for each scenario.
Like the domestic projections, they track the official forecasts to 2016.
Figure 12: Projected International Visitor Nights (for Nelson-Tasman)
1,000,000
900,000
800,000
Projected International Visitor Nights
700,000
600,000
500,000
400,000
300,000
200,000
Low
100,000
Medium
High
0
2011 2016 2021 2026 2031
Table 5 summarises the visitor night projections for each scenario.
Table 5: Summary of Visitor Night Projections (for Nelson-Tasman)
Domestic Visitor Night (000s) International Visitor Night (000s) Total Visitor Nights (000s)
Year Low Medium High Low Medium High Low Medium High
2011 810 853 853 635 668 668 1,445 1,521 1,521
2012 807 849 849 635 668 669 1,441 1,518 1,518
2013 806 848 848 654 689 689 1,460 1,537 1,537
2014 805 847 848 673 708 708 1,477 1,556 1,556
2015 804 847 847 691 728 728 1,495 1,574 1,575
2016 803 846 846 708 746 746 1,511 1,592 1,592
2017 804 851 855 709 750 754 1,513 1,601 1,609
2018 804 856 865 709 754 762 1,514 1,610 1,627
2019 805 861 874 710 759 771 1,515 1,619 1,645
2020 806 866 884 710 763 779 1,516 1,629 1,662
2021 806 871 893 711 768 787 1,517 1,638 1,680
2022 807 876 903 711 772 796 1,518 1,648 1,699
2023 808 881 913 712 777 805 1,520 1,658 1,717
2024 808 886 923 713 781 813 1,521 1,667 1,736
2025 809 891 933 713 786 822 1,522 1,677 1,755
2026 810 897 943 714 790 831 1,524 1,687 1,774
2027 811 902 953 714 795 840 1,525 1,697 1,793
2028 811 907 963 715 800 849 1,526 1,707 1,813
2029 812 913 974 716 804 858 1,527 1,717 1,832
2030 813 918 985 716 809 868 1,529 1,727 1,852
2031 813 923 995 717 814 877 1,530 1,737 1,872
p.a. 0.0% 0.4% 0.8% 0.6% 1.0% 1.4% 0.3% 0.7% 1.0%
Economic Assessment for the Proposed New World in Richmond 186 Catchment Expenditure
This section estimates current and future catchment supermarket expenditure.
6.1 Expenditure Scenarios
As noted earlier, this report uses a range of scenarios to capture the likely range of
future expenditure. The following table presents the assumptions associated with each
scenario. These values have been pegged to real-world data wherever possible. For
instance, the medium scenario assumes that real household supermarket expenditure
increases at 1.5% per annum, because this is the long-run average since 1997.
Table 6: Scenario Assumptions and Input Values
Residents Low Scenario Medium Scenario High Scenario
Current population Official estimates Official estimates Official estimates
Average of Stats NZ
Population growth Stats NZ medium series Stats NZ high series
medium & high series
Changes in household size District trend calibrated to District trend calibrated to District trend calibrated to
over time catchment in 2011 catchment in 2011 catchment in 2011
Current spend per National average adjusted National average adjusted National average adjusted
household for income for income for income
Real growth in spend per
1.25% 1.5% 1.75%
household p.a.
