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Contents Welcome - - PDF document
Contents Welcome - - PDF document
Contents Welcome ................................................................................................................................................................. 3 Overview of Past 12 Months
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3 Welcome
Good morning everyone and welcome to the 2011 TIR Trade Expo & IGA Conference. I trust you all had an enjoyable evening and that you are now well relaxed and ready to once again partake in some strong buying at the Trade Expo and enjoy the remainder of the social activities over the next two days. Before I start today there are some people present that I would formally like to acknowledge; Firstly to John Mac Laren who is the GM of Merchandise / Marketing from IGA D. John has been a strong supporter of Tasmanian Independent Retailers and the IGA retailer network in Tasmania and will be instrumental in the further consolidation of the trading relationship between TIR, IGA D and Metcash. Mick Daly is the current Chairman of the IGA National Council and also an IGA Retailer with three stores in Western Victoria. Mick attended last year’s Conference & Trade Expo and it’s great that both yourself, along with your wife Donna could make time to attend this year’s event. Also a special welcome to Ken Henrick, CEO of Narga, Jos De bruin and his team from the MGA, Senator David Bushby, Adam Brooks, Liberal Member for Braddon & Elise Archer, Liberal Member for Denison, and finally Senator Guy Barnett. I would also like to welcome my fellow Directors on the Board of Tasmanian Independent Retailers and I would ask each of them to stand as I call out their names.
- Peter Aulich – IGA Everyday Bicheno & Chairman of the Board
- Brett Mackay – IGA X-press Lindisfarne
- Michael Baxter – Supa IGA Shearwater
- Greg Raspin – IGA X-press Swansea
Gentlemen thankyou once again for the support and guidance you have provided to me over the past twelve months and also your ongoing interest in both TIR and the IGA retailer network at a Board level. Also a special welcome to the staff of TIR, IFP & SIW and the exhibitor delegates that are supporting this great event. And finally to the retailers present I simply say thank you for your continuing support of TIR and this event.
Overview of Past 12 Months
It’s hard to believe that 12 months has now pasts since we last congregated together at this forum and needless to say what an interesting 12 months it has been, which has encompassed both many positives and unfortunately some negatives from an industry perspective. IGA – New & Pending Store Openings From an IGA Tasmania perspective we have recently seen the opening of the state’s 5th Supa IGA supermarket at Longford by Judy & Laurie Reiner and Amy & Greg Hind. This $10M development represents the largest single investment ever made within the IGA retailer network in Tasmania and has been built on the back of extensive research that was undertaken over a 5 year period and
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included many store visits on both the East Coast of Australia and as far abroad as the United States of America.
- Dr. Thomas S Haggai, the Chairman of IGA Inc. who is based in the United States of America has also taken a
special interest in this development and has actually visited the site both during construction and just prior to to its official opening in February 2011. This development now provides the residents of Longford and its surrounding catchment area with a state of the art modern supermarket coupled with 7 speciality shops which in my opinion is comparable to some of the best independent supermarket offers that I have seen on the mainland. I congratulate Judy & Laurie and Amy & Greg on their foresight and commitment to this development and their confidence with the IGA brand in Tasmania. I also pleased to announce today that TIR expects work to soon commence on Tasmania’s 6th Supa IGA supermarket at Spreyton on the North West Coast of Tasmania. This development has also been sometime in the making with the current operators firstly considering options for a redevelopment of their existing site, and when that was deemed unviable the decision was taken to build a new supermarket on a Greenfield site just 200 metres down the road. The 1000m2 supermarket will well cater for both the current and future needs of the Spreyton precent which is one of the fast growing areas within the Devonport catchment. IGA – Expansions & In Store Refurbishments Whilst large scale developments such as Longford and Spreyton are few and far between it is still very pleasing to note that despite the current economic downturn, that many retailers across all three channels continue to reinvest in their business at record levels through store refurbishment programs and expansions. Such investment started some three year’s prior, and to date is showing no signs of slowing. The support provided by TIR to its retailer network via the PIP and EDF programs, in addition to our low cost structure relative to our Cooperative principles, has in my opinion greatly assisted with such investment, with total disbursements over the last 3 years alone exceeding $10.8M. Once again such investment clearly represents a high degree of confidence in the IGA brand and independent grocery retailing in Tasmania which will not only help individual retailers drive greater sales and profitability, but it also further enhances the quality of the IGA retail offer and brand in Tasmania. I congratulate all retailers on their continued level of investment in their business.
