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F e b r u a r y 2 0 1 9

Kaufland Stores in Victoria

Advisory Committee

Group 2

Expert Witness Statement

Sean Andrew Stephens, B. Econ (Honours)

Director Ethos Urban Pty Ltd trading as

Essential Economics

Contact details

For further details please contact Essential Economics at:

Level 8, 30 Collins Street Melbourne Victoria 3000 Australia PH +61 3 9347 5255 FAX +61 3 9347 5355

EMAIL [email protected] WEB www.essentialeconomics.com

ABN 92 079 850 427

Project Number: 18173

In December 2018 Essential Economics merged with Ethos Urban. A post-merger integration plan is currently being prepared to ensure a prompt and efficient merger of the two businesses. Where ‘Essential Economics’ is referenced, it is interchangeable with ‘Ethos Urban’.

Contents

1 INTRODUCTION .............................................................................................................. 1

2 DETAILS OF THE PROPOSAL ............................................................................................. 3

3 CONTEXT FOR KAUFLAND ............................................................................................... 6

4 OAKLEIGH SOUTH STORE ASSESSMENT.......................................................................... 13

5 COOLAROO STORE ASSESSMENT ................................................................................... 28

6 REVIEW OF ECONOMIC CONSIDERATIONS AND NET COMMUNITY BENEFIT .................... 41

7 SUMMARY AND CONCLUSIONS ..................................................................................... 43

K A U F L A N D S T O R E S A D V I S O R Y P A N E L G R O U P 2

E C O N O M I C E V I D E N C E – S E A N A N D R E W S T E P H E N S

E s s e n t i a l E c o n o m i c s

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1 I N T R O D U C T I O N

Professional Details

1.1 My name is Sean Andrew Stephens and I practice as a Director at Essential Economics of Level 8, 30 Collins Street, Melbourne. As of 1 December 2018 Essential Economics merged operations with Ethos Urban Pty Ltd, although projects initiated prior to this time (including the engagement to prepare this witness statement) remain under the Essential Economics name and brand.

1.2 I hold the degree of Economics with Honours from the University of Newcastle. A copy of my CV is attached to this statement.

Area of Expertise

1.3 My area of professional expertise is urban economics and the assessment of economic impacts on local and regional economies associated with urban development projects. An area of particular professional activity is retail analysis and planning for private clients and the public sector.

1.4 My opinions expressed herein are, to the context relevant, made by me in reliance upon my above expertise.

1.5 I am a member of the Victorian Planning and Environmental Law Association, the Urban Land Institute, and a former member of the Research Committee of the Property Council of Australia (Victoria).

Instructions

1.6 I have been instructed in this matter by Planning and Property Partners, lawyers acting on behalf of Kaufland Australia Pty Ltd.

1.7 My instructions in this matter are as follows:

(a) To examine the proposed development of Kaufland stores at various locations across Melbourne

(b) To provide an overview of the Kaufland business model and its context relative to the operation of contemporary supermarkets and the wider supermarket industry

(c) To prepare an independent assessment of each store with reference to analysis undertaken on behalf of Kaufland Australia by Tony Dimasi

(d) To provide economic evidence on any further matters relevant to consideration of the proposed Kaufland stores; and

(e) To prepare this Expert Witness Statement.




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Preparation

1.8 In preparing this statement:

(a) I have been instructed by Planning and Property Partners that, as a witness giving evidence (by report, or otherwise) in a proceeding as an expert, I have a duty to assist the Panel and that this duty overrides any obligation that I may have to any party to the proceeding or to any person who is liable for my fee or expenses in this matter;

(b) I have neither received nor accepted any instructions to adopt or reject any particular opinion in preparing this report;

(c) I have made all the enquiries which I believe are desirable and appropriate and that no matters of significance which I regard as relevant have, to my knowledge, been withheld from the Panel

(d) I have considered the relevant documents disclosed by the parties to the proceeding and the documents listed in this report; and

(e) I was solely responsible for the preparation of this Statement, although had assistance on background tasks by staff members of my firm.

Summary of Opinion

1.9 It is my view that the proposed Kaufland stores considered in this statement (Oakleigh South and Coolaroo) are consistent with the achievement of a net community benefit, as is related to economic matters within my expertise. Both stores will serve a market demand for grocery retailing and will generate significant economic, consumer and general community benefits.

1.10 Expected trading impacts associated with both Kaufland stores are expected to be well within the normal bounds of a competitive retail market, and will not undermine the role and function of the activity centres hierarchy. In both instances, the trade area to be served by the relevant Kaufland store is experiencing population growth. On this basis, the overall spending market for supermarkets and grocery retailing is increasing, and means that existing supermarket traders can expect future sales growth notwithstanding an initial trading impact associated with the opening of each Kaufland store.




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2 D E TA I L S O F T H E P RO P O SA L

2.1 This Chapter considers the background to the Kaufland stores proposal and my own involvement as an independent witness.

Proposed Kaufland Store Rollout

2.2 Kaufland is a supermarket chain based in Germany who is proposing to enter the Victorian (and Australian) retail market.

2.3 Part of the Schwarz Group, Kaufland control six sites in Melbourne which are now being proposed for new supermarket stores. In addition, we understand that Kaufland also controls and intends to develop supermarkets at sites in Adelaide including the suburbs of Forestville, Prospect and Munno Parra as part of their national store development plans.

2.4 Within Melbourne, the six relevant sites are as follows:

- 1-3 Gladstone Road, Dandenong

- 592-694 High Street, Epping

- 1126-1146 Centre Road, Oakleigh South

- 1550 Pascoe Vale Road, Coolaroo

- 266-268 Maroondah Highway, Chirnside Park

- 1158 Nepean Highway, Mornington.

2.5 The relative location of these stores in metropolitan Melbourne is shown in Map 2.1.

2.6 An Advisory Committee process was established by the Minister for Planning on 24th July 2018. The Advisory Committee will be considering the six proposed stores, with three stores (Epping, Chirnside Park and Dandenong) considered initially and the subject of a previous witness statement I prepared in November 2018. A second tranche of three stores (Coolaroo, Oakleigh South and Mornington) is now also being considered by the Advisory Committee. Note that this witness statement only relates to the Coolaroo and Oakleigh South stores.

2.7 The Terms of Reference for the Advisory Committee indicate that expertise related to ‘retail planning analysis’ is required. This is part of my own professional expertise and is the primary subject of this expert witness report.

Context for Economic Peer Review

2.8 In preparing this expert witness statement I have undertaken my own necessary investigations and analysis related to each relevant store. However, my instructions are that in developing my opinion I have reference to retail and economic evidence




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prepared by Tony Dimasi of Dimasi & Co and provided to me prior to preparing this statement.

2.9 Where appropriate, this witness statement identifies where my opinions have been informed by the economic analysis of Mr Dimasi, including areas of agreement and disagreement.

Mornington Store

2.10 In preparing my assessment of the proposed Kaufland stores in Melbourne, I have not made any considerations specific to the proposed Mornington store.

2.11 I was the principal author of the Mornington Peninsula Activity Centres Strategy 2018 undertaken for Mornington Peninsula Shire. Given the context for that strategic land use policy and the proposed development of a Kaufland in Mornington, it may represent a conflict of interest to both Kaufland Australia and Mornington Peninsula Shire for me to assess the merits or otherwise of this particular store. On this basis, I have not made any considerations or analysis in relation to the proposed Kaufland Mornington.




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Map 2.1 Kaufland Stores Metropolitan Melbourne Location Context

Source: Kaufland, Essential Economics with MapInfo and Bing Maps




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3 C O N T E X T FO R K AU F L A N D

3.1 This Chapter outlines the context for Kaufland in terms of the contemporary supermarket sector in Australia and Victoria.

About Kaufland

Background

3.2 Kaufland is part of the privately-owned Schwarz Group which is the fourth largest retailer in the world by sales value at $153 billion in 2017 figures. In contrast, Australia’s largest retailer by sales value is Wesfarmers with equivalent retail sales of approximately $48 billion within Australia (excludes New Zealand).

3.3 The Schwarz Group also operate the Lidl brand which is a discount supermarket model similar to ALDI. In contrast, Kaufland uses a ‘hypermarket’ model which is effectively a very large-format and full-range supermarket – see my further description of the Kaufland model below.

3.4 At present, Kaufland operate in excess of 1,300 stores in:

- Germany

- Bulgaria

- Croatia

- Czech Republic

- Poland

- Romania

- Slovakia.

