Access to a cold transport network and warehousing is an expensive barrier to grocery competition
Growth in chilled logistics at NZX-listed Freightways has the company willing and able to service a third grocery player, addressing a significant handbrake to supermarket competition.
Problems such as land covenants restricting new supermarkets may have been solved, but there are still hurdles to achieving meaningful grocery competition in New Zealand, including access to costly chilled and frozen logistics infrastructure.
Freightways, through its acquisition of Produce Pronto and Big Chill Distribution, currently has a fleet of refrigerated vans connected to its chill store and wider logistics network.
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Its chief executive, Mark Troughear, said since its acquisition, Produce Pronto had begun operating out of bigger facilities in Christchurch, Wellington and Auckland to allow it to take on more customers and expand its same-day delivery radius.
“What that enables us to do is quick deliveries and same-day deliveries for a number of customers, so if you think about convenience outlets where they might be selling pies, doughnuts, sandwiches, fresh food to be eaten that day, the network we've got is really well suited for taking it from our cold stores either frozen, chilled or ambient.”
He said the company had been supplying service stations for some time and expected the scale of the chilled division to grow.
The Warehouse Group, which earlier this week extended its in-store produce offering from 12 to 22 stores, had previously pointed to transport as a sticking point.
When asked about wholesale negotiations with Foodstuffs and Countdown, Warehouse chief executive Nick Grayston told Newsroom the logistics infrastructure to enable grocery had to be on the table in negotiations.
“There are two sides to it. The first is the access to not just the commodity prices and products at prices commensurate with the duopoly, but there’s also the access to their frozen and fresh supply chain. So that is part of what we are looking for.”
He said The Warehouse could potentially build up a network for refrigerated delivery, but it was unlikely it would have the demand for that to stack up.
Troughear said a significant third player in the New Zealand supermarket sector could take a couple of stances on chilled delivery, with a smaller entrant less likely to want to invest their own money into transport and warehousing.
“They could either have their own distribution centres and contract us to do the delivery of the product into their stores or they could outsource that so we could do that with our own third-party logistics temperature-controlled sites.
“That's a completely viable model and opportunity, particularly for a smaller operator that might be gearing up and, you know, maybe doesn't want to take their own capital into temperature-controlled facilities.”
The prices associated with running a cool store were laid bare at Freightway’s annual shareholder meeting yesterday, with Big Chill’s new facility at the Ruakura inland port in Hamilton attracting expenses, including power, of about $4 million a year and losing money.
Troughear said the company’s first cool store, opened in Highbrook in 2020, filled up really quickly during the lockdowns as there wasn’t enough air freight capacity to move it offshore.
“We filled up the first one really quickly, then planned for a second one down in Hamilton. They take a little while to design and build and commission and it opened up a few weeks ago.
“The normal course of business for these things is that you open them up and you start bringing volume into them. It might take you a year or two to completely fill that cool storage and bring new customers on.”
Once the facility gets to 50-60 percent full, which Troughear expects will happen by the end of the financial year, it will start turning a profit.
