This letter was published with permission from the author Jeremy Bennett and Foodstuffs.
Meeting please: Grocery industry
I’m Jeremy and together with my wife Sam and our three kids we own PAK’n SAVE Te Awamutu. With all the talk in the media currently and your announcements, I would like to explain a bit about our business. I seek a meeting to discuss the government plans surrounding my enterprise.
I get that food prices are tough for our customers. It’s a challenge I feel deeply and challenge myself to deliver every day. Our money is worth a lot less these days and I’m up for the challenge of finding value for our customers and our community.
Competition
There are several supermarket brands serving different need states in New Zealand but also many specialist retailers; Fruit and Vege shops, Butchers, Chemist Warehouse, The Warehouse. The Mitre 10 across my carpark shares a thousand products with me. He even has a pallet of ginger beer in his foyer (mine’s cheaper!).
If one tried, they could never step foot in a conventional supermarket again and still feed their family.
A quick P&L check of grocers in NZ (think Woolworths/ Costco) suggests that it’s a lot tougher for some players than many other markets. As with any endeavour there are a few superstars and a few that go broke every year.
I think competition makes us all better, I don’t aspire to being the only show in town and it’s good to see others find a niche and do it a different way. I have no aspiration to be everything to everyone, that’s not how business works. No matter what you do competition and technological step change are coming quickly.
It is a little weird that our own NZ government has started talking about tax breaks and other market manipulations in favour of foreign companies. Punishing local companies seems a little mixed up, but I can cope with that if I have to. If a new player turns up, bring it on.
It would be nice if it was an even competition. What would be nicer is to remove unnecessary red tape that has hiked prices.
Forced divestment
What I find really concerning is talking about breaking up a locally owned, 103-year-old co-operative. I’d like to tell you why I think this is unfounded and wrong. The information your bureaucrats are providing you is deeply inaccurate, and I thought it might be useful to hear my side of the story.
Food price influences
Much of the differences you see in food prices is due to:
- Cost international suppliers have incurred shipping product and ingredients to a little island away from major shipping lanes.
- The GST difference on food applied here and not in comparison countries.
- Were your comparisons on New Zealand average pricing or specific retailer brands? My prices are significantly different from market average (lower) and the difference between Pak’nSave pricing and the wider NZ market would fully account for any difference you have referenced.
- The cost of transporting small volumes of groceries over a long, thin country with a small population.
- Government involvement in the economy adding cost and hurdles for food producers.
As you can see many of these factors are way outside my control. I think you inaccurately blame the retailer.
If I removed every single piece of profit in my business, you would not see a material impact on the pricing customers see (but I would go broke).
Foodstuffs North island
Foodstuffs is a co-operative. At its most basic level it’s a bunch of grocers that collectively own a support network to facilitate sales within their store. Think: IT platforms, logistics, marketing, purchasing.
As operators retire, the co-operative identifies future leaders, trains them, coaches them and ultimately guarantees their debt allowing them to purchase a store to perpetuate the co-op and provide opportunity to those that work hard and are determined to deliver.
Foodstuffs is a very decentralised organisation with every store valuing their say and robust conversation about how to best serve our customers. The support centre doesn’t make a profit; it levies stores to cover costs and provide rebates back to members in return for use of capital.
Our stores are already structurally removed from what you call wholesale. Our stores are individually owned and operated, we compete with each other, and we are constantly pushing our support centre for better deals and better innovation for our customers.
I have been involved in committees that facilitate this debate for my whole career. I can vouch for the vigour we bring to advocating for our communities. Media regularly talks about Foodstuffs owning PAK’n SAVE. In reality, I own PAK’n SAVE Te Awamutu and then I jointly own Foodstuffs North Island with all of the other grocers around the North Island. Foodstuffs serves PAK’nSAVE Te Awamutu and the other stores.
When you talk about divestment with Foodstuffs North Island, you talk about taking my business apart.
My history
I started working in a supermarket through school. I left school to study for a degree and worked full time in the local supermarket to pay my way. I enjoyed the vibrancy of the industry and in 2002 decided to stay after my degree to have a go at purchasing a store myself.
In 2013, I was given the opportunity to purchase my own store. I had $50k equity in my house and would never have been able to buy a business without the trust and confidence Foodstuffs put in me (along with many years of coaching, inspiration and training).
After extensive testing, they guaranteed my loan with the bank, and selling my house to get the equity out, I was able to purchase New World Ngāruawāhia for a fraction of the open market value. If you saw the P&L you would run a mile. It was a cashflow negative store with much of the plant old and past its useful life. We set to making it our own and developing our offer. We worked every single hour of the day. Every night, every weekend to deliver on a daily basis but also update our offer and improve our service and develop our longer term offer for our community.