3.5 The Lidl brand is present in a further 22 countries primarily in Europe, with the exception of the United States.

3.6 As part of their store network development plans, Kaufland have identified Australia as a preferred location for international expansion. To this effect, a head office has been established in Melbourne with state-based offices in Adelaide, Brisbane and Sydney in order to identify and ultimately deliver new stores.

3.7 A preference of Kaufland is to have full ownership of their own sites. As a result, Kaufland are seeking freehold locations where stores can be planned, developed and operated directly. This is in contrast to many other major retail chains which typically operate with a high share of leasehold premises, most often within shopping centres. However, the direct ownership model is also regularly used by chains such as McDonalds which is understood to own the majority of store sites from which primarily franchisees operate.




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Kaufland Store Model

3.8 The Kaufland store model proposed to be delivered in Australia is expected to range in size from 4,500m2 to 7,000m2 in size (gross leasable area) and with some limited additional ancillary retail uses including café.

3.9 The overall scale of the typical Kaufland store will be significantly larger than for a typical full-line supermarket operated by Coles and Woolworths (and in some instances other independent operators) which is most often between approximately 3,000m2 to 4,000m2 in size, although some stores are up to around 4,500m2 in floor area (and in some very limited instances larger).

3.10 A summary of the Kaufland store model relative to other formats in the contemporary retail sector is shown in Table 3.1.

Table 3.1 Comparison of Store Types

Store format Full-line

supermarket ALDI Costco

Kaufland (indicative)

Floorspace (GFA) 3,000-4,500m2 1,300-1,800m2 14,000m2 4,500-7,000m2

Employees ≈60-80 EFT (120-160 total)

≈20-30 EFT (30-50 total)

275 EFT (375 total)

≈70-120 EFT (90-140 total)

Product line/SKUs ≈30,000+ ≈1,400 ≈4,500 ≈40,000+

Membership? No No Yes No

Primary Location Shopping Centre Shopping Centre/ Free Standing

Free Standing Free Standing

Total turnover $25-55m $12-18m $150m+ $40-50m

Population catchment

8,000+ persons 25,000+ persons 700,000+ persons 70,000+ persons

Source: Essential Economics Note: These are indicative estimates; substantial variation can exist for particular stores

3.11 Given the relative scale of the Kaufland store model, the site size requirements are also relatively extensive given the need for customer parking, store deliveries, amenities and public areas, landscaping, utilities etc. According to information on the Kaufland website, the minimum site requirement is 1.7 hectares (17,000m2) with a preferred site area of 2 to 3+ hectares.

3.12 Quite clearly, in the core retail areas of an activity centre the physical scale of a Kaufland store means that finding appropriate and available locations will often be very difficult or simply impossible. This is particularly true when this is combined with the requirement of Kaufland to have freehold ownership of the site.

3.13 Further locational requirements for Kaufland relate to considerations such as:

- A site layout able to accommodate the preferred Kaufland store floorplate (effectively a site that is sufficiently wide and deep)




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- Competitive land and development costs which underpin the price competitive Kaufland model (described further below)

- Accessibility and exposure of the site to potential shoppers, and direct access to local road and transport networks.

3.14 I have been provided with a Kaufland company presentation which provides high-level guidance on the nature of the in-store shopping experience for consumers, and additional information on the Kaufland business. Further, in October I visited four Kaufland stores located in Stuttgart, Germany which are of a similar scale to the stores now proposed for Melbourne. Further clarification on specific matters has been provided by Kaufland, as appropriate and consistent with commercial-in-confidence requirements.

3.15 On the basis of these investigations, I make the following comments of relevance to understanding the nature of the Kaufland retail in-store offer.

3.16 Kaufland operates with the following customer commitment:

- Simplicity. Shopping at Kaufland is simple.

- Quality. I can rely on Kaufland.

- Price. At Kaufland, I really do save money.

- Variety. Kaufland has everything that customers need.

3.17 The product mix within a Kaufland store will be relatively familiar to the Australian consumer, with a comprehensive range of grocery products and household convenience items of the type often stocked in full-line supermarkets. This includes a mix of:

- Dry and packaged groceries

- Dairy produce

- Frozen goods

- Hot chicken and poultry department

- Delicatessen

- Fresh seafood counter

- Fresh meat

- Bakery

- Fresh fruit and vegetable display and sales area

- Pharmaceutical groceries

- Basic household goods (such as cleaning products and some general

merchandise).




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3.18 The significant scale of a Kaufland store allows consumers to be able to access a relatively wide range of products, brands and sizes within the above broad grocery categories. I observed at stores in Germany an extensive range of products in categories such as baby goods (including food), pharmaceutical groceries, fresh fruit and vegetables, confectionary and other typical grocery lines which was more extensive in terms of both floorspace and product range relative to a typical full-line supermarket in Australia.

3.19 I am informed that although the stores which I personally observed in Germany are a good comparison to the expected format of stores in Melbourne, that the local stores will have some adaptation to the local market in terms of product display and product mix. For example, key local brands and specialised products will be available in Kaufland Australia stores.

3.20 A typical Kaufland store is relatively uncluttered by contemporary supermarket standards with relatively wide aisles and a generous overall scale which allows for easy customer flow. Fixtures and fittings are relatively simple, although product display is superior to a typical ALDI store and generally comparable with a major chain full-line supermarket.

3.21 An important element of the Kaufland offer which I observed during the site visits is the store layout which includes aisles oriented both lengthways and width ways to the shop footprint. This reflects the large physical size of the typical Kaufland and that it is not feasible to have individual product aisles running the significant length of the store. In contrast, the layout of Australian supermarkets predominantly has aisles running lengthways through the store reflecting the smaller overall store footprint.

3.22 In addition to traditional grocery items, the larger size of a Kaufland store allows for a greater range of complementary non-food items often sold in very limited amounts within full-line supermarkets. Examples include:

- Crockery, cooking and general kitchen items

- Electrical products (heaters, toasters, hairdryers etc)

- Clothing, linen and haberdashery

- Toys and giftware

- Stationary and printed media

- Various baby and children’s products.

3.23 In keeping with international practice for supermarkets, and a trend that is increasing within Australia, Kaufland operates with a high share of private label brands. However, Kaufland still retains a supply chain and product offer that also values well-known brand names.

3.24 In addition to the proposed supermarket component of the proposed Kaufland stores, a small range of complementary retail is also provided typically including a liquor store, café/food hall and other complementary retail.




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3.25 I have also read the evidence of Mr Dimasi in relation to the nature of the Kaufland store model, and generally agree with his description.

Supermarket Industry Overview

3.26 As identified in the evidence of Mr Dimasi, the supermarket industry forms one of the most important components of the overall retail sector in Australia. I am in general agreement with the evidence of Mr Dimasi in relation to trading and operational characteristics of the supermarket sector in both Melbourne and Australia. Where the data sources quoted by Mr Dimasi differ from my own understanding, the differences are very minor and of no consequence to my own opinions or to the considerations of the Panel.

3.27 In relation to the supermarket sector, I note the following in general agreement with Mr Dimasi based on our own internal data sources and IbisWorld data:

- Industry Size. The size of the supermarket and grocery store industry as defined by the ABS is substantial in the context of the overall Australian economy representing total revenue of approximately $103 billion.

- Employment. At present, the supermarket and grocery store industry in Australia is estimated to employ approximately 362,000 people and generate wages income of $10.7 billion.

- Market Share. Approximately 67% of total supermarket and grocery store sales are captured by the two largest industry players Woolworths (37%) and Coles (30%). ALDI has increased market share in recent years and is now the clear third largest player with a 9% market share ahead of Metcash (IGA/Foodland etc) with 7% market share. Other players in the industry include Foodworks and various independent food stores.

3.28 Even with the introduction of ALDI into the Australian market in 2001, the supermarket sector in Australia has experienced a period of consolidation arising from the growth of Coles and Woolworths as dominant market participants, at the expense of chains such as Franklins, Flemings and Jewel which are no long present in Australia.

3.29 However, over the past 17-years ALDI has demonstrated that consumers are responsive to new and innovative grocery concepts in the Australian-context, with ALDI now operating close to 500 stores. In more recent times, the entrance of Costco with a unique membership-based model which serves a mix of business and household customers, has further demonstrated the positive response of consumers to additional choice in the wider grocery sector.

