At the Supermarket

1. At the Supermarket (in New Zealand)

2. The New Zealand Market Place • My Objectives are to give you a better understanding of: • The market differences between Australia and New Zealand • A snapshot of the Wine Market in New Zealand • The Retail Structure in New Zealand • Consumer Driven changes and the effects thereof • A retail model • Who wins, e-tail

3. The Essential Differences: • Woolworths New Zealand ( at this time) has no relationship with Woolworths Australia • WWNZ owned by Dairy Farm International in Hong Kong • Third largest player in Supermarket business with 23% share of Supermarket wine and 22% share of beer • Beer and Wine sold in the main body of the supermarket as opposed to a liquor adjunct • No set number of licences • Anyone can apply for a licence provided that they can prove to Licensing Authorities that they are fit to hold license - so limited barriers to entry

4. Wine Retailing is Complex! • Wine is a large and complex category • Channel Dynamics are diverse • Beer and wine in Grocery is in a high growth phase while Traditional Retail is in decline • Consumer behaviour is not rational nor always predictable • Consumer Groups are varied and vary their purchase behaviour considerably

5. NZ Wine at a Glance Sources: www.winetitles.com.au Wine Institute of NZ www.abs.gov.au

6. Steady Growth in volume and per capita consumption 5 Year CAGR 4.8% 10 year CAGR 3.0% Source: Wine Institute of New Zealand NZ Domestic Wine Market

7. Beer consumption is declining, whilst wine consumption is on the rise. Australia enjoyed its highest increase in wine consumption in the 1980’s but for NZ it was the 1990’s. Source: BIS Schrapnel Consumption Trends

8. 1990 1999 Legislative Change over the past decade Wine Sold in Supermarkets • Drives incremental domestic volume Beer Sold in Supermarkets • Drives exponential growth (currently 125% by vol) but not necessarilyincremental • Further drives channel switching from Retail Liquor to Grocery • No impact on overall wine sales Drinking Age lowered from 20 to 18 • Little impact on wine sales – 18 year olds were already accessing alcohol Introduction of Sunday Trading • Drives incremental on wine sales in all channels

9. E-tail • Bricks & Mortar • Grocery • Liquor Stores • On Premise • Cellar Door Wine Clubs Distribution Channels In New Zealand

10. Channel Dynamics • Supermarkets • Convenience and Value • Opportunity to browse uninterrupted • Good specials for bargain hunters • Clean, bright, safe • Bottle Store • Meets all Alcohol needs in a one stop shop (spirits/RTD’s not available in Grocery) • Advice available if required • Male oriented environment • Struggling to find a point of difference versus Grocery • Boutique Wine Store • Specialist Knowledge • Opportunity to build a relationship with staff • Not the best price • Greater range of difficult to source wines and vintages

11. Channel switching between Traditional Liquor and Grocery is evident Marginal Growth Strong Growth Large Declines Source: Industry Estimates Volume by Channel

12. There are over 2000 retailers selling wine in New Zealand* Marginal Growth Strong Growth Large Declines *Excludes Cellar Door Source: AC Nielsen Market Information Digest, 2000, Industry estimates Wine Retail

13. Wine is growing at 16% by value and 8% by volume Wine #1 Source: www.ACNielsen.co.nz MAT May 01 Sales ($m) Grocery Market - Category Rankings

14. Lindauer, NZ’s top selling methode ranked in the top 10 items sold through Grocery Source: Annual Food & Beverage Congress – MAT Feb 01, ranked by value Wine is important in Grocery

15. Bottled Reds growing fastest Segment (CAGR) 2000 - White Bottles dominate Fortified (+4.2%) Red Casks (+10.1%) 1997- White Casks dominate White Casks (-0.3%) Sparkling (+13.1%) Casks (+2.2) Total Still (+25.4%) Bottled Red Wine (+29.2%) Bottled White Wine (+22.7%) 1995 1996 1997 1998 1999 2000 Source: AC Nielsen MAT Grocery Market Wine Trends

16. Value growth exceeds volume growth in all sub-categories. Still Bottles driving Growth Source: AC Nielsen, MAT May 01 Grocery Market Sub-Category Growth

17. High Value, High Growth Chardonnay & Sauvignon Blanc dominate Source: AC Nielsen, MAT May 01 Still Bottle Growth

18. Montana Wines Ltd is the market leader and Category Captain Source: AC Nielsen, MAT May 01 Grocery Market Volume Share

19. Supermarket Dynamics • Range is important to the wine consumer so grocers tend to stock a high number of slow moving items • stock holding costs traded off for consumer choice • most Supermarkets treat wine as a destination category - investment in margin and resources • There are 2500 active wine SKU’s in Supermarkets and this number continues to grows • Increasing competition puts pressure on price and shelf space • There are 419 still bottle brands currently ranged across NZ • 10 brands drive 50% of the year on year sales growth • 30 brands (7%) drive 93%of the year on year sales growth • 1 of these 30 brands is a recent launch • Vintage changes require bar code changes

