Why The Warehouse failed at becoming New Zealand's own Walmart 16 years ago

Sunday, 24 April 2022

The Warehouse failed when it first tried to enter the grocery market in 2006.

Bargain retailer The Warehouse admits entering the grocery market after failing 16 years ago is still a risk.

But chief executive Nick Grayston said he remained optimistic it could work after the company’s short-lived venture into the market in 2006.

That year, the retailer launched The Warehouse Extra at Sylvia Park – a 12,500-square-metre store which helped the company enter the grocery sector, before opening one in Whangārei and Hamilton.

The Extra format mirrored Walmart in the United States. It had an on-site bakery and cafe, liquor outlet, health and beauty area, and pharmacist. It was also meant to have fresh fruit and vegetables, hot chickens, fresh meat, and a full chilled and frozen range.

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It even had the same shelving layout.

At the time, retail analysts said if the company mirrored what happened to Walmart, The Warehouse could be New Zealand's biggest food retailer in 10 years' time.

It recruited an experienced hypermarket store manager from England, Roy Medlicott, who had run an Asda WalMart supercentre in the UK.

It also had consulting help from Grant Downie – formerly the number two at Woolworths in New Zealand.

But opening its first hypermarket at Sylvia Park, which had an already established Foodtown and Pak 'n Save, led to its demise.

The Warehouse chief executive Nick Grayston says it is still a risk for the retailer to enter the grocery market.

But less than two years later the concept had flopped and the Extra stores changed to being The Warehouse.

The Warehouse chief executive Nick Grayston said the failure was down to access to products and supply chains.

“We need access to both on fair and reasonable commercial terms, so that we can offer our customers great value products at great prices,” he said.

“The scale required to operate fully in the grocery space is also significant.”

In 2008, The Commerce Commission said some fundamental practices of the supermarket trade were missing in The Warehouse's operation, including it not selling fresh produce or having its own house brand.

The Warehouse already offers grocery staples, including milk, butter, breakfast cereals and snack foods, for cheaper prices than New Zealand’s supermarkets, and was working to release its own brand of products.

But for a customer to do a full grocery shop with a store, The Warehouse must be able to guarantee availability of product and given the challenges it had with access to supply previously, it was not able to do this, Grayston said.

And that continued to be a “key risk” for the retailer, and to make the significant investment required to go further into the grocery space, it needed to be able to sustainably offer good value for customers and be viable to grow, he said.

“Resolving this access to wholesale supply is a make or break for us, and we cannot over extend ourselves.”

The Warehouse Group made a submission to the commission as part of its market study of the grocery sector.

It suggested three key areas for consideration including a larger study scope, looking at challenging barriers for entry into the market, and the consumer impacts and benefits, especially surrounding the price of groceries.

“We are optimistic that the Government will move to level the playing field and look forward to seeing what action they will take,” Grayston said.