3.30 Notwithstanding increased price competition within the supermarket sector within Australia in recent years, relative to comparable international markets the profit margins remain high. At present, the profit margin within the supermarket and grocery sector in Australia is estimated at approximately 5.3% (IbisWorld). This is above profit margins in the United States and European Union of approximately 3% to 4% based on various publicly available sources.




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3.31 The above factors indicate to me the continued opportunity for additional choice and competition within the supermarket industry, such as through the introduction of Kaufland to the local retail sector.

Importance of Supermarkets to Community Well -Being

Economic Links

3.32 In addition to understanding the broad metrics of the supermarket industry, it is also useful to understand at a more fundamental level the importance of the industry to general community well-being.

3.33 Most importantly, supermarkets are an important means of distributing a wide range of consumer goods through the community. For industries such as dairy, meat and livestock, food processing, fruit and vegetable wholesaling etc, supermarkets are the primary means of distributing products to their end user, the household consumer.

3.34 This is reflected in the fact that approximately 70% of the sales revenue generated by supermarkets is to cover the wholesale cost to the store of the products sold. This also includes support for the freight and logistics sector which is an increasingly important component of the Victorian and Australian economy.

3.35 In this respect, a strong network of supermarkets meeting consumer needs has significant flow-on effects to other sectors of the economy and generates a range of wider economic and social benefits.

Consumer Benefit

3.36 Supermarkets are a critical component of the retail sector in terms of meeting the most basic food, grocery and other household needs required to support a contemporary lifestyle in Australia.

3.37 The above importance of the supermarket sector for the consumer sector is reflected by:

- Approximately 75% to 80% of sales on fresh food and groceries in Australia are directed to supermarkets

- No other retail format is visited more often by a higher share of the population than supermarkets

- Supermarkets provide for the basic living needs of the general population and in their own right are an important element of community infrastructure.

3.38 Further, the extensive geographic network of supermarkets means that they are an important source of local employment and economic well-being. This includes providing a diverse range of full-time, part-time and casual positions which allows people with various levels of personal commitments to participate in paid employment.




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3.39 Further, the retail sector generally, and in particular supermarkets, are a well-recognised employment gateway for young people.




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4 OA K L E I G H S O U T H S TO R E A S S E S S M E N T

4.1 This Chapter of my statement considers the proposed Kaufland store in Oakleigh South, including a review of the economic and land use context.

Project Location and Context

4.2 Kaufland Oakleigh South is proposed for the south-west corner of Clarinda Road (which becomes Huntingdale Road) and Centre Road. The site at 1126-1146 Centre Road currently accommodates a Bunnings Warehouse.

4.3 In contrast to the other proposed Kaufland stores in Melbourne, the proposed Oakleigh South site is also proposed to incorporate the national headquarters of Kaufland. This outcome is consistent with the function of the surrounding precinct as a key employment cluster.

4.4 The existing entry points to the site for Bunnings will be utilised by the proposed new facility, including access via both Centre Road and Clarinda Road. Occupying a prominent corner site, the proposed Kaufland also benefits from excellent north-south and east-west access.

4.5 At Oakleigh South, the proposed Kaufland development scheme includes:

- A total site size of 4.4 hectares

- A Kaufland store of approximately 5,675m2

- Foodhall, outdoor eatery and two small shop tenancies totalling approximately 670m2

- Parking for 375 vehicles

- Public amenities and other service areas

- Provision for the development of Kaufland’s Australian head office.

4.6 Located on the south-western edge of the Monash National Employment and Innovation Cluster, the subject site has had a long-standing use for large-format retail (Bunnings). Land uses to the south and west are primarily employment and industrial related, although some fine-grained retail (primarily food related) and entertainment functions (ice skating) are present.

4.7 I understand that the proposed supermarket use (Kaufland) is not allowable under the current Industrial 1 zone which applies to the site. However, it is my view that the subject site represents an appropriate location for the proposed development when considered in the full context of:

- Kaufland’s specific locational requirements,

- The opportunity to deliver Kaufland’s Australian head office, and

- The site’s long-standing previous use for large-format retail.




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Map 4.1 Kaufland Oakleigh South Locational Context

Source: Essential Economics with Mapinfo, Street Pro, Nearmap




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4.8 In particular, I note the lack of available sites able to accommodate a Kaufland in other nearby activity centres including Oakleigh, Huntingdale, Clayton and East Bentleigh.

Trade Area Review

Trade Area Definition

4.9 A ‘trade area’ is an analytical tool often used by retail economists, including myself, to represent trading patterns and, in particular, to define the geographic area in which residents are a source of regular and significant sales to a particular store or retail centre.

4.10 In effect, a trade area provides a geographic reflection of the area from which significant and consistent trading patterns are generated by a retailer or retail centre.

4.11 A trade area does not reflect an ‘exclusive catchment’ in that a store relies on attracting all the relevant sales from within that geographic area.

4.12 In defining a trade area, a retail analyst will typically utilise any available customer origin data and/or analyse relevant factors such as competition, presence or otherwise of natural or physical barriers, typical trading characteristics and any other relevant factors likely to influence trading patterns.

4.13 Although some general principles are common to trade area definition, it is important that trade area analysis is undertaken on a case-by-case basis to reflect the factors relevant and unique to that locality.

4.14 This is because trading patterns are influenced by a wide range of factors that require identification and analysis that reflects local conditions. Alternative forms of analysis such as ‘retail gravity modelling’ are ill-suited to assessing likely trading characteristics for specific sites as they cannot accurately reflect the wide variation in local circumstance that occurs in a real-world setting.

4.15 When considering the likely trade area for a Kaufland store, it is important to recognise that at present no similar outlet is trading within Australia. As such, any trade area drawn at the current time represents a general expectation of trading patterns only. However, my experience as a retail analyst does provide the basis for having a realistic view of expected trading patterns.

4.16 I am also of the view that Mr Dimasi is a retail analyst of extensive experience and with the ability to make a realistic determination of likely trading patterns for Kaufland.

4.17 The trade area for the proposed Kaufland Oakleigh South store has been reviewed with reference to factors likely to influence trading patterns. In my view, the trade area Mr Dimasi has defined is a realistic basis for examining the economic context for the proposed store. This opinion reflects the following:

- Chadstone Activity Centre: The Chadstone Activity Centre, incorporating Australia’s largest shopping centre under single ownership and management, is




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located approximately 4.7km north-west of the subject site. Although Chadstone contains numerous supermarkets and fresh food stores, the regional draw of the centre (serving a trade area of over 1 million persons) means that it has only a limited role in meeting the grocery and food shopping needs of local residents.

- Prominent Site: The subject site is a prominent location with strong access to the surrounding local road networks and residential population.

- Physical Barriers: The presence of the newly completed Dingley bypass to the south, the Princes Highway and Monash Freeway to the north are appropriately reflected.

- Kaufland Unique Offer: The extensive and unique product offering and shopping environment provided by Kaufland can be realistically expected to attract patronage and sales from across a relatively broad geographic area relative to traditional full-line supermarkets, and that a 10-minute drive time is a reasonable basis to guide (although not determine) likely trading patterns.

4.18 A description of the trade area for Kaufland at Oakleigh South is provided in Map 4.2.

Trade Area Demographics

4.19 I have prepared a summary of socio-economic characteristics of the trade area population using our own internal demographic template. Some differences are apparent with Mr Dimasi’s figures, although these are relatively minor and are primarily due to definitional issues. The Oakleigh South trade area is characterised by:

- Average income levels marginally below the Melbourne average

- An above average share of trade area residents foreign-born (48%) relative to the Greater Melbourne benchmark (35%)

- An above average share of family type households, including families with children

- High levels of outright home ownership, whilst homes owned under mortgage are below average.




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Map 4.2 Kaufland Oakleigh South Trade Area and Competition

Source: Essential Economics, Mapinfo, Nearmap




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Table 4.1 Oakleigh South Socio-Economic Characteristics, 2016

Category Oakleigh South Greater Melbourne

Income Median individual income (annual) $30,740 $35,100 Median household income (annual) $77,510 $80,990 Age Structure Median Age (years) 36 36 Country of Birth Australia 52% 65% Other Major English Speaking Countries 5% 7% Other Overseas Born 43% 28% Household Composition Couple family with no children 23% 24% Couple family with children 37% 35% Lone person household 20% 23% Tenure Type (Occupied Private Dwellings) Owned outright 35% 31% Owned with a mortgage 32% 37% Rented 32% 31%

Source: ABS 2016 Census of Population and Housing

4.20 In 2018, the population of the trade area is estimated at 84,150 persons. This represents an increase of +9,450 persons on the 2011 population, as shown in Table 4.2.