20. Supermarket Dynamics (ctd) • For the purposes of allocating shelf space Wine is treated as just another Grocery Category • the same space management disciplines apply • layouts follow consumer decision tree - varietal, and price before brand • the same intellectual rigours apply • Vintages are finite so constant relays are required • Wine is the most expensive item sold in Grocery • With wines priced from $5 - $299 • House brands aren’t working in NZ • Alcoholic beverage house brands are down 11%, while the category is up 53%

21. The Wine Consumer “There are only two types of wine consumer – the insecure, and the very insecure” • Wine consumers don’t act in a rational, predictable manner • There is confusion about brands, varieties and wine facts • Brand Imageand Pricesimplify the decision process for the majority • More experienced consumers will shop around and experiment

22. Decision to Purchase Wine Purchasing Decision The purchasing decision process is complex and difficult to predict as it is driven by a number of elements… Consumer Knowledge Shopping Channel Special Deals Wine Occasion Time pressure at point of purchase Mood at point of purchase

23. Consumer purchasing habits The decision to purchase wine is often pre-planned, but the decision as to the actual wine purchased is largely made at the point of sale. • Consumers typically enter the store with only wine style and price point in mind • Over 50% of wine purchases are made from a supermarket • More likely to be a pre-planned purchase • About 30% of wine purchases are made from a liquor store • More likely to browse than ‘grab’ • More flexible on price point • Wine is a “short term” investment • About 70% of wine purchased is consumed the same day • About 20% is purchased for consumption within a few days • Less than 1% is cellared for more than one year

24. Key Driving Forces in Retailing Today • The Value Driven Customer • 80% of population are earning less • Re-Engineering The Business • Cut cost (wages, inventory) to become like the competitor • Tool for working on Operational Effectiveness • The Impact of High Technology • Companies becoming more ‘data driven ‘ - invest more in IT than competitors • The Globalisation of Retailing • Including many mergers to try to defend against the likes of Wal-Mart (need to be US$20-$25b) to complete) • Wal*Mart - the $150 Billion Gorilla • Will be US$185b in year 2000 • Virtual Retailing • 44 out of 45 B2C hit all time low stock price - w making profit • Peapod in 10 years has never made money

25. “There is one thing stronger than all the armies in the world, and that is an idea whose time has come” - Victor Hugo

26. E-Tailing • Great excitement about the potential of this new channel for retail Grocery Shopping • Anderson Consulting Study (1998) promised billions of potential sales • 10% of the total retail food business in America • By the end of 2000 most of the Internet grocery retailers had filed for bankruptcy or been sold • Stock market prices have collapsed to less than $1 for the 2 remaining players (Webvan and Peapod) • Neither is expected to survive • What went wrong???

27. E-Tailing • First, Internet grocery retailers did not bring significant competitive advantage to bear against traditional food retailers • Second, internet grocery retailers did not correctly examine the financial/cost models of traditional food retailers vs internet grocery retailing • Did not understand that the total operating costs per customer were substantially higher • This channel would have to charge consumers upwards of 20% more just to break even • Internet grocers did not even cover viable costs • Eventually ran out of cash and unable to raise additional monies in the market • There is some evidence that Internet grocers dramatically overestimated the size of the market for grocery shopping from the home

28. E-Tailing • Place • Shopping via the Internet, the consumer gives up the physical environment of the store and therefore the ability to see, touch & smell the merchandise • Product • A consumer shopping at a large supermarket can choose from a total assortment that may be as high as 25,000 SKU’s including a huge variety of fresh foods • Value for Money • Estimate is that the Internet customer pays somewhere between 10-20% more for home delivery, relative to the lowest priced supermarket in each city. This price differential dramatically reduces the size of the total market for the Internet service

29. E-Tailing • Service • Consumers give up a lot of different service dimension if they choose to order groceries over the Internet for home delivery • They cannot talk to any store personnel • They cannot ask for many specific products or special orders (particularly in the fresh area) • They cannot combine a grocery shopping trip with other trips to the same general geographic area (such as bank, post office, hardware store etc) • Communication • Supermarkets engage in constant communication with the customer • These activities have an impact on the actual and perceived prices that consumers pay

30. E-Tailing • The online business model relies on a population of web savvy customers • While this customer base is growing, the demographic requirements associated with computer ownership significantly exclude a large portion of the total population base • Overall, to become an Internet Grocery shopper, the customer gives up something on virtually every corner of the pentagon

31. E-Tailing • Traditional retailers are hovering, merely waiting for these companies to carry the industry out of its infancy and then swoop down and win the game • To quote WholeFoods’ CEO, John Mackey, “If you can ever prove it works, Wal’Mart’s going to come in and blow you out of the water”. • For now, whether you measure by profits or revenue growth, it is safe to say that the online grocery industry has not achieved success. • Can we extend these learnings to wine e-tailing? • However…..

32. “Man who stand on hill with mouth open will wait long time for roast duck to drop in” -Confucius