Retail Operations & Development Restructure
One of the downsides of such investment however has been the reallocation of TIR resources from the traditional in store support and advice to the more manual handling work that is associated with such store refurbishments. TIR has been aware of this problem for some time, and rather than add cost to the business through additional staff resources, has simply sought to complete all refurbishment works within a reasonable timeframe, whilst trying to maintain, albeit a limited presence in store with regard to other advice and duties. Such an approach is now considered unsustainable, and in the interest, and further development of our IGA retailer network the Retail Operations & Development Department will now be separated into two divisions with staff allocated to each accordingly.
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This change will see a core group of staff responsible for all in store development works such as store refurbishment and other manual works, and a separate group now being responsible for all operational aspects of the business which includes store advice, RSA & compliance, and all other store operational and day to day management issues. The above restructure will be effective from Monday 06 June 2011 with additional information being forwarded prior to this date.
SIW DC
The latter half of 2010 also saw the start on construction of the new SIW DC facility at Breadalbane in Northern Tasmania. This development represents an $83.6M investment in the warehousing and supply chain logistics for Tasmania and now finally brings to rest any ongoing uncertainty surrounding the future operations of SIW. Construction work is progressing well and at this stage is on target for a January 2012 handover. Some statistics that are relevant to the new site include;
- Total Site Area - 190,000m² (approx.)
- Total Building Area - 46,000m² (approx.)
- 990 tonnes of Steel
- 51,000m of Purlins and Girts
- 58,500m2 of Roof and Wall Cladding
- 3,500m of Stormwater Pipe
- 15,600m3 cubic meters of Concrete
- 131KMS Electrical Cabling
The logistics surrounding the decommissioning of the current SIW DC at Prospect, and the relocation to the new Breadalbane DC are complicated to say the least, but the key dates from an independent perspective are as follows;
- TRDC handover date 17/01/2012
- Fit out & Training 18/01/2012 to 05/02/2012
- First receipt of stock 06/02/2012
- First despatch 27/02/2012
- Prospect transition completed 12/03/2012
- TRDC supplying all stores 29/04/2012
I commend David Lanham, Stuart Robins and all the team involved with this development and look forward to the future which now involves a continuation of the SIW business which is modelled around a high level of service to its customers on a very low cost and profit base.
Trading Conditions
Tasmanian Economy The current economic climate in Tasmania is difficult to say the least. Over the past 12 months the north of the state, and in particular the North East & North West have been dealt some cruel blows with the loss of around 2300 jobs, with unfortunately more to come as we scale back in some industries that have been the traditional life blood for many communities and businesses over and extended period.