4.21 By 2021, the population of the Kaufland Oakleigh South trade area is forecast to be 88,140 persons based on current trends, and official projections contained in the Victoria in Future 2016 as well as other relevant background data I regularly utilise in my work. Beyond 2021, continued population growth is forecast to at least around 2031 when I forecast the trade area population to be 95,800 persons.

4.22 In my view, the population forecasts may prove to be conservative on the basis of opportunities for higher density residential development in locations such as the PMP site and Clayton Business Park.

Table 4.2 Oakleigh South Population Trends and Forecasts, 2011 to 2031

2011 2016 2018 2021 2026 2031

Population (No.)

Oakleigh South Trade Area 74,600 80,490 84,150 88,140 91,910 95,800

Average Annual Growth (%)

Oakleigh South Trade Area +1.5% +2.2% +1.6% +0.8% +0.8%

Average Annual Growth (No.)

Oakleigh South Trade Area +1,180 +1,830 +1,330 +750 +780

Source: Essential Economics with ABS Estimated Resident Population data, Victoria in Future 2016 and other published sources




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Competitive Context

4.23 An existing framework of centres operates in the region surrounding the proposed Kaufland Oakleigh South site. This includes a number of centres within the trade area, as well as centres located beyond the trade area boundary.

4.24 A summary of each of these centres and supermarket tenants is shown in Table 4.3. The location of these centres and stores is also shown in Map 4.2.

4.25 The Oakleigh Major Activity Centre includes the Oakleigh Central shopping centre which incorporates Woolworths and Coles supermarkets as well as other major traders including Chemist Warehouse and approximately 50 specialty shops. Oakleigh Central draws consistent sales and patronage from across the north-western parts of the Kaufland Oakleigh South trade area.

4.26 Approximately 1.5km to the east is the Clayton activity centre which is a successful street-based centre including two Coles supermarkets.

Table 4.3 Kaufland Oakleigh South Competition

Distance from Subject Site Selection of Major Traders

Within Trade Area

Oakleigh South 1 km Woolworths (4,300m2)

Clarinda 2 km Woolworths (4,600m2)

Clayton 2 km Coles (2,800m2), Coles (2,000m2)

Oakleigh 3 km Coles (4,880 m2), Woolworths (4,230m2)

East Bentleigh 4km SUPA IGA (2,000m2)

Beyond Trade Area

Chadstone 5 km Woolworths, Coles, ALDI

Moorabbin 5 km ALDI, Woolworths

Springvale 5 km Coles

Southland 5 km ALDI, Coles

Springvale South 6 km ALDI

Bentleigh 6 km ALDI, Coles

Highett 6 km Woolworths

Cheltenham 6 km ALDI, Woolworths

Carnegie 6 km ALDI

Mentone 7 km ALDI, Woolworths, Coles

Thrift Park 7 km Woolworths

Dingley Village 7 km Woolworths

Black Rock 9 km Woolworths

Mordialloc 9 km Woolworths Source: Essential Economics with published sources




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4.27 I estimate total supermarket floorspace in the trade area is approximately 24,000m2, which is consistent with the provision identified by Mr Dimasi.

Market Assessment

Retail Spending Assessment

4.28 Per capita retail spending by residents of the Main Trade Area has been estimated with reference to the MarketInfo retail spending model. MarketInfo is a micro-simulation model which uses data from the ABS Household Expenditure Survey, the ABS Census of Population and Housing, ABS Australian National Accounts, and other relevant sources.

4.29 Estimates of average per capita retail spending in 2018 for residents in the trade area are shown in Table 4.4 and are compared with the metropolitan Melbourne average.

4.30 The retail spending data is presented in four major spending category groupings:

- Food, Liquor and Groceries (FLG), which includes fresh food, groceries and take-home liquor and is the category of most relevance to Kaufland.

- Food Catering, which includes cafes, restaurants and takeaway food.

- Non-Food, which includes apparel, homewares, bulky merchandise and general merchandise.

- Services, including hairdressers, beauty salons etc.

4.31 Overall, average per capita retail spending by trade area residents is estimated at $13,190 which is approximately 7.6% below the metropolitan Melbourne average.

4.32 Spending on FLG, which is of most importance to the proposed Kaufland Oakleigh South, is estimated at $5,480 per capita, or 5.7% below the Melbourne average.

Table 4.4 Oakleigh South Trade Area Per Capita Retail Spending, 2018 ($2018)

Trade Area Food, Liquor

and Groceries Food

Catering Non Food

Services Total Retail

Per Capita Spending ($2018)

Oakleigh South Trade Area $5,480 $1,810 $5,430 $470 $13,190

Greater Melbourne $5,820 $1,940 $6,000 $520 $14,270

Variation from Greater Melbourne average

Oakleigh South Trade Area -5.7% -6.6% -9.5% -9.5% -7.6% Source: Essential Economics with MarketInfo

4.33 Estimates of total retail expenditure by trade area residents are shown in Table 4.5 and have been calculated by applying the average per capita spending levels described in Table 4.4 to the population estimates described in Table 4.2.




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4.34 Forecasts of retail spending have been prepared to 2031 with the application of real growth in spending per capita. Real growth in spending assumptions are based on historical growth rates in retail spending over the past 20 years as derived from ABS Australian National Accounts data.

4.35 Total spending by trade area residents is forecast to increase from $1,110.3 million in 2018 to approximately $1,194.0 million in 2021 and $1,420.5 million by 2031 (in constant 2018 dollars). This represents average total growth in retail spending of 1.8% per annum between 2018 and 2031. All retail expenditure categories are expected to experience steady growth primarily due to the population forecast for the trade area.

4.36 Note that all figures are represented in constant 2018 dollars and therefore the effects of price inflation are excluded from the analysis.

Table 4.5 Oakleigh South Trade Area Total Retail Spending, 2018 to 2031 ($2018)

Retail Category 2018 2021 2026 2031 Average Annual Growth

FLG $461.4m $487.3m $515.3m $544.6m 1.2%

Food Catering $152.5m $162.2m $173.4m $185.3m 1.4%

Non-Food $456.8m $501.7m $566.2m $638.7m 2.4%

Services $39.5m $42.8m $47.1m $51.9m 2.0%

Total Retail $1,110.3m $1,194.0m $1,302.0m $1,420.5m 1.8% Source: Essential Economics

Forecast Sales and Market Share

4.37 In assessing the trading impacts and other economic implications of the proposed Kaufland store in Oakleigh South, obtaining a realistic assessment of total sales and the geographic origin of those sales is of particular importance.

4.38 As identified in the evidence of Mr Dimasi, preparing an accurate sales forecast for the proposed Kaufland stores in Melbourne is difficult in the context that:

- Kaufland do not have a trading history in Australia from which to draw comparable sales estimates and other information

- The Kaufland model differs from that adopted by other supermarket brands in the Australian context (see also Chapter 2)

- Kaufland are expected to include a larger than normal share of non-food merchandise in their product range, and non-food retailing tends to trade at a discount to food-based retail

- An ‘establishment effect’ is likely for Kaufland in Australia, whereby initial sales levels are modest as consumers become familiar with the unique Kaufland model and adapt it into their own shopping patterns.




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4.39 I am also of the view that a realistic expectation for Kaufland at Oakleigh South is initial sales levels of between $45 million and $50 million per store, as identified by Mr Dimasi. This takes the above factors into account and my own investigations in relation to contemporary supermarket trading levels, observations of the Kaufland model during site visits and other relevant considerations.

4.40 It is my expectation that the most likely outcome is that the Kaufland model is embraced by Australian consumers, and that sales levels will be at the upper end of this band. That is, in the order of $50 million per store.

4.41 Note that some additional sales will also be generated by the food hall and other small shop tenancies. I consider that these sales are ancillary to the operation of the supermarket and for practical purposes are irrelevant from an impact perspective given their modest scale and that they will primarily comprise eat on premises or takeaway food and beverage sales, rather than take-home supermarket grocery sales.

4.42 It is on this basis that I have undertaken an estimate of the likely market share for the proposed Kaufland at Oakleigh South assuming total sales of $50 million in 2021, as shown in Table 4.6.