Domestic Tourists
Current visitor nights 5% below official forecasts As per official forecasts As per official forecasts
5% below forecasts to As per forecasts to 2016, As per forecasts to 2016,
Visitor night growth
2016, constant thereafter growing at 0.5% thereafter growing at 1% thereafter
Current spend per visitor As per Tourism Satellite As per Tourism Satellite As per Tourism Satellite
night Account Account Account
Real growth in spend per
0.25% 0.5% 0.75%
visitor night
VFR supermarket spend in Allocated pro-rata on Allocated pro-rata on Allocated pro-rata on
catchment population population share population share
Non-VFR supermarket
50% 67% 75%
spend in catchment
International Tourists
Current visitor nights 5% below official forecasts as per official forecasts as per official forecasts
5% below forecasts to As per forecasts to 2016, As per forecasts to 2016,
Visitor night growth
2016, constant thereafter growing at 0.5% thereafter growing at 1% thereafter
Current spend per visitor As per Tourism Satellite As per Tourism Satellite As per Tourism Satellite
night Account Account Account
Real growth in spend per
0.25% 0.5% 0.75%
visitor night
VFR supermarket spend in Allocated pro-rata on Allocated pro-rata on Allocated pro-rata on
catchment population share population share population share
Non-VFR supermarket
50% 67% 75%
spend in catchment
6.2 Current Expenditure
Table 7 shows estimated expenditure for each scenario in 2011. This ranges from $105m
per annum under the low scenario to $112m under the high. Households are estimated
to account for around 85% to 90% of catchment expenditure, with domestic tourists
Economic Assessment for the Proposed New World in Richmond 19picking up most of the rest. International tourists, conversely, are believed to account for
only about 2% to 3% of catchment expenditure at supermarkets.
Table 7: Estimated Current Catchment Expenditure $m
Scenario Low Medium High
Households/business $94.2 $95.5 $96.8
Domestic Tourists $8.7 $11.2 $12.1
International Tourists $2.2 $2.9 $3.1
Total Expenditure $105.1 $109.5 $112.0
6.3 Catchment Sales vs Expenditure
While we consider the figures above to be accurate estimates of current catchment
expenditure, they may not necessarily be accurate reflections of catchment sales. This is
because some supermarkets in the catchment (of the new store) may draw their own
customers from different areas. This is especially likely for the Richmond PAK’nSAVE,
which offers much cheaper prices than its competitors and therefore attract customers
from much further away.3
To estimate current catchment sales – an integral part of the overall analysis - we
applied national average sales per employee ($312,000) to current catchment
employment (429). This generated estimated current catchment sales of $134 million.
Reconciling this sales estimate with our estimate of current catchment expenditure
reveals a difference of about $25 million. While some of this net leakage into the
catchment will be attributable to several stores, we are confident that most of it will
relate to the PAK’nSAVE for the reasons noted above. This is confirmed by sales data
provided by Foodstuffs in relation to that store.
6.4 Projected Future Expenditure
Future catchment expenditure was estimated for each scenario based on the input and
parameter values summarised above. The table and graph below summarise the
projected expenditure that results from the analysis.
Under the low scenario, catchment expenditure is expected to grow from $105m to
$169m, an annual growth rate of 2.4%. Under the medium scenario, it is predicted to
grow from $110m to $193 (a growth rate of 2.9%), and under the high scenario it is
predicted to grow from $112m to $217 (a growth rate of 3.3%).
It is interesting to note that, just as households account for the majority of current
expenditure, so too do they account for the bulk of expenditure growth. This is because
(i) domestic visitor nights are not expected to grow much and, (ii) even though
international visitor nights are expected to grow more rapidly, their average
expenditure per day is very low. As a result, tourists account for very little growth.
3 This is particularly true given that the next closest PAK’nSAVE is currently around 400 kilometres
away in Christchurch.
