Why expanding into butter and chilled products is a smart move for The Warehouse

Thursday, 25 May 2023

Foodbank Aotearoa New Zealand chief executive John Milligan says they process about six tonnes of food a day, distributing the equivalent of 284,000 meals a month. (Video first published July 2022).

The Warehouse started working on its foray into dairy, long before the price of butter hit new highs.

The general merchandise retailer with 90 stores up and down the country says investing in its own line of grocery staples – and now chilled products, will within time allow it to drive down prices.

Earlier this week the red shed retailer launched a $5 block of butter under its Market Kitchen range. It is its first private-label push into the chilled grocery space.

Warehouse chief product officer Tania Benyon said the group’s private label strategy was to continue to build Market Kitchen. This could include more products within the fresh, and chilled space.

Market Kitchen first began at the end of 2021, offering five or six products. Today it has grown to more than 60 products across a wide range of pantry staples spanning coffee, rice, condiments through to tinned goods, spreads, nuts and oil.

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The group has a dedicated team of five working across product development and expanding the range.

Pushing into private label grocery retailing comes as part of The Warehouse’s wider strategy to ensure it can offer everyday low prices across all categories it sells.

The Warehouse now sells its own brand of butter for $5.

In recent years The Warehouse has ramped up it efforts in the grocery retailing space, but has faced red tape due to a lack of access to wholesale supply at commodity prices.

Warehouse Group chief executive Nick Grayston previously said the Government’s efforts to help free up wholesale grocery supply after its market study that found consumers were not getting fair prices, had done nothing to enable competition.

This was despite the Government saying it would force the supermarket duopoly of Foodstuffs and Woolworths to open their supply chains to enable competition and access to better prices.

The Warehouse began trialling the sale of fresh fruit and vegetables in six stores in February, and has redirected some of its investment spend from its digital transformation to expanding its grocery channel.

Having a Warehouse-owned grocery brand meant the retailer had more control over prices, although the true effect of this would be realised once it achieved scale, said Benyon.

“We get to control the retail price and have to make a decision about how much margin we take.

“The thing with private label, typically they are offered a little bit under the branded [option] but that doesn’t necessarily mean it costs us less,” Benyon said.

“We’re still building our scale in this space and there is an investment in building up the private label range, but I think within time private label should be cheaper.”

Benyon would not disclose who its suppliers were for its butter, but said it was a mix of privately sourced goods and from suppliers of existing brands.

She said Market Kitchen was working on other items in the space, but was tight-lipped on exactly what those items were as there was “still ongoing work to get them sourced and made real”.

Tania Benyon says with time and scale, Market Kitchen products should get cheaper.

It had taken at least a year to build the supply chain to bring the butter to market, a similar length of time to launch any new food product, she said. “It is quite a big process, finding the right supplier and getting all the details lined up. There was a lot of sourcing work behind the scenes for the butter.”

New Zealand Food and Grocery Council chief executive Raewyn Bleakley said the further push by The Warehouse into grocery retailing and chilled items was encouraging.

“The supply chain has been identified as a barrier to entry for competitors in the retail grocery industry, so it’s promising to see The Warehouse and others making inroads here,” Bleakley said.

Market Kitchen has grown to more than 60 products across a wide range of pantry staples, including nuts and seeds.

“All competition in food and grocery retail is to be welcomed and encouraged.”

Retail NZ has been contacted for comment.

The Warehouse had decided to launch butter as its first chilled item in its Market Kitchen range because it was a versatile basic that most people picked up during their weekly shop, said Benyon.

She said early butter sales were off to a good start, and wider Market Kitchen sales were growing significantly.

“This is an exciting step for us and a direct response to the strong customer demand we continue to see. We’re working with local Kiwi suppliers to grow our Market Kitchen range, and establish it as a high quality, great value offering for our customers for all the basics they need.”

The Warehouse recently conducted its own research and said it found a basket of eggs, flour, olive oil, bread, butter, milk, coffee, and Weetbix was $6.91 cheaper at The Warehouse than at Countdown.

Benyon said there were 10 more Market Kitchen products, not including the various skews and varieties, set to launch by the end of the 2024 financial year.

“As we find the right sourcing and opportunities and identify more products that would make sense for our range, we’ll keep building it out. It is really aligned to how The Warehouse works generally. A little over half of our range in the red sheds is private label and so it makes sense the same happens in the grocery space.”

Frozen goods were not in immediate plans for grocery expansion, she said.

The Warehouse first dipped its toes into food and grocery retailing in 2006, through three Warehouse Extra stores that it had selling groceries and frozen food in Sylvia Park, Te Rapa and Whangarei. However, it exited the market in 2009 due to poor returns.

But at the start of the pandemic, it revisited the category and has been increasing its focus on the grocery business, growing its product range of both branded and Market Kitchen product within its Warehouse and Warehouse Stationery stores.