Errol King

Grocery giant Foodstuffs' presence in liquor retailing could get a shot in the arm as it looks to swallow Liquorland.

The co-op, which controls around 56 per cent of the grocery retailing sector, is understood to be one of several parties interested in purchasing the 72 stores of DB Breweries' franchise retail chain. Besides supermarket wine and beer retailing, Foodstuffs also operates the large format liquor store Duffy & Finn's, and the smaller format Henry's.

Success in the Liquorland bid could add fuel to the already intense rivalry with Woolworths.

The Australian-owned supermarket firm is still pursuing Liquor Licensing Authority approval for store-within-store models selling spirits as well as beer and wine - despite being denied a bid to set up in a Christchurch Countdown in what was regarded as a test-case decision.

And success for Foodstuffs could spell trouble for independently owned stores, which cannot compete with the supermarkets' buying power. Large liquor chains have a slight edge in market share, controlling around 53 per cent, to the independents' 47 per cent.

Foodstuffs was not commenting on speculation of the bid, as was DB, citing confidentiality agreements. A DB spokeswoman said the company decided to review the option of selling the Liquorland franchise after several unsolicited expressions of interest. "We're not committed to a sale - we're investigating the possibility. "We just received a bit of interest and like any business, we evaluate opportunities as they arise. "Liquorland is a successful asset for DB Breweries, so while we are looking at the option to sell, we will only consider this if a suitable buyer is identified."

Cranleigh Merchant Bankers was appointed last month to evaluate bids and manage the sale process. Evaluation of a possible sale will take place over the next few months. The spokeswoman said any sale would ensure the future interests of franchisees and staff, and the continuation of the franchise as a whole. A sale would also need to ensure that DB retained "an excellent relationship" with the franchise, retaining placements for DB products within Liquorland outlets, the spokeswoman said.

Foodstuffs and Woolworths have up to 20 days to decide on whether to appeal the court decision blocking any takeover bids for The Warehouse.

Legal experts were surprised at yesterday's Court of Appeal decision, having previously believed the Commerce Commission faced an uphill task overturning the High Court judgement granting the all clear to the two suitors. "These competition issues are difficult, and it's the hard cases that go to court," said Tony Dellow, competition lawyer at Buddle Findlay. To me I always thought that they would get the clearance. We've got to see the reasons I guess but to me, the High Court decision was very factually-based and they're hard to turn over, so I suppose the commission's done well in that sense. That being the case, there must be a fair prospect of an appeal."

The reasoning behind the decision has yet to be made public, as lawyers for Foodstuffs, Woolworths and The Warehouse are still to appear before the court again to be heard on what commercially sensitive information should be deleted from the judgment that is to be made publicly available.

Simpson Grierson senior associate James Craig said the parties also needed to work out if an appeal to the Supreme Court was an option.

The Warehouse founder Stephen Tindall may relaunch his bid to buy back the Red Sheds after a court decision to prevent the supermarkets from initiating takeover bids. The Court of Appeal's move to overturn the High Court judgment clearing suitors Woolworths and Foodstuffs to acquire the country's largest listed retailer means Tindall could resurrect plans to take back the business he started 26 years ago.

Tindall, who already controls 53 per cent of the company, announced plans on September 14, 2006 to reprivatise the group in order to pursue ambitious plans to spread super-stores offering a total retailing mix including groceries and general merchandising. Back then he and Australian private-equity firm Pacific Equity Partners were offering shareholders $5.75 a share - representing just a 12.5 per cent premium on the $5.11 closing price on the day. Weeks later he was trumped by Woolworths, which swooped on a 10.1 per cent stake at $6.50 a share.

But market experts say yesterday's development could see Tindall's grand plan back on the table.

Tindall and PEP managing director Tim Sims are understood to still hold each other in high regard, and the Red Sheds' share-price plunge yesterday to $3.22 means buying up the remaining 43 per cent becomes an entirely more attainable option. Based on his 2006 offer premium, Tindall may need to offer only $3.62 a share, given the state of the markets.

Deutsche Bank analyst Kristan Walker said Tindall and PEP could well make an offer for the 20 per cent held by the two supermarket players. "It could be quite an opportune time for Stephen Tindall to come out with a privatisation plan and literally offer something on the table and take the stock off their hands - that's an extra 20 per cent that sits alongside his 50-odd per cent, and then it's not so much of stretch to get to the compulsory acquirement level." But he cautioned that a private-equity investor would also be contemplating its exit strategy. With the two major players Foodstuffs and Woolworths unlikely candidates for a trade sale, the offer price now would have to factor in an attractive rate of return. "It comes down to price now."

Market commentator Arthur Lim said funding such a move would not be an issue, with Tindall's stakeholding and PEP among one of the most cashed-up private-equity funds around. "The ability to source funding might not be as readily accessible as before, but a 53 per cent shareholding accounts for a lot of underlying equity."

Lim said there was nothing stopping Tindall going ahead with another privatisation bid, but without knowing whether Foodstuffs or Woolworths would appeal such a move would be premature. "If Stephen makes his move he would have to be comfortable that they are not going to frustrate the process."