Economic Assessment for the Proposed New World in Richmond 20Figure 13: Projected Total Expenditure by Scenario to 2031 $m
$250
$200
Projected Catchment Expenditure ($m)
$150
$100
$50
Low
Medium
High
$0
2011 2016 2021 2026 2031
Table 8: Projected Expenditure by Scenario and Customer Segment to 2031 $m
Low Scenario Medium Scenario High Scenario
Year Hhlds Dom Inter Total Hhlds Dom Inter Total Hhlds Dom Inter Total
2011 $94 $9 $2 $105 $96 $11 $3 $110 $97 $12 $3 $112
2012 $97 $9 $2 $108 $99 $11 $3 $113 $101 $12 $3 $116
2013 $100 $9 $2 $111 $102 $11 $3 $116 $104 $12 $3 $120
2014 $102 $9 $2 $113 $105 $11 $3 $120 $108 $12 $3 $124
2015 $105 $9 $2 $116 $109 $11 $3 $123 $113 $12 $4 $128
2016 $108 $9 $3 $119 $112 $11 $3 $127 $117 $12 $4 $133
2017 $111 $9 $3 $122 $116 $11 $3 $131 $121 $13 $4 $137
2018 $114 $9 $3 $125 $120 $12 $3 $135 $125 $13 $4 $142
2019 $117 $9 $3 $128 $123 $12 $3 $138 $130 $13 $4 $147
2020 $120 $9 $3 $131 $127 $12 $3 $142 $135 $13 $4 $152
2021 $123 $9 $3 $135 $131 $12 $3 $147 $140 $14 $4 $157
2022 $126 $9 $3 $138 $135 $12 $4 $151 $144 $14 $4 $162
2023 $129 $9 $3 $141 $139 $12 $4 $155 $150 $14 $4 $168
2024 $133 $9 $3 $144 $144 $12 $4 $159 $155 $14 $4 $173
2025 $136 $9 $3 $148 $148 $13 $4 $164 $160 $15 $4 $179
2026 $140 $9 $3 $151 $152 $13 $4 $169 $166 $15 $4 $185
2027 $143 $9 $3 $155 $157 $13 $4 $173 $171 $15 $4 $191
2028 $146 $9 $3 $158 $161 $13 $4 $178 $177 $16 $5 $197
2029 $150 $9 $3 $162 $166 $13 $4 $183 $183 $16 $5 $203
2030 $153 $9 $3 $165 $171 $13 $4 $188 $189 $16 $5 $210
2031 $157 $9 $3 $169 $175 $13 $4 $193 $195 $16 $5 $217
% p.a. 2.6% 0.3% 0.9% 2.4% 3.1% 0.9% 1.5% 2.9% 3.6% 1.5% 2.2% 3.3%
6.5 Comparison with Property Economics Report
We note, by way of comparison, that these growth rates are higher than those projected
by Property Economics for food retailing in their report. There are two key reasons.
Economic Assessment for the Proposed New World in Richmond 21First, Property Economics assumed that real household expenditure would growth at 1% per annum for all retail categories, but the average for supermarkets since 1997 has been 1.5%. Second, they assumed that 11% of all retail expenditure would be lost to online retailers by 2036. While this may be true for some stores, it seems unlikely for retailers of perishable goods, such as supermarkets. If the online retail adjustment is removed from Property Economics analysis, their expenditure projections for supermarkets would fall within ours. Economic Assessment for the Proposed New World in Richmond 22
7 Potential Trade Impacts
This section analyses the potential trade impacts of the new store.
7.1 Approach to the Analysis
The following steps were used to complete the trade impact analysis
• Estimate the turnover of rival stores without the new store,
• Estimate the turnover of the new store
• Distribute the new store’s turnover across rival stores
• Convert dollar impacts into percentage terms
The following works through each step.
7.2 Estimated Turnover of Rival Stores Without New Store
The first step is to estimate the turnover of rival stores in 2014 (the first full year for the
new store) assuming first that the new store did not exist. This provides the baseline
against which impacts are assessed. To this end, Foodstuff’s provided actual revenue
data for their catchment stores in 2011, which we scaled up to 2014 based on the
assumed rate of catchment expenditure growth.
To estimate the turnover of catchment stores owned by Progressive, we used a range of
data, including the following graph. This shows the sales performance of all regional
Countdowns in 2010, and was taken from a recent report by Market Economics. 4
Figure 14: Regional Countdown Supermarkets GFA vs Turnover (2010)
$60
$50
$40
Annual Turnover $m
$30
$20
$10
$0
0 1,000 2,000 3,000 4,000 5,000 6,000
Gross Floor Area (m2)
4 http://econtent.tauranga.govt.nz/data/planning/rc15788/rc15877_appendix_2_retail.pdf
Economic Assessment for the Proposed New World in Richmond 23The sales data above were converted to dollars per square metre (as below), and
combined with various other pieces of information to produce our final turnover
estimates for Progressive stores in 2014.