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The south of the state has thus far been immune to such job losses however such immunity will be short lived given the state Government’s current direr budgetary position and its already announced plans to remove some 2000+ staff from the public service. Unemployment in the state now leads the national average and whilst the April 2011 figure of 5.9% is still considered acceptable by most economists, it is still well above the record low of 3.9% that was attained in October 2008. The unemployment numbers, coupled with a general downturn in consumer confidence are also impacting on retail sales in Tasmania which has now recorded its 15th consecutive monthly slump. The job ahead for the Government will be difficult and the state certainly needs an injection of confidence which will only come from large scale investment and the subsequent benefits that follow. If such investment is not forthcoming I feel the current GST allocations that Tasmania receives via the Commonwealth Government Grants process which equates to 159% of GST revenues generated by Tasmania, and that is largely funded by WA, Victoria and NSW, will eventually be reduced thus placing further strain on the ailing state budget. I am sure that most small business operators can appreciate the difficulties that the State Government currently faces when expenditure out strips revenues, however, unlike the Government, small business can’t simply increase its prices to meet its revenue shortfalls or sack its key staff. In my opinion, and put very simply, the current budget dilemma is largely of the Government’s making, and it just further highlights the inequities within our political system where excess funds that are generated in the good times are sometimes spent unnecessarily to sure up political popularity in the short term, rather than simply being banked, as most small business operators do, to help out when times get tough. Competitions / Major Chain Supermarkets (MSC) The other negative that plagues our industry at the moment is the current price war that has broken out between Woolworths and Coles and its obvious impact on the independent grocery sector. It was all started by Coles with the discounting of house brand milk which was soon matched by Woolworths. Such discounting has now been extended to include other key staple lines such as bread, butter, cream, and now everyday grocery lines at price points that many independents, both within Tasmania and nationally find very difficult to compete with. Woolworths and Coles, coupled with their collective FY10 turnover of $103.5B (WOW $51.7B & Coles $51.8B) also have the benefit of cross subsidizing such extensive discounts in the short term at least via the revenue streams and profits generated from other non supermarket interest. It is also interesting to note that Woolworths and Coles have now been ranked by Deloitte within the top 30 retail companies worldwide. The same report also found that Woolworths and Coles were ranked third and fourth respectively in the Asia- Pacific Top Ten. A further report that was commissioned by Narga, and prepared by Accenture found that Woolworths and Coles now control $0.43 of every retail dollar spent in Australia. Not a bad result for two Australian companies given our relatively low population base comparative to other countries of just 22.5M people.
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Such discounting has offcourse been applauded by the ACCC and many others as a sign of what they regard as a highly competitive market with consumers ultimately reaping the rewards. I on the other hand, along with many others don’t share this enthusiasm and have grave concerns as to the long term consequences that such price discounting will have on the industry, competition and the consumer. As most of you are aware Woolworths and Coles have an effective duopoly in Australia with both collectively controlling around 80% of the retail grocery market. Nowhere else in western society do you have a situation where just two major players on their own enjoy such a high level of market concentration. In contrast the top 2 in the United Kingdom control an estimated 48% market share, with the top 5 controlling a total 83.5% market share. Across the Atlantic to the United States of America, the top two control an estimated 20% market share with the top 5 controlling a total 42% market share. The fundamental problem that now confronts Australia, and that is now being played out in the market place, is that when you have two operators that have such a high concentration of market share, they also have the ability to directly shift market share further in their favour simply through their pricing policies. The current discounting by Woolworths and Coles has in my opinion already, and will further shift market share away from the traditional independent base as consumers are attracted to the lower prices that are currently on offer. This view is further demonstrated by the recent release of Woolworths and Coles trading results for the third quarter of FY11, which revealed sales growth for their food and liquor divisions of 4.6% and 7.1% respectively. A recent article in the Financial Review (21 April 2011) also reported that Coles is now serving between 1.5M and 2.0M additional customers per week than what it did in 2007. The same article further noted and I quote “Consumers are bypassing butchers, bakers, greengrocers and convenience stores to do more of their top-up shopping at Coles, fuelling near record sales growth of Australia’s second largest supermarket chain’. Such a significant increase in sales during a period of ‘so called’ price deflation by Woolworths and Coles could have only been generated through increasing the basket spend of their current customer base or by attracting customers from other competitors. So how do we overcome this problem?