4.43 I have undertaken my assessment of market share differently to Mr Dimasi in that I have simply used the Food, Liquor and Grocery spending market as the basis for assessing market share. As I identify earlier, this is the market of most relevance to supermarket sales and from a demand and impact perspective is of most relevance. Again, I wish to emphasise that this represents a different way of undertaking the analysis to Mr Dimasi, rather than any point of disagreement on how Mr Dimasi has undertaken his own analysis.

4.44 With total sales for the Kaufland Oakleigh South store of $50 million in 2021, I estimate that approximately 68% of sales or $34 million will be in FLG categories sold to residents of the trade area. On this basis, the market share of FLG spending will be 7.0% in 2021, representing $34 million of sales from a total spending market of $487 million at this time (see also my Table 4.5).

Table 4.6 Kaufland Oakleigh South Forecast Sales and Market Share, 2021 ($2021)

Turnover

($m)

Turnover Distribution

(%)

FLG Spending ($m)

Market Share (%)

Trade Area FLG Sales $34 m 68% $487 m 7.0%

FLG Beyond Trade Area $6 m 12% 12%

Plus Non Food Sales $10 m 20% Kaufland Oakleigh South Total Sales $50 m 100%

Source: Essential Economics Note: Figures subject to rounding

4.45 On the basis of the above, it is estimated that Kaufland Oakleigh South will generate a 7.0% market share of FLG spending by trade area residents in 2021. In general terms, this means that other existing supermarkets serving trade area residents would




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experience an average reduction in sales equivalent to approximately 7% of their sales in 2021 if Kaufland Oakleigh South had not proceeded at this time.

4.46 The competitive trading impacts arising from the development of the proposed Kaufland Oakleigh South will be due to the potential for the retail spending of consumers to be diverted from alternative shopping destinations. Trading impacts on some stores will be higher than others dependent upon a range of factors related to location, competitive context, trading patterns etc.

4.47 A retail impact assessment examines the potential competitive impact of a development proposal, although it is important to appreciate that the actual impacts will depend to a large degree on the circumstances of individual businesses and their response to the introduction of competition.

4.48 For example, in the retail industry a common response of competing centres and retailers to new competition includes:

- Refurbishment and other improvements to facilities and presentation

- Re-investment and expansion of centres and stores

- Re-positioning through changes in product mix and retail offer (e.g. focussing on a key target market).

4.49 Marketing and promotions activity, including enhanced price competition and use of customer loyalty programs to reach consumers is also of importance, noting the popularity amongst consumers of the Coles Fly Buys and Woolworths Every Day Rewards programs.

4.50 A broad examination of the impact of the proposed Kaufland Oakleigh South over time is shown in Table 4.7. This Table shows how the proposed store is expected to change the distribution of FLG spending by trade area residents.

Table 4.7 General Impacts Kaufland Oakleigh South, 2018 to 2031 ($2018)

2018 2021 2026 2031

Kaufland Oakleigh South

Kaufland Oakleigh South FLG Sales from Trade Area ($m)1 $34 m $36 m $38 m

Main Trade Area FLG Spending ($m) $461 m $487 m $515 m $545 m

FLG Sales to Other Retailers ($m)2 $461 m $453 m $479 m $507 m

Change in FLG Sales to Other Retailers Relative to 2018 ($m) -$8m +$18 m +$45 m

Change in FLG Sales to Other Retailers Relative to 2018 (%) -2% 4% 10%

Source: Essential Economics 1. Assumes constant market share 2. Excluding Kaufland

4.51 In 2018, trade area residents generate approximately $461 million of FLG spending, all of which is currently directed to other supermarkets and grocery retailers (see also Table 4.5).




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4.52 With the proposed Kaufland Oakleigh South in 2021, an estimated $34 million of trade area FLG spending – out of $487 million in available spending – will go to the new store. The balance of trade area spending, or $453 million, will be available to all other retailers. In 2021, this spending available to other centres and retailers will be approximately -$8m million lower than current levels or 2% lower relative to currently available spending, or 7% down relative to spending otherwise available in 2021.

4.53 Overall, the assessment considers that the average impact on supermarkets serving the Kaufland Oakleigh South trade area is likely to be in the order of a 7% reduction in sales in 2021 relative to sales which might have been achieved in that year without Kaufland Oakleigh South proceeding.

4.54 The above general expectation of trading impact in 2021 on other supermarkets is generally consistent with that identified by Mr Dimasi in his own economic impact assessment.

4.55 Further, I agree with Mr Dimasi that trading impacts associated with the proposed Kaufland Oakleigh South are likely to be relatively evenly distributed with no particular store or centre being the focus of trading impacts. As noted by Mr Dimasi, the impacts on the IGA at East Bentleigh are expected to be lower than the average given the localised service role this store serves.

4.56 Beyond the initial trading impact associated with Kaufland Oakleigh South in 2021, future spending growth will be available for all relevant supermarkets and other retailers. By 2026, the increase in FLG spending available to other traders will be +$18 million higher than current levels.

4.57 As such, although the proposed Kaufland Oakleigh South store will generate some moderate trading impacts on existing supermarket operators, these are well within then normal bounds of a competitive retail sector. Ongoing population and spending growth in the trade area ensures that any initial trading impacts are temporary, and that supermarkets and other competing traders will soon return to overall sales growth.

Net Community Benefit Considerations

4.58 On the basis of my investigations, I make the following comments in relation to net community benefit considerations relevant to the proposed Kaufland Oakleigh South:

- Consumer Choice. The proposed store will add significantly to the range and availability of grocery products available to consumers in the trade area and beyond.

- Competition. Additional competition in terms of price and the range/quality of product offerings will also be of benefit not only to Kaufland shoppers, but also to people who choose to stay loyal to their existing supermarket stores and who benefit from more competitive pricing.




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- Employment. The proposed Kaufland is expected to support approximately 100 ongoing positions once the store is operational. Additional employment will also be generated through the construction phase of the project. Some additional flow on employment will also occur through supplier industries, including wholesale business and primary producers selling their goods at Kaufland.

- Trading Impacts. It is forecast that the proposed Kaufland Oakleigh South will have relatively modest trading impacts on existing competitors. In indicative terms, the proposed Kaufland will generate average sales impacts on supermarket competitors equivalent to -7% of sales in 2021 relative to sales in that year which might otherwise have been achieved, or -2% impact on average relative to current 2018 sales levels. By 2026, overall supermarket sales could be 4% higher than current levels for existing stores even with the proposed Kaufland Oakleigh South proceeding.

Response to Submissions

4.59 I have had the opportunity to review submissions made in relation to the proposed Kaufland store at Oakleigh South. Comments in relation to these submissions are limited to matters of direct relevance to my expertise.

Rigby Cooke Lawyers acting on behalf of Vicinity Centres (owner of Oakleigh Central shopping centre) OS04

4.60 The submission outlines the following matters relevant to my expertise:

- The proposal will create an out-of-centre activity centre which will compete with existing centres

- It utilises land zoned for industrial purposes, removing the opportunity for uses more aligned to the purpose of the zone and altering the focus of the precinct in a way which is opposed by Local and State policy

- The proponent has not adequately demonstrated that there is a net community benefit to the community created by this out-of-centre development, as required by state policy

- It will cause deleterious economic impact on the retail hierarchy.

4.61 In relation to the out-of-centre aspects, I note that the proposed Kaufland store has specific locational requirements which cannot be met by other centres in the hierarchy located in the surrounding region. The other activity centres in the trade area, namely Clayton, Oakleigh, Oakleigh South, East Bentleigh and Clarinda, have no obvious or realistically deliverable capability to accommodate a use such as the proposed Kaufland store.

4.62 As such, it is appropriate to consider an appropriate out-of-centre location, as is now proposed at Oakleigh South which has previously accommodated a retail use and, as described in this statement and in the evidence of Mr Dimasi, has other attributes suited to the proposal achieving a net community benefit.




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4.63 Further, that the proposed Kaufland will compete with existing centres is neither surprising, remarkable nor relevant to consideration of the proposal.

4.64 Although the proposed Kaufland Oakleigh South occupies land in an industrial zone, it is my understanding that a planning control to allow for the operation of a Kaufland store is being sought for the site. In my view, this does nothing to undermine overall objectives for industrial land in the area given:

- The long-standing previous use of the site for a restricted retail use which has similar site requirements to the proposed Kaufland store

- That the proposed Kaufland is a more intensive employment use relative to the previous hardware store, although in an overall sense will still have a lower employment density than a traditional activity centre

- The proposed Kaufland store enables creation of an adjacent national headquarters which is the type of development entirely consistent with the objectives for the precinct identified by local and State policy

- The surrounding industrial precinct contains a diverse range of uses including an ice skating rink, restaurants and food retailing, showrooms and light industrial activities which are in no way undermined by the proposed Kaufland store.