Figure 15: Sales Productivities of Regional Countdown Supermarkets in 2010
Table 9 shows our 2014 turnover estimates for Progressive stores. The data for
Foodstuffs have been supressed due to commercial sensitivity.
Table 9: Estimated Pre-Entry Turnover for Rivals in 2014 $m
Estimated Sales in 2014
Competing Stores
Without New Store
Richmond Fresh Choice $33.4m
Stoke Countdown $34.1m
Nelson Countdown $54.9m
Nelson Fresh Choice $22.9m
Nelson Countdown St Vincent $43.4m
Motueka Countdown $17.7m
7.3 Estimated Turnover of New Store
We understand that new stores tend to open with comparatively low sales relative to
size, but grow quite quickly as catchment expenditure increases. According to
discussions with Foodstuffs, the new store’s sales are likely to fall towards the lower
end of the range shown for the regional countdowns above (only to move up the ranks
as the store matures). We have therefore estimated year 1 sales for the new store using
the lower quartile (bottom 25%) of this distribution, which gives an expected sales
productivity of $7,040/m2. Given that the new store has a GFA of roughly 3,800m2, the
estimated turnover for the first full year (2014) is $26.8m.
Economic Assessment for the Proposed New World in Richmond 247.4 Effects on Rival Store Sales
The extent to which rival stores will be affected by the entry of a new store depends
fundamentally on their proximity and degree of market overlap. Stores that are closest
will tend to bear the brunt of competitive effects, and those targeting similar market
segments will also fear worse than those seeking to attract a different customer mix.
In addition, all other things being equal, rival stores of the same brand may be more
affected than stores from another brand due to the effects of brand loyalty. So, for
instance, the Stoke New World will probably experience slightly greater impacts than
the Stoke Countdown, because its customers have already expressed a preference for
shopping at a New World store.
Applying these principles, the following table estimates the trade impacts associated the
new store. Again, the Foodstuffs information has been suppressed for commercial
reasons but the corresponding impact ranges have been reported for transparency.
Table 10: Estimated Trade Impacts for 2014 – Assumed First Full Year of New Store Operations
Proximity Degree of % of New Estimated Estimated Estimated
Competing
(minutes Customer Store Sales Sales Without Sales With Percentage
Stores
drive time) Overlap Lost New Store New Store Trade Impact
Richmond
Fresh Choice 3 Med-High 33.3% $33.4m $24.5m -26.6%
PAK’nSAVE 3 Medium 26.7% n/a n/a Under 10%
Stoke
New World 12 High 9.0% n/a n/a Under 10%
Countdown 12 Med-High 5.0% $34.1m $32.8m -3.8%
Nelson
New World 20 High 6.0% n/a n/a Under 5%
Countdown 20 Med-High 3.0% $54.9m $54.1m -1.5%
Fresh Choice 20 Med-High 3.0% $22.9m $22.1m -3.5%
Countdown 20 Med-High 3.0% $43.4m $42.6m -1.8%
Motueka
New World 33 High 3.0% n/a n/a under 3%
Countdown 34 Med-High 1.0% $17.7m $17.4m -1.7%
Four Squares
Atawhai 24 Low-Med 0.5% n/a n/a Under 10%
Brightwater 8 Low-Med 1.0% n/a n/a Under 15%
Mapua 17 Low-Med 1.0% n/a n/a Under 10%
Tapawera 37 Low-Med 0.5% n/a n/a Under 10%
Upper Moutere 19 Low-Med 1.0% n/a n/a Under 15%
Wakefield 13 Low-Med 1.0% n/a n/a Under 10%
Local Diaries Varies Low 2.0% $3.80m $3.30m -13.2%
The table above shows that the two Richmond stores are expected to bear the brunt of
effects due to close proximity. Together, they are expected to account for 60% of all
revenue lost by rival stores. Of this, the Fresh Choice is expected to experience the
greatest loss because its market focus is more closely-aligned with the New World than
the PAK’nSAVE.