In 2017, we had the opportunity to purchase New World Whakatane. Over the six years we owned this store we spent $6 million on capex (on top of the purchase price), completing extensive renovations and preparing the store to deliver for the next 10 years. We are proud of our contribution to this business, and our family was deeply involved in the community. At the end of our tenure, the store won New World Store of the Year two years in a row (Foodstuffs North Island). This is judged on a range of metrics that analyse how a customer views the store (yes, we care about this way more than profit).
In 2023, we had the opportunity to purchase PAK’nSAVE Te Awamutu. Personally, this was particularly rewarding as I helped open the store as Store Manager in 2010 and worked in it helping set up the systems and processes from 2010 to 2013. I felt a high level of ownership for this store and am really excited to be back in the Waipa community.
Throughout my career, we have invested heavily in our businesses, we have taken a long-term approach with an ideology that if its best for customers, long term it will be best for our business prospects. We try to invest in our teams, we value tenure and challenge ourselves to pay our team as far above market as we can afford.
We invest heavily in training, coaching and development. We also invest in our store, replenishing the store systems and equipment to ensure our team can efficiently run the business on a daily basis. PAK’nSAVE is all about price and we invest heavily in that here. This is a costly, long-term approach and requires taking on debt and balancing risk.
What you are currently doing is adding significantly to my risk profile. You are encouraging the market to play a shorter-term game, more focused on short-term profit. I have always worked hard to deliver to my customer, I owe a lot of money and have invested heavily in my offer. Your threats bring the future of my investment into serious question.
The Government’s leadership of our economy.
I think it’s important for the Government to understand its impact on New Zealand business. In the past 15 years there have been significant changes:
- Embellishment of compliance regimes.
- Banking system management has made it significantly more expensive for me to borrow money by changing the structure used by the Reserve Bank.
- Labour laws have made it more expensive to employee team members. This can be a good investment when carried out carefully but can just add cost when executed in a blanket, uniform way.
- Significant changes in Building/earthquake regulations have required complex retrofitting of modern buildings to meet consultants’ conservative expectations.
- Carbon credit regimes have added huge cost to conventional refrigeration systems and necessitated the move to a new refrigeration system: my cost circa $4 million.
- Huge changes in farming and horticulture, for example; 180,000 hectares have been put into forestry, reducing red meat production. This means 1.4m less sheep and beef stock units, and 132,000 less prime steer processed last year. All of this impacts on price and availability.
- Many other decisions have made it harder for our growers and farmers to make money. They have to pass this on to us otherwise they don’t have a business.
As you well know, very often when you impose additional regulations, there are unintended consequences.
I’m not bemoaning these changes, some of them I agree with. But it would be a naive commentator that didn’t account for the impact these additional costs would have on the economy and food prices.
Additionally, global structural changes in commodities such as: olive oil, coffee, cocoa, canola, flour and others have all had significant step changes in availability and pricing.
Your proposed changes
The changes you have signalled risk changing the landscape in New Zealand from a meritocracy where people work hard to get ahead and contribute to society, towards a state where people take what they can and strip society dry; shifting reward as they see fit. People don’t work hard under these conditions. Societies don’t flourish with this instability.
If this is the New Zealand the government is working towards, it’s not in line with my values and it’s not where I want to raise my kids. New Zealand Inc has already lost so much talent; keeping talent that can help with our productivity challenge should be your deepest priority.
I acknowledge business is fundamentally a risk. I feel that in my bones every day. There is a difference however between natural risk and a government creating a risky environment; If the government proceeds breaking up my co-op and fundamentally affecting my supermarket business this will deeply affect private business in New Zealand.
For me, there has always been a high risk of losing everything if things don’t go right. If you choose to take or alter someone’s business because of its success; New Zealand doesn’t have a meritocracy. You may think you can pick on the supermarket industry and gain some votes, and you may be right. But please consider the deeply chilling effect you will have on entrepreneurs commitment to New Zealand Inc.
I guarantee if you proceed here, I won’t be the last to lose my livelihood; who will be next? All the dedicated little taxpayers will be thinking the same thing, and they will be plotting a move out of the sinking ship.
Could I please urgently request a meeting with you Barbara to:
- Discuss your expectations of how I should run my business in line with government expectations.
- Seek your assurance that you don’t have intentions to structurally change my co-operative and take my private enterprise and my hard work away from me.
- Answer any questions you may have about Foodstuffs or my observations about the supermarket industry over the last 25 years.
- Consider and discuss how we may work together to explore how customers can see value in food pricing in a long, thin island of 5 million people.
Thank you for taking the time to listen, I look forward to some reassurance and a constructive conversation.
Regards
Jeremy Bennett
Owner Operator
PAK’n SAVE Te Awamutu