4.65 In relation to net community benefit, it is my view that – as related to areas of my own expertise – the proposed Kaufland Oakleigh South store demonstrates a net community benefit. This is discussed in detail in Point 4.58 of this statement.

4.66 The potential for trading impacts on the ‘retail hierarchy’ as referenced by Rigby Cooke is not substantiated by supporting analysis or evidence. In relation to the Oakleigh activity centre specifically in which the Oakleigh Central Shopping Centre is located:

- The trade area for Oakleigh Central defined on the Vicinity website does not extend to the proposed Kaufland Oakleigh South store, and includes areas to the north-east (Oakleigh East) and north-west (Murrumbeena, Hughesdale) which will not be directly served by the proposed Kaufland (i.e. are outside the trade Kaufland Oakleigh South area)

- Oakleigh contains a very strong range of food related retailing with an emphasis on specialty foods and dining options which would not be duplicated to any significant degree by the proposed Kaufland Oakleigh South

- It is understood the supermarkets located in Oakleigh Central are trading very strongly and at levels easily able to withstand the modest and temporary trading impacts associated with the proposed Kaufland Oakleigh South.

Bentleigh East Foodworks OS05

4.67 The submission primarily relates to concerns around the potential for trading impacts on the Bentleigh East Foodworks store. This is a small convenience supermarket of less than 200m2 in size located approximately 2.3km west of the proposed Kaufland Oakleigh South.




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4.68 In my view, the role and function of the Bentleigh East Foodworks is strongly differentiated from the proposed Kaufland Oakleigh South. I see no reason why, notwithstanding the potential for a very small share of existing sales to be diverted to the new Kaufland store (less than the 7% average impact indicated in my analysis), that the Bentleigh East store would have its own commercial viability undermined.

IGA X-Press Mulgrave OS06

4.69 This submission is similar to that of the Bentleigh East Foodworks in that the primary concern relates to trading impacts on the individual store.

4.70 I am surprised by the nature of the submission given the small Mulgrave IGA X-Press of less than 400m2 in size is approximately 6km north-east of the proposed Kaufland Oakleigh South. This is well-beyond the trade area boundary for the proposed Kaufland and I cannot identify any reason why the Mulgrave IGA X-press would experience any identifiable trading impact from the supermarket development in Oakleigh South.

Murrumbeena Cellars and IGA X-Press and Bentleigh IGA X-Press OS07

4.71 The submission considers that the current level of supermarket and grocery store provision in the region has reached saturation. This view is inconsistent with recent and forecast rates of population and spending growth which are identified in this witness statement and that of Mr Dimasi.

City of Kingston OS08

4.72 The support for the Proposed Kaufland Oakleigh South, including the ‘significant economic and employment benefits associated with the proposed establishment of the Kaufland National Head office’ is noted.

4.73 Council indicate a concern that the proposed smaller specialty shops at Kaufland Oakleigh South may impact on smaller neighbourhood activity centres such as Clarinda. In my view, the proposed specialty shop component for Kaufland Oakleigh South of a foodhall, outdoor eatery and two specialty shops (670m2 in total) is modest and ancillary to the adjacent supermarket. As such, the proposed specialty shop component at Kaufland Oakleigh South is of no significant competitive relevance to centres such as Clarinda.




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5 C O O L A R O O S TO R E A S S E S S M E N T

5.1 This Chapter of my statement considers the proposed Kaufland store in Coolaroo, including a review of the economic and land use context.

Project Location and Context

5.2 The proposed Kaufland Coolaroo is located at 1550 Pascoe Vale Road on an adjacent to the site of a former Masters store. Located on the eastern side of Pascoe Vale Road which carries over 19,000 vehicles per day past the site, the site has excellent exposure to passing traffic.

5.3 General accessibility to the subject site from the surrounding region is very good with Somerton Road, a key east-west road link, running approximately 500 metres to the north.

5.4 The proposed Kaufland development scheme at Coolaroo incorporates the following:

- A total site size of 5.4 hectares

- A Kaufland store of approximately 5,718m2

- Foodhall, outdoor eatery and two small shop tenancies totalling approximately 650m2

- Parking for approximately 540 vehicles

- Public amenities and other service areas.

5.5 The proposed location is well-located to complement the operation of other nearby land uses in the wider Roxburgh Park activity centre. Pascoe Vale Road (which becomes David Munroe Drive north of Somerton Road) provides a strong connection to the balance of the centre to the north. This allows shoppers to combine visits to the proposed Kaufland with the nearby Roxburgh Village (primarily using a motor vehicle).

5.6 Overall, I consider the attributes of the site to be well-suited to the proposed use as a Kaufland supermarket. In my opinion the proposed store in this location represents a sensible re-purposing of the site no longer required by the former large-format retailer. The proposed store layout is complementary to adjacent land uses.

5.7 It is my view that the proposed store will add further to the overall range and scale of retail facilities available in the Roxburgh Park area and will complement the balance of the Roxburgh Park major activity centre.




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Map 5.1 Kaufland Coolaroo Park Locational Context

Source: Essential Economics with Mapinfo, Street Pro, NearMap




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Trade Area Review

Trade Area Definition

5.8 The context for trade area analysis is described previously in Points 4.9 to 4.16 of this statement, and is also relevant to my analysis of the proposed Kaufland Coolaroo store.

5.9 The trade area for the proposed Coolaroo Kaufland store defined by Mr Dimasi has been reviewed with reference to factors likely to influence trading patterns. In my view, the trade area Mr Dimasi has defined is a realistic basis for examining the economic context for the proposed Coolaroo store. This opinion reflects the following:

- Roxburgh Park Major Activity Centre: the proposed location within the wider Roxburgh Park Major Activity Centre which maximises the exposure to the spending and visitation patterns generated from other uses across the area.

- Site Context: With excellent exposure to the Pascoe Vale Road (north-south) and proximity to Somerton Road (east-west), the locational attributes of the site are supportive of serving a relatively wide trade area.

- Physical Barriers: The trade area defined by Mr Dimasi has appropriate regard for physical factors in the surrounding region likely to influence trading patterns, including the presence of the urban fringe and the train corridor to the east, with a large industrial area also locate further east.

- Kaufland Unique Offer: The extensive and unique product offering and shopping environment provided by Kaufland can be realistically expected to attract patronage and sales from across a relatively broad geographic area relative to traditional full-line supermarkets, and that a 10-minute drive time is a reasonable basis to guide (although not determine) likely trading patterns.

5.10 A description of the trade area for Kaufland at Coolaroo is provided in Map 5.2.

Trade Area Demographics

5.11 I have prepared a summary of socio-economic characteristics of the trade area population using our own internal demographic template. Some differences are apparent with Mr Dimasi’s figures, although these are relatively minor. The Coolaroo trade area is characterised by:

- Below average personal income levels 35% below the metropolitan average, although household incomes are just 16% below average, reflecting very large average household sizes

- Approximately 55% of the population is Australian-born

- A very high share of households comprising parents with children, reflecting the importance of basic food and grocery retailing

- High levels of home ownership, with a high share of dwellings owned under-mortgage (49%) relative to the metropolitan average (37%).




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Map 5.2 Kaufland Coolaroo Trade Area and Competition

Source: Essential Economics, Mapinfo, NearMap




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Table 5.1 Kaufland Coolaroo Trade Area Socio-Economic Characteristics, 2016

Category Kaufland Coolaroo

Trade Area Greater Melbourne

Income Median individual income (annual) $22,670 $35,100 Median household income (annual) $67,810 $80,990 Age Structure Median Age (years) 31 36 Country of Birth Australia 55% 65% Overseas 45% 35% Other Major English Speaking Countries 2% 7% Other Overseas Born 42% 28% Household Composition Couple family with no children 16% 24% Couple family with children 54% 35% Lone person household 12% 23% Tenure Type (Occupied Private Dwellings) Owned outright 27% 31% Owned with a mortgage 49% 37% Rented 23% 31%

Source: ABS 2016 Census of Population and Housing

Population Trends and Forecasts

5.12 In 2018, the population of the Coolaroo trade area is estimated at 83,040 persons. This represents an increase of +10,230 persons on the 2011 population, as shown in Table 5.2.