Economic Assessment for the Proposed New World in Richmond 25Table 10 also shows that competitive effects are expected to quickly diminish with distance. For instance, the Stoke Countdown is expected to account for 5% of trade diversion, and Stoke New World 9%. This differential reflects the impacts of brand loyalty mentioned earlier. That is to say, customers that previously shopped at the Stoke New World are more likely to switch to the new store than those that previously shopped at the Stoke Countdown. 7.5 Sensitivity Tests To ensure that our results were robust and reliable, we also reran the trade impact analysis using our low and high expenditure scenarios. These made little difference to the results, as the expenditure scenarios do not differ much to 2014, the date at which the trade impacts were assessed. 7.6 Conclusion on Trade Impacts The results of our trade impact analysis suggest that the only store whose estimated trade impacts that could conceivably give rise to retail distribution effects is the Fresh Choice Richmond. For this reason, the next section focuses on potential flow-on (retail distribution) effects associated with that store. Economic Assessment for the Proposed New World in Richmond 26
8 Retail Distribution Effects
This section considers potential retail distribution effects associated with the estimated
trade impacts on the Richmond Fresh Choice.
8.1 Approach
Analyses of retail distribution effects are often challenging, not least because the exact
meaning of the term is not always well understood. To add structure and logic to our
analysis, we have therefore based it around the following key questions:
1. What exactly do we mean by retail distribution effects?
2. Could the Fresh Choice sustain the estimated trade impact?
3. If so, will there be a problem?
4. If not, what might happen, and what role does cross-shopping play?
5. Would it make a difference if the new store was forced to locate elsewhere?
6. What is the overall conclusion on retail distribution effects?
8.2 Meaning of Retail Distribution Effects
As alluded to earlier, retail distribution effects result from trade impacts, which
themselves cannot be considered when evaluating new store proposals. One of the best
recent summaries of the meaning of retail distribution effects was given by Justice
Thompson, in the landmark Wairau PAK’nSAVE case from 2008. The decision included
the following important passage:5
“Decision makers are not to take account of effects such as the erosion of patronage or
profit margins, or even the enforced closure of competing businesses. Those are
caused…simply by trade competition. But if the effects of allowing a new business into the
arena would be to cause significant economic and social effects to an existing centre as a
whole – to the points where its amenity values are affected in a significantly adverse way,
then that is to be weighted in coming to an overall decision under s5 [of the RMA]”
We adopt this definition in the rest of this section.
8.3 Could the Fresh Choice Continue to Trade?
Having set the scene, we now consider whether the Fresh Choice – the store at greatest
competitive threat - could continue to trade given the expected sales impacts. To begin,
recall that our estimated turnover for the Fresh Choice in 2014 million without the new
store is $33.4m, falling to around $24.5m post-entry.
The first thing to note is that, while this is certainly a significant drop in dollar terms, the
post-entry sales level is still well above the level that Property Economics describe as
“sustainable” in their Richmond report. For instance, Property Economics state that a
sustainable sales rate for supermarkets is $8,750/m2.6 Given that the Fresh Choice has a
5 Progressive Enterprises Ltd v North Shore City Council [2009] NZRMA 386, at paragraph [59]
6 This figure is directly cited in some of their other reports, and can also be inferred from the tables on
pages 13 and 15 of their Richmond report. For instance, page 13 shows 2011 food retailing of $153m,
Economic Assessment for the Proposed New World in Richmond 27GFA of 2,553m2, this equates to a sustainable revenue target of only $22.2 million, which
is 9% lower than our estimated post-entry sales figure.
However, there is likely to be even more headroom between the Fresh Choice’s post-
entry sales and the amount that it would need to remain in business. This is because the
sustainable sales rate suggested by Property Economics is significantly higher than the
actual sales rates of many successful supermarkets. For instance, according to Figure 14,
half of the regional countdown stores were trading below that level in 2010, with 20%
successfully trading at less than $6,000/m2. To be blunt, the sustainable floor space level
set by Property Economics seems arbitrary and fails to reflect commercial realities.
