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BusinessSeptember 8, 2017

Amazon is coming for our wallets. How one little Mt Albert supermarket is fighting back

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On a side street in Mt Albert, New World has opened store which attempts to deal with the arrival of both Farro and My Food Bag. But its real opponent is Amazon, which opens its first Australian distribution centre next year, writes Duncan Greive.

Last week a new shop opened in Mt Albert. Huge news, I know – but this small, out of the way former Four Square could decide what the future of New Zealand retail looks like.

It’s a New World sub-brand called ‘Fresh Collective’, and is the second of its type, coming a bit over a month since the first opened in a converted Nosh in Mairangi Bay. I visited on Sunday morning, and had to battle to even get a park, thanks in part to the church across the road in full service. But the bigger issue is that the tiny car park, which was fit for servicing a Four Square, an Italian restaurant and a real estate agent, is now wholly inadequate to demand.

Because it has that intoxicating rush of the new, the lack of parking perversely functions as marketing – like the queue outside the club, you figure there must be a good reason for it.

Once inside, it initially presents as a just a regular supie. There’s your fruit and veg. A deli counter in the middle. Checkouts to the right. All as we have known it for decades.

New World now knows My Food Bag exists (image: Duncan Greive)

Push on in though, and the conventionality starts to unravel. There’a a large stand of pre-prepped meals, there to function as a My Food Bag for the less militaristically organised. If you’re as hungry, but more lazy there’s also hot food to go too. At around $40 for a meal for four both are a small premium on Nadia Lim’s meals, while also being at the low end of an Uber Eats delivery – bisecting the two forms which have lately started to cut into the mortal lock grocery chains have had on inner city evening meals for generations.

Look around and suddenly everything is different. It’s the supermarket reimagined as an lifestyle. A machine slices ham next to a bunch of fresh sushi next to a display of fancy donuts. There’s a bakery operating, and a barista, and the whole thing is in constant motion, a kind of manufactured bustle, seemingly intended to evoke the New York delis we’ve seen in a million movies.

It does all this on a tiny footprint – perhaps an eighth the size of a regular supermarket, and far smaller again than the giant Countdown in Ponsonby which serves as the current state-of-the-art for that chain. But while the range is necessarily tighter – three different types of corn chips, rather than a dozen – it’s also noticeably heavier on cute artisanal-style brands, particularly that crop of relatively new local independents.

It’s a deli – or desperately wants to be one (image: Duncan Greive)

All this has been intensely thought-through, both to map to evolving middle class interests and expectations, and because something very big looms now, so close our retailers can feel its footsteps trembling up through the ground.

The very big thing is Amazon, the tech giant currently recruiting for its first warehouse in Melbourne, expected to open early next year. They’ve yet to announce what that will mean for New Zealand – they could use it as a regional hub, opening up their Prime service’s fast, cheap shipping and add-ons from day one – or simply make a faster delivery and more fleshed out range for now.

But Prime will come. It’s when, not if. New Zealand’s scale has proven a reliable moat to many ferociously ambitious global chains – while we have Topshop (or did until yesterday) and Zara, we still lack Ikea and Walmart. Yet Amazon’s breadth of offering and relative indifference to urbanisation through its distribution model means that our 4.5m are still a very viable population.

Particularly if, as Bezos and his backers remain content to do, you’re not overly interested in making a short-term profit of any consequence. That’s not a luxury his New Zealand competition has, but their interest in it has produced some inward-looking and short-termist thinking. Countdown’s online shopping experience remains poor, judged both by aesthetics and user experience (goods are frequently not available online, or swapped with a quite different product – we’ve had non-free range eggs substituted, for example).

Perhaps more worryingly for shareholders is the generally lackadaisical interest in locking up the burgeoning delivery audience before Amazon arrives. The efforts of both Countdown and NZ Post’s group of retailers – headlined by The Warehouse, which, thanks to its product offering, probably has the most of all to fear – have been shockingly lame.

Countdown recently offered three month’s free delivery of purchases over $80 for $69, while the NZ Post service was $12 for two months with no minimum purchase, but excluded big ticket items like whiteware. This compares to US$99 a year for two-day delivery and a suite of streaming services – thus is really no comparison at all. So while Mike Bennetts of Z Energy is arguably positioning his business to work with Amazon as a last-5km delivery network in 10-15 years time, the most immediately threatened New Zealand businesses are standing most idle while the train hurtles toward them.

These delivery promotions, offering poor value for money and exclusions, have the appearance of small-scale experiments when wholesale business realignments are called for. Because while Amazon is far from unproblematic, it’s also a force of nature.

Its impact is currently being predominantly felt by general goods retailers and specialists in verticals in which Amazon has already established primacy: books, electronics, most general-purpose consumer goods. (Ignoring all the other stuff Amazon is owns or is increasingly owning: web hosting, e-readers, on-selling for other retailers, voice AI, all kinds of stuff and changing all the time. (Full disclosure: I wish I had shares in Amazon). 

Conspicuously not on that list: groceries. Not yet, anyway. But last week Amazon took possession of Whole Foods, the US grocery chain it bought for US$13.7 billion in cash a couple of months’ back.

On opening day it slashed prices on a bunch of items (cheap avocadoes!), including its Echo and Echo Dot voice-operated home systems, which, amongst other things, allow you to tell a robot what you want when you run out of it.

Amazon’s share price lifted up by more than the cost of the Whole Foods transaction on the day it was announced, meaning Whole Foods was effectively free. Many have speculated about what Amazon, the ultimate anti-store retailer, was doing buying a bunch of stores. Along with the data, some believe it was as interested in the locations as delivery jump-offs as it was in the notoriously expensive grocery stores’ (nicknamed Whole Paycheck, which is weirdly anti-Amazon) rich customers.

Part of what has built Whole Foods reputation: an incredible in-store selection and experience. Like Amazon, it’s a platform – independents and specialists do far better there than the traditional giant wholesalers. Think craft brewers and single origin coffee over Pams and Cadbury.

But it’s also an experience – everything is beautifully presented in pine crates, there’s lots of theatre to the thing. Remind you of anything? It’s essentially the same deal New World’s Fresh Collective is doing, on a grander scale. While the Mt Albert version is designed for pop-ins, you can bet they’re working on a bigger refit for their major sites.

In many ways that is the last hope for our retail stores. To make the experience and offering so good that you visit for the hell of it. Other retailers have been doing expensive experiential fitouts for years now, but supermarkets have been slow to change, largely because of the lack of global competition. But they and movie theatres – another early disrupted-industry now selling a much better experience – are anchor tenants in malls, and without them the whole experience becomes shaky.

This could have profound consequences. In the US retail is convulsing. A glut of malls  – a factor also present in New Zealand, particularly in Auckland, Hamilton and Christchurch – has seen many become ghost towns, being bought up by developers on the cheap and turned into apartments buildings. Admittedly that’s a dreamy scenario in some ways – but malls and their tenant retailers employs tens of thousands of us. Delivery jobs are thinner on the ground, and there’s far fewer of them anyway.

Which is why that little supermarket in Mt Albert matters far more than it might appear from the outside.

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