Government Lobbying / Reforms
Unfortunately there is no silver bullet to resolve this issue, but at some point Government intervention and support via regulatory and other means for the remaining 20% of the grocery industry will be required. The May 2010 Senate Inquiry Economics Reference Committee report – ‘Milking it for all its worth’ (competition and pricing in the Australian Dairy industry)’ has held out some hope with its request for the National Competition tribunal to review the effectiveness of Section 46 of the Trade Practices Act in preventing price discrimination and consider reinstating anti price discrimination provisions, particularly to protect those parties participating in industries dominated by multinational corporations. However, while we recognise that 2010 was disrupted by the Government’s change of leader and the subsequent election, a year later the government has not responded to any of the committee’s recommendations.
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Narga & the MGA, along with many others in the business community have also been lobbying the Government to reintroduce the previously repealed S49 of the Trade Practice Act. S49 of the Trade Practices Act which was repealed in 1995 dealt with anti competitive price discrimination which is currently prohibited in every OECD country except Australia and New Zealand, although New Zealand has a stronger prohibition on misuse of market power. Anti-competitive price discrimination is where one or more customers of a supplier get better prices than
- ther customers who from that point on are pretty much permanently disadvantaged with regard to the prices
and profit margin they can get or set. Put simply the reintroduction of S49 would ensure a more level playing field for all in the industry. Whether it be through a tightening of S46 of the TPA, or the reinstatement of S49 of TPA, albeit in a more workable and practicable format, the Government, coupled with the support of the Opposition and minor parties must now accept their responsibility and implement the appropriate reforms that offer some hope and certainty to the independent grocery sector.
TIR Group Trading Results (FY11)
Despite the current trading conditions, the TIR group trading results for the past 12 months have been reasonably strong. The overall group trading result for the 52 week period end 02 May 2011 (FY11) on a like for like basis was $188.850M compared to the same period last year of $182.296M, a net increase of $6.553M or 3.5952%. Some general comments with regard to the group trading results include;
- SIW Grocery - Whilst overall dollar sales have decreased by $152K or 0.1955% actual cartons
movements via SIW have increased by 8,429 or 0.27% to 3.165M. This has resulted in a net reduction
- f $0.12 or 0.49% in the average carton cost from $24.66 for FY10 to $24.54 for FY11.
- SIW Cigarettes - As most retailers would be aware the Federal Government increased the excise on
cigarette and tobacco products by 20% on 29/04/2010. The excise increase has had a significant impact on cartons sales, with overall sales for the 52 week period end 01 May 2011 compared to the same period last year being down by 39,113 cartons or 5.80%. The excise increase has also artificially increased dollar sales for this category for FY11 by $10.042M. When this amount is discounted from the FY11 figures, the overall dollar sales for cigarettes have decreased by $872K or 2.1002%.
- TIR Charge Though - FY11 has seen further consolidation in sales processed via the TIR charge through
system with an increase in comparative terms of $4,932M to $50,518M or 10.8194%.
- IFP also continues to post solid trading results with overall supermarket sales for FY11 increasing by
$1.995M to $12.711M or 18.6164%. The significant increase in dollar sales has largely been generated through new and expanded supply arrangements to various IGA and other fresh food niche retailers throughout Tasmania. IFP has also posted solid growth gains in the supply to non supermarkets with
- verall sales for FY11 increasing by $651K to $7.269M or 9.8442%. Overall sales for IFP for FY11 have
increased by $2.646M to $19.980M or 15.2700%. I congratulate all retailers on the above results which are especially pleasing in the context of the current trading conditions and general economic downturn that confronts Tasmania. TIR will also continue to support its retailer network through the provision of key services on a low or no cost basis coupled with its rebate distributions via the PIP and EDF programs.