One of the key reasons that supermarkets can sustain significant reductions in turnover
– to levels well below that deemed sustainable by Property Economics – is that they
have very low fixed costs. For instance, a recent report on the Tesco supermarket group
in the UK showed that fixed costs account for less than 5% of total operating costs.7
Nearly all costs relate to the purchase of inventory for resale, which can immediately be
curtailed in times of lower revenues to preserve profits.
Given the highly-flexible cost structure of supermarkets, and recognising that the post-
entry sales level of the Fresh Choice should be more than enough to remain open, we
consider it highly unlikely that it would close as a result of the proposal.
8.4 If Fresh Choice Stays Open, is there Likely to be a Problem?
In our opinion, the answer is clearly ‘no’. If this store – which faces the greatest
competitive threat – can remain solvent, it is very difficult to see how the proposal could
give rise to any retail distribution effects, significant or otherwise.
8.5 But, What if the Fresh Choice Did Close?
Notwithstanding our belief that the Fresh Choice will remain open, we now consider
the unlikely scenario that it closed to provide a more comprehensive analysis. In our
view, there are a few possible ways that this could play out. The first is that the Fresh
Choice closes only to be replaced by a brand new supermarket. This would likely be
beneficial as, even though the fresh choice was revamped in 2008, its general
configuration and design still dates back to 1986.8 Supermarket design has evolved
considerably since then, and there could be real benefits in replacing the store with a
modern equivalent. Moreover, since the proposed New World would be the first new
supermarket built in the catchment since 1996, there will be more than enough
headroom to accommodate it and a revamped store in the Richmond mall.
75% of which ($114m) is attributed to supermarkets. Further, on page 15, they state that the sustainable
floor space for LFR food retailing – i.e. supermarkets – is 13,101m2. Combining these two pieces of
information, we the implicit sustainable floor space ratio for supermarkets in the PE report is
$8,750/m2.
7 http://www.taylormalley.com/wp-content/uploads/2011/01/Tesco-Portfolio.pdf
8 http://www.richmondfreshchoice.co.nz/history
Economic Assessment for the Proposed New World in Richmond 28Another possibility is that the supermarket closes and is replaced by another store,
perhaps a department store. This would probably also be beneficial, particularly since
there is a real shortage of this important retail category in the district, much less the
CBD.9
So, what is the likelihood that a new store could be found to backfill the Fresh choice if it
vacated and was not replaced by another supermarket? In our view, the likelihood is
very strong. First, the Richmond Mall is one of the best-performing malls in the country,
so any large vacancy would be strongly coveted. In fact, according to the New Zealand
shopping centre database (maintained by the New Zealand Property Council),
Richmond Mall is the third-best performing mall in New Zealand on a sales per square-
metre basis (beating all the Westfield malls in the process). This outstanding result is
shown in the chart below.
Figure 16: Comparison of Mall Sales Performance for 2012
The Hub Hornby
Highland Park Shopping Centre
Richmond Mall
Goldfields Shopping Centre
Merivale Mall
Northlands
Avonhead Shopping Centre
Golden Centre
Westfield Riccarton
Westfield St Lukes
South City Centre
Kelston Shopping Centre
Bayfair Shopping Centre
Coastlands Shoppingtown
Westfield 277 Newmarket
Sylvia Park
The Plaza
Westfield Albany
The Palms, Shirley
Bush Inn Centre
Westfield Manukau City
Centre City Shopping Centre
Eastgate Shopping Centre
Westfield Queensgate
Westfield Glenfield
Westfield Downtown
Westfield Chartwell
Westfield WestCity
Trafalgar Square
Centre Place
Westfield Shore City
North City Shopping Centre
The Base
Westfield Pakuranga
Goddards Centre
Barrington Shopping Centre
Downtown
The Plaza Hastings
$0 $4,000 $8,000 $12,000
Turnover per m2 of GFA
9 In fact, the latest official employment data show that the number of department store employees per
capita in Tasman district is 35% below the national average, pointing to a marked undersupply.
