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Image: Archi Banal
Image: Archi Banal

BusinessMay 30, 2022

Why The Warehouse’s $4 blocks of butter could mean more than just a bargain

Image: Archi Banal
Image: Archi Banal

The big box retailer has begun trumpeting its grocery offerings in a big way, raising new hopes of a major competitor to the existing supermarket duopoly. So could we soon be doing our weekly shop at the red shed?

“You butter Believe it” was the line The Warehouse used to announce it was selling blocks of “NZ gold”, Tararua Butter, at just $4.00/500g. Just a few years ago, this wouldn’t have drawn a heading in the monthly mailer, much less a Facebook post with over 1,000 comments and 400 shares. This is a discount department store after all, not social media queen Hillary Barry. A month on, the price remains $4.00, and New Zealanders are wondering: is The Warehouse back in the grocery game, or is this just the world’s tastiest marketing stunt?

When The Warehouse wanted to be Walmart

Could you have ever gone to The Warehouse for your weekly shop? If you lived in Auckland, Hamilton or Whangārei in 2007 then the answer’s yes. For a time, The Warehouse wanted to be New Zealand’s answer to the American retail and cultural icon, Walmart. For those of you who haven’t been blessed enough to visit those hallowed halls, Walmart is the quintessential all-in-one store. A beacon of American convenience, where you can get anything your heart desires.

These new stores bore the name Warehouse Extra and they essentially mirrored their American cousins, all the way down to the shelving layout. The Warehouse Extra stores included a full fledged grocery section, a bakery and cafe, and even a pharmacy, although they did stop short of a McDonald’s in the foyer.

Unfortunately for grocery shoppers across New Zealand, Warehouse Extra stores were short-lived. The official line at the time was that the stores did not meet the company’s investment criteria, that being an increase of 10% of general merchandise sales, a phenomenon known as the “halo effect”.

Gone but not forgotten: A Warehouse Extra store

More recently, current CEO Nick Grayston said that the failure was down to access to products and supply chain. The same supply chain that is currently dominated by the two major players with 90% of the market share in the current NZ supermarket industry, Foodstuffs and Woolworths. There was also speculation for a time that the Warehouse Extra stores were closed in order to allow a takeover bid from either Foodstuffs or Woolworths, both having been already blocked by the Commerce Commission on the grounds that a takeover of another grocery store was “anti competitive”.

The here and now

Has The Warehouse seen the butter hype and taken the first step towards having another crack at this whole grocery retailer thing? The banner on their website would have you believe that that’s the case. “Stack the pantry for stacks less” it reads, while prices flash for the Kiwi essentials: 2l milk, loaves of Nature’s Fresh (toast sliced too, don’t come at me with sandwich slice) and of course, Weetbix.

I don’t know of many people who stack their pantry with just those things, but if you click through there are over 450 items of mostly non-perishables available for purchase. The Warehouse has even been added to the latest tool in the frugal shopper’s toolbox,, a brilliant new website where you can input your usual shopping cart and it will tell you where to head to make the most of your money.

This is all well and good, but if we look at the numbers things look a little different. The current Global Dairy Trade price index has butter at a tad over $9,000 NZD a tonne, working out at about $4.50 NZD for a 500g block. This is without all the other costs associated with a block of butter, packaging, refrigeration etc. This would indicate that the discount butter is a loss leader for The Warehouse – a product sold cheap to get punters through the door. How many other grocery products on The Warehouse’s shelves are the same, and is it sustainable for the long term?

Government to the rescue?

The much anticipated Commerce Commision report released earlier this year suggested a range of tweaks to the supermarket sector rather than the sweeping overhaul many commentators were calling for. The report didn’t recommend a hypothetical “Kiwishop”, a government-run grocery retailer akin to Kiwibank, the SOE founded to provide a NZ-owned alternative to the Australian banks. Nor did it recommend separating the duopoly’s wholesale and retail arms, a move that would have allowed smaller retailers access to the same supply chains as the big dogs – an issue that was one of the factors in the demise of The Warehouse Extra stores.

Recently, The Warehouse has said it is “seriously considering” extending its grocery options, but that it is waiting on the government to take the steps necessary to make the supermarket scene more approachable for the big box retailer. Legislation introduced alongside the budget last week bans restrictive land covenants, a tactic used by supermarkets to stop new retailers from setting up shop nearby. In a recent Gone by Lunchtime budget reaction episode, Bernard Hickey cautioned that this law may turn out to be more rolling pin than paring knife. The supermarket chains are claiming they had already planned to end these restrictions, and as with all contract law, trying to navigate between the intent and the outcome may be more trouble than it’s worth. Still, this may be the catalyst needed for The Warehouse to put the Extra stores back in the oven, and add a little bit of spice back into the supermarket industry.

But in the meantime go forth, on-budget home bakers. Go get that discount dairy – we don’t know how long it will last.

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