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9 Rebate Distributions – FY11
Purchase Incentive Payment (PIP) The total rebate distributions via the PIP program for FY11 amount to $2.677M which represents a decrease of $324K or 10.80% on the FY10 rebate distribution of $3.001M. As noted previously however, the FY10 distribution included a ‘one off’ / special rebate payment from SIW of $355K which was paid in addition to the previously committed 0.25% SIW rebate (Exc Cigs) which for FY10 which amounted to $183K. Whilst I feel confident that all retailers appreciated the special rebate payment of $355,749 from SIW for FY10, it was duly noted that such a payment would not be repeated in subsequent years. If the additional SIW rebate of $355K is removed from the FY10 comparatives, the FY11 rebate distribution of $2,677M, on a like for like basis, is slightly above the FY10 rebate distribution of $2.646M by $31K or 1.1905%. The rebate percentages that have been applied to this year’s PIP is as follows; Tier 1 – IGA Retailers SIW (Exc. Cigarettes) 2.2804% TIR C/T 1.5000% IFP 2.0000% Tier 2 – Non IGA Retailers SIW (Exc. Cigarettes) 2.0304% TIR C/T 1.5000% I can further confirm that there will be no change to the above rebate percentages for the 2012 PIP distribution. Equipment Development Fund (EDF) The EDF has also been widely endorsed by retailers since its inception in 2007. As noted earlier the EDF has provided a much needed stimulus and financial incentive for much of the store refurbishment work now undertaken and has in many respects helped our IGA retailers maintain and grow sales. Since its inception a total of $2.95M has been allocated to the EDF program with subsequent draw downs by retailers amounting to $2.6M I am pleased to announce today that the Board of TIR has approved an additional allocation of $1M to this fund, which now brings total allocations since its inception to $3.95M The allocation has been distributed to eligible IGA retailers on the basis on total SIW grocery and IFP purchases for the respective 52 week trading period for which the PIP rebate has been based on. This allocation confirms both TIR and the Board’s commitment to support the ongoing development and growth of IGA branded retailers in Tasmania. As all retailers are aware TIR makes no commitment with regard to future distributions to this fund with any such decision being made in May of each year and determined upon the financial performance of TIR along with various other considerations.
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I trust that all retailers are supportive of this payment.
IGA – Moving Forward
So what is instore for the IGA brand in Tasmania moving forward? TIR continues to liaise closely with our friends at IGA D and Metcash, and as mentioned earlier, it is pleasing to note that both John Maclaren and Mick Dally are in attendance at this year’s state Conference & Trade Expo. Their involvement in my opinion further confirms the closeness of our relationship and the subsequent benefits that flow to all IGA retailers in Tasmania. National Programs The past 12 months has seen further consolidation of the IGA brand with the recent launch of the ‘How the Local Like it’ and ‘Locked Down Low Prices’ campaigns. The ‘How the Locals Like It’ campaign has been strongly promoted via corporate TV and press advertising, and has also been successfully incorporated into our TV item and price advertising. It is a powerful message and one that should be exploited to its full advantage as it promotes the fact that all IGA’s are different and our corresponding links to the community. The ‘Locked Down Low Prices’ program was launched in April 2011 and thus far comments received from many retailers have been positive. The program is compulsory for our Chanel 1 and 2 tiers and optional for channel 3. Both these programs, coupled with our other advertising commitments and other community support programs have helped raise the profile of the IGA brand within the Tasmanian community, which is something that all retailers, be they the large or small can all receive benefit and mileage from. Advertising Review It is on this point that both the Board of Directors and TIR management have been reviewing our current TV and press item and price commitments for the three respective channels. Our message via TV is clear and concise, 6 lines are advertised via 3, 15 second TV commercials with the advertised products being available at all IGA outlets. Our press advertising on the other hand is not quite as concise given that via two to three separate adverts throughout the week we promote IGA all channel specials whilst at the same also promoting channel specific specials. This only further serves to confuse the customer with regard to the IGA offer and the outlets where certain specials can be attained from. The product and price messages that we promote via the channel specific adverts also provides mixed
- utcomes as many of our price point are not competitive with the chains and whilst we don’t have to match
them on every occasion, we at least need have a more competitive edge. Failure to achieve this goal simply promotes the fact that we are more expensive, acts as a disincentive for customers to visit our stores and results in wasted press advertising spend.