Economic Assessment for the Proposed New World in Richmond 29Richmond Mall’s success was also recently celebrated in a recent review of 32 malls by
RCG, who deemed Richmond Mall the third-best medium sized mall in the country.10
Given this strong track record and esteemed position within the retail sector, we
consider it likely that any vacancy caused by the closure of Fresh Choice would be
readily backfilled by a quality tenant, in which case any potential retail distribution
effects would be minor and short-lived.
Notwithstanding the strength of this conclusion, we now take the analysis to its logical
conclusion by considering the possible effects of the store remaining vacant for a
prolonged period. To this end, recall that our definition of retail distribution effects
above suggested that these arise when the closure of a rival store causes the centre of
which it formed part to significantly decline overall. Clearly, this is unlikely to occur if
the failed store is small and comprises only a minor part of its centre, but it could occur
if the failed store was a genuine “anchor”.
This raises the interesting question of whether supermarkets are in fact anchor stores. In
other words, do supermarkets really generate high-levels of spill-over patronage
(commonly known as cross-shopping) for other stores in the same centre? The Property
Economics report certainly seems to suggest so. For instance, the executive summary
states:
“A proportion of LFR growth, particularly the sectors of supermarkets and department
stores, are strong ‘anchor’ tenants for town centre/ high street environments and should
also be located within the Richmond CBZ.”
While we agree that department stores are important anchors, and that there is a rich
academic literature to support this, we do not believe that supermarkets are. This is
because, even though supermarkets are large and generate significant patronage of their
own, only a limited amount spills-over to nearby stores. This hypothesis was confirmed
in research supplied to us by Foodstuff’s Auckland during the course of this report. The
data, which have been compiled from a survey of 3,500 customers across seven New
World stores, are summarised in the chart below and show that:
• More than three-quarters of New World customers come from home or another
location prior to their grocery shop, with less than one-quarter coming from
other nearby stores.
• Moreover, having completed their grocery shop, 90% of New World customers
go straight home or to another location. Only 10% undertake additional
shopping.
10 http://rcg.co.nz/blog/new-zealand%E2%80%99s-leading-shopping-centres-2012
Economic Assessment for the Proposed New World in Richmond 30Figure 17: Location Before and After New World Shop (Sample size = 3,500)
100%
Shopping
10%
90% Shopping
23% Other
12%
80%
Customer Locations Before and After New World Shop
70%
Other
60%
34%
50%
40% Home
78%
30%
Home
20% 43%
10%
0%
Location Before Grocery Shop Location After Grocery Shop
These research observations are likely to reflect both financial and logistical constraints.
First, few household have the financial means to undertake comparison shopping at the
same time as grocery shopping, because doing so would overstretch the family budget.
Second, few people wish to undertake further shopping have purchased groceries, as
the goods are usually heavy and perishable.
In short, supermarkets are fairly ineffective anchor stores, so even the unlikely prospect
of the Fresh Choice tenancy remaining vacant for a prolonged period is unlikely to have
significant flow-on (retail distribution) effects according to the definition adopted here.
We therefore conclude that any retail distribution effects associated with the
development will be minor and short-lived, if any at all.
8.6 What if the New World Located in the CBD Instead?
The Richmond report by Property Economics suggests that any future supermarket
developments be guided toward the central business district or even the Richmond
West development area (apparently to exploit perceived anchor characteristics). As we
have already shown, supermarkets actually do not exhibit these characteristics.
Nevertheless, for the sake of completeness, we now analyse the possibility of finding a
suitable site in the CBD, and compare the likely effects with those of the proposed
location.
As a starting point, we note that locating in the CBD is neither practical nor
commercially desirable. Indeed, not only does Foodstuffs not wish to locate so close to
the two existing supermarkets (including one of its own), but there simply is nowhere
available that would fit its requirements. The only larger vacant area in the CBD is the
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