The profits generated by the major trading banks came in for public attention last week. It wasn’t only the high level of profits generated, but the fact that those same profits were going across the ditch. The subject certainly gathered momentum during the week and there were two issues that emerged. The first was the fact that the profits were so high despite the continuing GFC, and how can that be? The second was “why are we Kiwis being charged so much when all the profit is going offshore?” There were even calls for more support for “Kiwibank” and less support for other banks. Is this all fair?
Well, you have to ask how the various trading banks can publicly identify such huge profits in the face of their consumers who are finding the going so tough. It really is a bit ironic that we all seem to be happy to pay bank fees for taking our own money out of our own accounts, or for borrowing money, without a whimper. We wonder what the case would be if a retailer tried the same approach. So that is fundamentally where the banks’ profits come from: “fees”. As for the profits going offshore, that’s life. Most of us deep down simply don’t care as long as our own little nest eggs are safe. That’s the key word in banking: “safety” of the investment. Even “return on funds” is no longer of concern to us. It’s just a matter of feeling the “money is safe”. Therefore what the GFC has done is make banks more secure for traditional investors. Bank fees have risen accordingly! Does all that make sense? Probably not but it’s a fact.
If you reflect on the performance of airport companies over the past 10 years, you will see that since 9/11, airports have really prospered. Travellers have to spend more time at airports due to the security issues of travelling. This has resulted in a longer stay or dwell time and as a result more opportunity for retailers to sell merchandise and food. Further the number of lounges for paying travellers has also increased. So what came out of 9/11 was a major benefit for most airport owners through the generation of much more revenue. That is also a fact. Hence the ownership of airports has been keenly pursued by investment groups, particularly over the past 10 years. Hence the reason why our local bodies and the Government are keen to retain ownership where possible.
So outside of the trading banks and some airports are we really worried as to who owns what? Further do we shop according to ownership? In other words do we shop in New Zealand-owned only environments than say Australian owned? We doubt it! As examples, Woolworths Australia owns Dick Smith in New Zealand, as well as Progressive Enterprises, which in turn operates the Countdown supermarkets. Word has it that Dick Smith could be on the market due to the poor showing by Woolworths in Australia. However Countdown has 45% of the New Zealand market share of the supermarket industry and that is very significant.
Wesfarmers owns both Bunnings and Kmart, both very significant retail brands and both supported by New Zealand consumers. In the appliance sector, if you shop Harvey Norman, JB Hi Fi, Noel Leeming or The Good Guys, then you are also supporting Australian profits. Fashion retailing also has its share of Aussie ownership with Just Group and Cotton On group being just two who are Australian owned. Kathmandu is now listed on both the ASX and the NZX. If you feel like something to eat then try Burger King which has just recently been transferred from one overseas equity to another.
So is there no salvation for New Zealand consumers? Are we now in the hands of overseas ownership? That really is the case. As outlined above, from banks to hamburgers, we are fully exposed. There are a couple of answers. One is to shop only at Foodstuffs supermarkets, such as Pak N’ Save and New World, together with the new emerging models such as Nosh and Farro. Shop at Mitre 10 and The Warehouse. Restrict the appliance purchasing to only home grown appliance outlets, and eat at McDonald’s! Fundamentally all a bit too hard and we would doubt that the consumer market would have the appetite for such a significant change to traditional shopping habits where competition is essential. Conversely, we could visit the ASX and buy up Aussie shares and convert them to NZ ownership. This has happened, certainly privately when the Kiwi-owned James Pascoe Group went to Australia and purchased jewellery chains Prouds, and Angus and Coote. The same group recently secured the purchase and we might add the salvation of Whitcoulls and Borders, both of which are now back in New Zealand ownership. The Shell service stations are now changing to the new Z Energy brand and are all New Zealand owned, so there’s a really good story, and a reason for filling up at Z.
So there we are. The ownership pendulum is certainly in favour of overseas companies, and when we criticise the trading banks for taking their profits offshore just remember that there are core merchandise categories that we support day in and day out without thinking about where the profits are going. There certainly is a benefit in supporting New Zealand owned, but how many of us would be willing to limit our range, or reduce our flexibility?
SHAREWATCH – RETAIL FOOD GROUP
Retail Food Group is an ASX-listed franchisor of retail brands, including Brumby’s bakeries, BB’s Café, Michel’s Patisserie, Donut King and – since February, when it bought the New Zealand and Australia franchise rights – Esquires Coffee Houses.
Across Australia and New Zealand, “average weekly sales” for Retail Food Group’s franchised chains – i.e. average sales per store location – rose slightly (0.3% to 2.0%, depending on the chain). This is probably not enough of an increase to keep pace with inflation.
The Donut King brand has recently returned to NZ after “a long hiatus”, with a single outlet opened during the year. It remains to be seen how successful this chain will be here – doughnuts simply don’t seem to be all that popular in New Zealand.
As for Retail Food Group’s financial performance, EBIT and after-tax profits both rose – despite natural disasters having an effect in both Australia and New Zealand. Nonetheless, at the end of the day, it is the franchised stores that underlie Retail Food Group’s business model, and their performance has been fairly middle-of-the-road.
IN THE PRESS
LOCAL AND INTERNATIONAL MEDIA HIGHLIGHTS 31 – 7 NOVEMBER 2011
Briscoe owes Rugby World Cup for sales lift
An astounding performance from the Rebel Sports stores as an upshot of the Rugby World Cup has helped boost Briscoe Group’s third quarter sales 9.2 per cent.
(Source: NZ Herald)
Thames Estuary planned for world’s largest airport
Plans for the four-runway airport on a sparse strip of land on the Isle of Grain, Kent, in the UK were recently revealed. Once completed, the airport would be the largest in the world.
(Source: NZ Herald)
Z Energy rebrand rolls out across NZ
Z Energy will re-brand its network of Shell service stations across New Zealand at a cost of $60 million. The rebrand will be completed by next May across its 210 service stations, 90 truckstops and company offices.
(Source: NZ Herald)
Ikea opens Southern Hemisphere flagship opens
Ikea opened its Tempe flagship in the Sydney, Thursday last week. The 39,000sqm store houses some 9000 SKUs ranging from classic Ikea flatpack furniture through all types of homewares, to a narrow range of Swedish foodstuffs.
(Source: Inside Retailing)
Woolworths confirms own brand ambitions
Woolworths has unveiled a five year plan to make its own-brand products the forefront of its food and grocery offer with the goal of doubling its Woolworths product sales.
(Source: Inside Retailing)
Vending diamonds and gold
Indian jewellery retailer Gitanjali Group has opened the world’s first gold and diamond vending machine currently installed at Phoenix High St, Mumbai’s principal shopping mall located at Lower Parel.
(Source: Inside Retailing)