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The customer, with all due respect is a very simple beast with the vast majority simply recognising the IGA brand and logo and not so much the co-branding that goes before, or at the end of the logo. In simple terms they look at the red oval with the letters IGA and very little else. Single Brand Item & Price Press Advertising Given these concerns and the current trading climate the Board now considers it an appropriate time to review our current advertising arrangements, and if endorsed by the majority of retailers, move forward with a new, and more concise message with regard to the IGA brand and our item and price press advertising. Under the changes that have been given in principle approval by the Board, and that is now subject to a four week consultation period with retailers, TIR proposes that we move forward with single IGA brand item and price press advertising with effect from July 2011. The number of lines that would be advertised via the press under the proposed model would be in the vicinity
- f 25-30 lines per week.
Fresh lines will also continue to be promoted, however, the number of lines advertised under the meat and deli categories will be reduced back to one each with a stronger focus being directed to the more generic fresh lines that all retailers carry be it fruit and veg, dairy and bakery. TIR accepts that not all IGA X-press outlets carry meat and deli lines however this will be dealt with via the product disclaimer which will simply note that some items are not available at all outlets. We should note that the inclusion of the disclaimer does not give the retailer the opportunity to not comply with the promotional program where such lines are ranged. Put simply, if it is advertised and the retailer stocks it, then it must be sold at the advertised price – this requirement is not negotiable. To further maximise exposure for the IGA brand it is proposed that the placement of the majority of our press adverts appear on a Thursday through to Monday, with the main advertising focus being from Thursday to Sunday. The best circulation days for all press papers in Tasmania is on a Thursday to Sunday and hence if you want to maximise your exposure and corresponding advertising spend, then these are the key days that you need to be in press. Under the proposed changes all item and price specials will commence on a Thursday and run through to the following Wednesday. Whilst this is noticeably different to what we have done in the past, the reality is that it makes little difference which day you start and end your specials on. Starting the specials on a Thursday allows TIR to ramp up the promotional activity leading into the end of the week, and over the weekend which as already noted also ties in with the highest circulation days for all press papers in Tasmania. To ensure there is still a point of difference between the Supa IGA & IGA Everyday Channels, TIR will continue to provide both channels with their own in store catalogue that will promote different item and price lines. Compliance to the catalogues specials will also be enforced across both channels – once again this requirement is not negotiable.
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The other benefit with this change is there are some advertising savings that are attained which TIR proposes be returned to retailers via additional case deals subsidies on some lines where low margins currently apply. The consolidation of all media advertised specials under the collective IGA channel, and its corresponding volume, should also provide TIR with the opportunity to negotiate a better case deal which in turn may provide a stronger and more competitive retail price point, and or a better margin for retailers. In closing the Board of TIR believe that the changes proposed:
- 1. Remove much confusion from the customers perspective as all lines that will now be advertised on TV
- r in the press, will be available at all IGA outlets.
- 2. Provide a more competitive impact for the promotional program.
- 3. Provides a more cost effective promotional solution.
- 4. Simplifies the processes and the buying periods.
- 5. Strengthens the IGA Brand.
Specials and advertising are an important part of how we do business and we need to remain competitive and market our IGA brand strongly to achieve our sales and corresponding bottom-line profit goals. We welcome comments and feedback on the proposed changes. Additional information relevant to these changes will be emailed to all IGA retailers on Monday 23/05/2011.
Closing
In closing I again commend all retailers on your achievements over the past 12 months and thank you for your
- ngoing support of TIR and our related supply chain network.
I also encourage all retailers to look at your business and identify areas where improvements can be made.
- Focus on your customers and their needs
- Maintain a high standard and presentation within store.
- Be vocal in your community and support wherever possible.
- And remember to always Think Big & Act Local.
All of these are things that don’t cost anything, but can make a difference in your ability to attract and retain a sound customer base. TIR will continue to support our retailer network and members of the Cooperative, and coupled with your
- ngoing commitment to both your business and customers, we can, and will prevail through the current