Head of research at ABN AMRO Craigs, Mark Lister, said the potential for Tindall to revive his privatisation plans was still there, but the prospect might be even more attractive in future. "The outlook for the domestic economy doesn't look like it's hit the bottom yet, so while it's at the low point, it still could go even lower," he said. "Retail's a sector that we're still all fairly cautious of, despite things having come back a fair way. There's still probably going to be a tough road for retailers in the short term."

With the two court decisions going either way, Lister believed there was a fair chance the suitors could appeal. "Either way, it sounds like that it's going to be reasonably drawn out, whether they do anything or not. "It still could be a little while before you get a final, final resolution on what ends up happening with The Warehouse," he said.

Deutsche's Walker, who had been favouring Woolworths to be the successful bidder, believed an appeal was likely. "I think it's going to be difficult, if not impossible, to replicate the same floor space that The Warehouse has in relation to Woolies wanting to be a major player in the general merchandise category in New Zealand. "It really does leave little options [for Woolworths] on the table."

Woolworths and Foodstuffs were reviewing their options after the decision.

Foodstuffs managing director Tony Carter said it was difficult to comment further or make a judgment on a potential application for leave to appeal, as they had yet to see the reasoning behind the decision. "There is a statutory 20-working-day period for an application for leave to appeal to the Supreme Court. We will be utilising this time to digest the Court of Appeal ruling before making any decisions."

The Commerce Commission, meanwhile, called the decision a victory for market competition and supermarket consumers.

THE STORY SO FAR
* The Warehouse has been in play since September 14, 2006, when founder Stephen Tindall revealed plans to privatise, offering $5.75 a share in partnership with Pacific Equity Partners.
* Later that month he was trumped by Woolworths, which bought a 10.1 per cent stake at $6.50 a share.
* In December 2006 Foodstuffs - already a 10 per cent owner - declared its intention to bid for The Warehouse. Foodstuffs and Woolworths applied for Commerce Commission approval to proceed.
* In late June last year the commission declined their applications.
* An appeal against that decision was heard in the Wellington High Court in October.
* On November 30 the High Court overturned the commission's decision.
* The commission applied for leave to appeal the decision and on January 31, the High Court granted it.
* The commission's appeal was heard in late April in the Appeal Court.
* On May 2, Woolworths and Foodstuffs agreed to a moratorium on bidding until 48 hours after the Court of Appeal issues its judgment.
* The Court of Appeal yesterday overturned the High Court decision, preventing Woolworths or Foodstuffs from launching takeover bids.

New Zealand's biggest retailer, the Warehouse Group has revised downwards expected annual after-tax earnings by about 10 per cent.

The key contributing factor was a marked downturn in consumer spending since the latter part of May, which had significantly reduced the company's sales and margin expectations for the remainder of this financial year, the company said today.

After-tax earnings for the year ending July 27 were now expected to be between $84 million and $88 million, including reversal of warranty provisions of $7.2 million. The previous range was $94 million to $98 million.

For The Warehouse stores, sales for the month of May were 4.8 per cent ahead of last year on a same store basis, reflecting an expected improvement in performance following a difficult third quarter. Customers responded well during the period to a strong seasonal offer in both apparel and home products, the company said. But consumer confidence and retail spending had deteriorated markedly in recent weeks in response to increasing inflationary pressures on fuel and cost of living.

The company's June and July sales were now forecast to fall well below previous expectations. At Warehouse Stationery sales for May and June month to date were 7.7 per cent below the same period last year.

The Warehouse downgrade comes one day after number two retailer Briscoe Group warned shareholders to expect up to an 80 per cent drop in half year net profit after tax.

In an update to the market yesterday, the operator of Briscoes Homeware, Living & Giving and Rebel Sport stores said it expected net profit after tax for the six months ended July 27 to be between $2 and $3 million. The group had posted a $10.5 million profit for the same period last year. Managing director Rod Duke said like other retailers, it has been experiencing extremely difficult trading conditions, with consumer confidence at its lowest in 17 years. Duke expected the challenging times to continue, with second half results expected to be lower than last year's. But the percentage decline would not be nearly as large as the first half's, he said. Briscoe shares ended yesterday down 11c at 99c.
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As retail trouble spreads across the country, one big firm has announced expansion plans. Hardware retailer Bunnings Warehouse, owned by Australian conglomerate Wesfarmers, it has six new stores planned, which should mean 500 new jobs.

Company general manager Brad Cranston said the fifth of its Auckland stores will be built in Westgate, Waitakere City. "We are pleased to announce plans for this new store for West Auckland. Westgate and the wider West Auckland region is certainly an area of constant growth," Crantson said in a press release.

Bunnings Warehouse has recently unveiled development plans for four further stores in Wellington, Upper Hutt, Gisborne and Dunedin. "The New Zealand market is extremely competitive," said Cranston. "But we have a proven and robust business model that enables us to deliver value to customers. The success of recent new stores in Christchurch and Auckland's Mt Roskill is encouraging and fuelling our commitment to continue at least open three new stores per year," he said.