5.13 By 2021, the population of the Coolaroo trade area is forecast to be 86,130 persons based on current trends, and official projections contained in the Victoria in Future 2016 as well as other relevant background data I regularly utilise in my work. Beyond 2021, continued population growth is forecast to at least around 2031 when the trade area population has been forecast to be 96,340 persons.

Table 5.2 Coolaroo Trade Area Population Trends and Forecasts, 2011 to 2031

2011 2016 2018 2021 2026 2031

Population (No.)

Coolaroo Trade Area 72,810 79,860 83,040 86,130 91,300 96,340

Average Annual Growth (%)

Coolaroo Trade Area 1.9% 2.0% 1.2% 1.2% 1.1%

Average Annual Growth (No.)

Coolaroo Trade Area +1,410 +1,590 +1,030 +1,030 +1,010

Source: Essential Economics with ABS Estimated Resident Population data, Victoria in Future 2016 and other published sources




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5.14 My own population forecast for the Kaufland Coolaroo trade area in 2031 is marginally higher than that identified by Mr Dimasi. I have undertaken lot capacity analysis of housing estates in the trade area and consider that the population forecast prepared by Mr Dimasi is relatively conservative in the context of the achievable timing and scale of new housing lot development.

Competitive Context

5.15 An existing framework of centres operates in the region surrounding the proposed Kaufland Coolaroo site. This includes a number of centres within the trade area, as well as centres located beyond the trade area boundary.

5.16 A summary of each of these centres and supermarket tenants is shown in Table 5.3. The location of these centres and stores is also shown in Map 5.2.

Table 5.3 Kaufland Coolaroo Competition

Distance from Subject Site Selection of Major Traders

Within Trade Area

Roxburgh Park 1km Coles (6,400m2), Woolworths (3,800m2), ALDI (1,500m2),

Foodworks (600m2)

Meadow Heights 1km SUPA IGA (2,158m2),

Dallas 3km Freshplus(700m2)

Greenvale 4km Coles (3,300m2)

Beyond Main Trade Area

Broadmedows 4km Coles, Woolworths, ALDI

Westmeadows 5km IGA

Campbellfield 5km Coles, ALDI

Craigieburn 6km ALDI, Woolworths, Coles, IGA X-press

Gladstone Park 6km Woolworths, SUPA IGA

Glenroy 7km Coles

Fawkner 7km Woolworths

Craigieburn highlands 8km Woolworths

Airport West 9km Woolworths, Coles, ALDI

Essendon Fields 10km Coles

Coburg North 10km Coles

Essendon 11km Coles Source: Essential Economics with published sources




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5.17 The Roxburgh Park Activity Centre includes the Roxburgh Shopping Centre which incorporates Woolworths, Coles and ALDI supermarkets, as well as approximately 70 specialty shops.

5.18 On the northern edge of the trade area is the Craigieburn Central Town Centre on Craigieburn Road which will also draw sales from residents in the north of the defined Kaufland Coolaroo trade area.

5.19 In addition, the Broadmeadows Town Centre which would also attract consistent sales and patronage from residents in the south of the Kaufland Coolaroo trade area.

5.20 I estimate total supermarket floorspace in the trade area is approximately 18,500m2

which is marginally below the provision of 20,000m2 identified by Mr Dimasi. This difference arises as I have not included the FreshPlus store at Roxburgh Park as a supermarket in view of the trading characteristics of this store which I more closely associate with a more generalised fresh food outlet. Nonetheless, this is of marginal relevance to considerations of competition and potential trading impacts associated with the Kaufland Coolaroo proposal.

Market Assessment

Retail Spending Assessment

5.21 Per capita retail spending by residents of the Main Trade Area has been estimated with reference to the MarketInfo retail spending model. MarketInfo is a micro-simulation model which uses data from the ABS Household Expenditure Survey, the ABS Census of Population and Housing, ABS Australian National Accounts, and other relevant sources.

5.22 Estimates of average per capita retail spending in 2018 for residents in the trade area are shown in Table 5.4 and are compared with the metropolitan Melbourne average.

5.23 The retail spending data is presented in four major spending category groupings:

- Food, Liquor and Groceries (FLG), which includes fresh food, groceries and take-home liquor and is the category of most relevance to Kaufland.

- Food Catering, which includes cafes, restaurants and takeaway food.

- Non-Food, which includes apparel, homewares, bulky merchandise and general merchandise.

- Services, including hairdressers, beauty salons etc.

5.24 Overall, average per capita retail spending by trade area residents is estimated at $10,600 which is approximately 25.7% below the metropolitan Melbourne average.

5.25 Spending on FLG, which is of most importance to the proposed Kaufland Coolaroo is estimated at $4,880 per capita, or 16.2% below the Melbourne average. The lower variation for FLG spending reflects its role in meeting the basic needs of the




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community, and that spending on groceries tends to be less responsive to income levels relative to other retail product categories.

Table 5.4 Kaufland Coolaroo Trade Area Per Capita Retail Spending, 2018 ($2018)

Trade Area Food, Liquor

and Groceries Food

Catering Non Food

Services Total Retail

Per Capita Spending ($2018)

Coolaroo Trade Area $4,880 $1,240 $4,180 $300 $10,600

Greater Melbourne $5,820 $1,940 $6,000 $520 $14,270

Variation from Greater Melbourne average

Coolaroo Trade Area -16.2% -36.1% -30.3% -42.3% -25.7% Source: Essential Economics with MarketInfo

5.26 Estimates of total retail expenditure by trade area residents are shown in Table 5.5 and have been calculated by applying the average per capita spending levels described in Table 5.4 to the population estimates described in Table 5.2.

5.27 Forecasts of retail spending have been prepared to 2031 with the application of real growth in spending per capita. Real growth in spending assumptions are based on historical growth rates in retail spending over the past 20 years as derived from ABS Australian National Accounts data.

5.28 Total spending by trade area residents is forecast to increase from $880.4 million in 2018 to approximately $936.6 million in 2021 and $1,142.9 million by 2031 (in constant 2018 dollars). This represents average total growth in retail spending of 1.9% per annum between 2018 and 2031. All retail expenditure categories are expected to experience growth primarily due to the population forecast for the trade area.

5.29 Note that all figures are represented in constant 2018 dollars and therefore the effects of price inflation are excluded from the analysis.

Table 5.5 Coolaroo Trade Area Total Retail Spending, 2018 to 2031 ($2018)

Retail Category 2018 2021 2026 2031 Average Annual Growth

FLG $405.4m $423.9m $455.6m $487.3m 1.3%

Food Catering $103.1m $108.5m $118.0m $127.6m 1.5%

Non-Food $347.1m $377.5m $433.1m $494.7m 2.6%

Services $24.8m $26.6m $29.8m $33.2m 2.1%

Total Retail $880.4m $936.6m $1,036.5m $1,142.9m 1.9% Source: Essential Economics with MarketInfo




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Forecast Sales and Market Share

5.30 In assessing the trading impacts and other economic implications of the proposed Kaufland store in Coolaroo, a realistic assessment of total sales and the geographic origin of those sales is of particular importance.

5.31 As identified in the evidence of Mr Dimasi, preparing an accurate sales forecast for the proposed Kaufland stores in Melbourne is difficult in the context that:

- Kaufland do not have a trading history in Australia from which to draw comparable sales estimates and other information

- The Kaufland model differs from that adopted by other supermarket brands in the Australian context (see also Chapter 2)

- Kaufland are expected to include a larger than normal share of non-food merchandise in their product range, and non-food retailing tends to trade at a discount to food-based retail

- An ‘establishment effect’ is likely for Kaufland in Australia, whereby initial sales levels are modest as consumers become familiar with the unique Kaufland model and adapt it into their own shopping patterns.

5.32 I am also of the view that a realistic expectation for Kaufland is initial sales levels of between $45 million and $50 million per store, as identified by Mr Dimasi. This takes the above factors into account and my own investigations in relation to contemporary supermarket trading levels, observations of the Kaufland model during site visits and other relevant considerations.

5.33 It is my expectation that the most likely outcome is that the Kaufland model is embraced by Australian consumers, and that sales levels for most stores will be at the upper end of this band. That is, in the order of $50 million per store on average.

5.34 However, it is also my view that in the case of Kaufland Coolaroo that the demographics and income levels of the trade area may result in slightly more modest sales of approximately $45 million. However, for the purposes of this assessment I have assessed trading impacts on the basis of sales of $50 million for the Kaufland Coolaroo, and thus the level of trading impacts I indicate are at the upper end of my expectations.