Cranston said that while plans and locations are not finalised, Bunnings see the Hawke's Bay, Taranaki, South Auckland and Auckland's North Shore as potential areas for further stores.

Briscoe Group expects a potential fall in first half profit of more than 50 per cent as a retailing malaise sets in and says other firms face a similar prospect.

The sporting goods and homeware retailer, widely seen as a barometer of the industry's general health, yesterday reported a 9.66 per cent drop in same store sales for the first trading quarter, ending April 27.  But the announcement came as Wellington listed department store Kirkcaldie & Stains reported a near 13 per cent increase in half-year profits on the strength of a stellar summer. However it also warned of darker days ahead.

Briscoe managing director Rod Duke said rising interest rates and petrol prices were putting the squeeze on households, which would affect the wider retailing industry.  "Being relatively the first cab off the rank, you'll find this particular trend that's being shown in our numbers will be relatively widespread."

Unaudited sales for the quarter were $90.3 million, 6.4 per cent lower than for the same quarter last year.  Sporting goods sales were hardest hit, falling 10.3 per cent to $29.5 million, while homeware decreased by 4.3 per cent to $60.7 million. On a same store basis, sporting goods ales were 15.1 per cent down, while homeware fell 7.1 per cent.

Duke said the retail market for this quarter was "markedly more challenging", with a continuation of the difficult trading conditions experienced during the latter part of last year.  The group expected to report a significantly lower profit for the half year ending July 27, with an estimate of between $5 million and $7 million - down from last year's $10.5 million.

Kirkcaldie & Stains, meanwhile, has overcome the sluggishness reported by the likes of The Warehouse and Briscoe, reporting a net profit for the six months ending February 29 of $829,000, an increase of 12.8 per cent. Sales were up 2.4 per cent, while revenue was up 1.9 per cent to $24.4 million, aided by strong apparel sales.  Managing director John Milford said a hot summer helped fashion sales. A larger gross profit was achieved by making sales at normal margins during the early part of the fashion season. More product was also sourced directly from overseas.

But he was circumspect on the outlook.  "I think we are going to have to work a lot harder to maintain that sort of performance.  "My perspective is that customer confidence is being eroded ... the focus within everything seems to be about the economic conditions.  There are people I could argue who actually have more money to spend because there are people in the country who actually have savings and are earning more interest. Obviously factors like petrol increases and food increases do hit everyone."

An unseasonably long and warm autumn could also work against them, he said.

Forsyth Barr retail analyst Guy Hallwright said while retailers did not all perform in the same way, a drop in sales of 4 per cent - like with Briscoe's homeware business - was a possibility across all store types. He said clothing retailers were very dependent on seasonal weather patterns.

Shares in Briscoe Group closed down 11c at $1.12, while Kirkcaldie & Stains ended up 5c at $2.85.

Easter trading laws could face a revamp next month with Parliament set to hear two private members bills aimed at liberalising shop trading.

It follows a series of inspections by Department of Labour staff over the weekend which found nearly 90 per cent of stores visited had chosen to defy the law.

Bills from two MPs, National's Jacqui Dean and Labour's Steve Chadwick, could change those laws when their bills come up for consideration in the House when it reconvenes in early May.

Ms Dean's bill aims to allow most shops to open on Good Friday and Easter Sunday, while Ms Chadwick's would allow trading on Easter Sunday if local authorities decide they can.

The bills face strong opposition from unions, which have joined forces with church groups such as the Catholic Bishops Conference and the Social Justice Commission of the Anglican Church to lobby against them.

Labour Minister Ruth Dyson said yesterday that any moves to increase the fines for shops defying the present law would have to wait until those bills were heard in Parliament.

Department of Labour staff visited 55 retailers on Good Friday and Easter Sunday, finding 47 choosing to open.  But deputy secretary for workplace, Andrew Annakin, was pleased with the level of compliance.  "We're pleased to see that, in general, the message got through and retailers made the right decision about whether to open or not. It was also good to see that a number of retailers who opened last year decided not to open this year."

Last year, more than 70 retailers were fined for opening on Good Friday or Easter Sunday.  Yesterday department staff went to 24 retailers around the country, finding only two closed. Around half were hardware stores.

Among those open was chainstore Bunnings Warehouse, which drew the ire of the National Distribution Union.  National secretary Laila Harre said the business was taking workers away from their families for commercial gain. 

"There are only 3 days a year when our 200,000 retail workers are guaranteed time with their families.  "If one of our retail workers decided to take a day off with their family on a normal trading day, Bunnings or any other company would bring the whole force of the law to discipline and even fire the worker. But here we have a corporate citizen quite blatantly breaking the law and facing a paltry $1000 fine per breach."

Bunnings general manager Brad Cranston said it was a "union beat-up". "The union held a very intense recruitment drive in our stores in late February, and I guess they got a disappointing result, so they're reacting to that."

He said the stores were open because they had garden centres, which are exempt.  But the Department of Labour said hardware stores such as Bunnings were not exempt.  "Retailers of this type have been warned that unless they are predominantly selling gardening goods, or they section off the rest of the store, they are not exempt."