5.35 Note that some additional sales will also be generated by the food hall and other small shop tenancies. I consider that these sales are ancillary to the operation of the supermarket and for practical purposes are irrelevant from an impact perspective given their modest scale and that they will primarily comprise eat on premises or takeaway food and beverage sales, rather than take-home supermarket grocery sales.

5.36 It is on this basis that I have undertaken an estimate of the likely market share for the proposed Kaufland Coolaroo assuming total sales of $50 million in 2021, as shown in Table 5.6.




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5.37 I have undertaken my assessment of market share differently to Mr Dimasi in that I have simply used the Food, Liquor and Grocery spending market as the basis for assessing market share. As I identify earlier, this is the market of most relevance to supermarket sales and from a demand and impact perspective is of most relevance. Again, I wish to emphasise that this represents a different way of undertaking the analysis to Mr Dimasi, rather than any point of disagreement on how Mr Dimasi has undertaken his own analysis.

5.38 With total sales for the Kaufland Coolaroo store of $50 million in 2021, I estimate that approximately 68% of sales or $34 million will be in FLG categories sold to residents of the trade area. On this basis, the market share of FLG spending will be 8.0% in 2021, representing $34 million of sales from a total spending market of $424 million at this time (see also my Table 5.5).

Table 5.6 Kaufland Coolaroo Forecast Sales and Market Share

Turnover

($m)

Turnover Distribution

(%)

FLG Spending ($m)

Market Share (%)

Trade Area FLG Sales $34 m 68% $424 m 8.0%

FLG Beyond Trade Area $6 m 12% 12%

Plus Non Food Sales $10 m 20% Kaufland Coolaroo Total Sales $50 m 100%

Source: Essential Economics Note: Figures subject to rounding

5.39 In addition, I further estimate that 12% of total sales will be FLG products to people living outside the trade area, and that a further 20% of sales will be in non-food categories to all customers.

5.40 In general terms, this means that other existing supermarkets serving trade area residents would experience an average reduction in sales equivalent to approximately 8% of their sales in 2021 if Kaufland Coolaroo had not proceeded at this time.

5.41 I agree with Mr Dimasi that the competitive trading impacts arising from the development of the proposed Kaufland Coolaroo will be due to the potential for the retail spending of consumers to be diverted from alternative shopping destinations. I also agree that the trading impacts on some stores will be higher than others dependent upon a range of factors related to location, competitive context, trading patterns etc.

5.42 In particular, I expect that supermarkets in the balance of the Roxburgh Park activity centre will have trading impacts marginally above the average of 8%. This might be in the order of a 10% reduction in sales in 2021 relative to sales which might otherwise be achieved in that year.

5.43 Note that this impact is for supermarket tenancies only, and that the overall trading impact in terms of total centre sales will be much lower than this. I agree with the assessment of Mr Dimasi that this is likely to be in the order of a 6% trading impact




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overall on the Roxburgh Park Village centre, which forms part of the wider Roxburgh Park activity centre.

5.44 A retail impact assessment examines the potential competitive impact of a development proposal, although it is important to appreciate that the actual impacts will depend to a large degree on the circumstances of individual businesses and their response to the introduction of competition.

5.45 For example, in the retail industry a common response of competing centres and retailers to new competition includes:

- Refurbishment and other improvements to facilities and presentation

- Re-investment and expansion of centres and stores

- Re-positioning through changes in product mix and retail offer (e.g. focussing on a key target market).

5.46 Marketing and promotions activity, including enhanced price competition and use of customer loyalty programs to reach consumers is also of importance, noting the popularity amongst consumers of the Coles Fly Buys and Woolworths Every Day Rewards programs.

5.47 A broad examination of the impact of the proposed Kaufland Coolaroo over time is shown in Table 5.7. This Table shows how the proposed store is expected to change the distribution of FLG spending by trade area residents.

Table 5.7 General Impacts Kaufland Coolaroo, 2018 to 2031 ($2018)

2018 2021 2026 2031

Kaufland Coolaroo

Kaufland Coolaroo FLG Sales from Trade Area ($m)1 $34m $37m $39m

Trade Area FLG Spending ($m) $405m $424m $456m $487m

FLG Sales to Other Retailers ($m)2 $405m $390m $419m $448m

Change in FLG Sales to Other Retailers Relative to 2018 ($m) -$15m +$14m +$43m

Change in FLG Sales to Other Retailers Relative to 2018 (%) -4% 3% 11%

Source: Essential Economics 1. Assumes constant market share 2. Excluding Kaufland

5.48 In 2018, trade area residents generate approximately $405 million of FLG spending, all of which is currently directed to other supermarkets and grocery retailers (see also Table 5.5).

5.49 With the proposed Kaufland Coolaroo in 2021, an estimated $34 million of trade area FLG spending – out of $424 million in available spending – will go to the new store. The balance of trade area spending, or $390 million, will be available to all other retailers. In 2021, this spending available to other centres and retailers will be approximately -$15m million lower than current levels or 4% down relative to currently available




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spending (or 8% down relative to spending otherwise available in 2021). By 2026, the increase in FLG spending available to other traders will be +$14 million higher than current levels.

5.50 Although the proposed Kaufland Coolaroo store will generate some moderate trading impacts on some existing supermarket operators, these are well within then normal bounds of a competitive retail sector. Ongoing population and spending growth in the trade area ensures that any initial trading impacts are temporary, and that supermarkets and other competing traders will soon return to overall sales growth.

5.51 From a strategic land use policy perspective, the proposed Kaufland Coolaroo store will not undermine the role and function of other centres in the hierarchy. The proposal is entirely consistent with the operation of Roxburgh Park as a Major Activity Centre.

Net Community Benefit Considerations

5.52 On the basis of my investigations, I make the following comments in relation to net community benefit considerations relevant to the proposed Kaufland Coolaroo:

- Consumer Choice. The proposed store will add significantly to the range and availability of grocery products available to consumers in the trade area and beyond.

- Competition. Additional competition in terms of price and the range/quality of product offerings will also be of benefit not only to Kaufland shoppers, but also to people who choose to stay loyal to their existing supermarket stores and who benefit from more competitive pricing.

- Employment. The proposed Kaufland is expected to support approximately 100 ongoing positions once the store is operational. Additional employment will also be generated through the construction phase of the project. Some additional flow on employment will also occur through supplier industries, including wholesale business and primary producers selling their goods at Kaufland.

- Trading Impacts. It is forecast that the proposed Kaufland Coolaroo will have relatively modest trading impacts on existing competitors. In indicative terms, the proposed Kaufland will generate average sales impacts on supermarket competitors equivalent to -8% of sales in 2021 relative to sales in that year which might otherwise have been achieved, or -4% impact on average relative to current 2018 sales levels. By 2026, overall supermarket sales could be 3% higher than current levels for existing stores even with the proposed Kaufland Coolaroo proceeding.

Response to Submissions

5.53 I have had the opportunity to review submissions made in relation to the proposed Kaufland store at Coolaroo. Comments in relation to these submissions are limited to matters of direct relevance to my expertise.




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Hume City Council CO3

5.54 Hume City Council agree with my view that the proposed Kaufland Coolaroo represents an edge-of-centre outcome, as opposed to out-of-centre development. On this basis, and with a view to the economic impact assessment prepared by Dimasi and Co, Council are supportive of the proposal on an in-principle basis.

Rigby Cooke Lawyers acting on behalf of Vicinity Centres (owner of Oakleigh Central shopping centre)

5.55 The submission outlines the following matters relevant to my expertise:

- The proposal will create an out-of-centre activity centre which will compete with existing centres

- It utilises land with policy support for bulky goods and restricted retailing consistent with the current built-form on the land

- The proponent has not demonstrated that there is a net community benefit to the community created by this out-of-centre development, as required by state policy

- It will cause deleterious economic impact on the retail hierarchy.

5.56 The consideration of the Kaufland proposal as an out-of-centre outcome is not supported by Council’s own assessment (see my Point 5.54).

5.57 In relation to net community benefit, it is my view that – as related to areas of my own expertise – the proposed Kaufland Coolaroo store demonstrates a net community benefit. This is discussed in detail in Point 5.52 of this statement.

5.58 The potential for trading impacts on the ‘retail hierarchy’ as referenced by Rigby Cooke is not substantiated by supporting analysis or evidence, and is inconsistent with the analysis and conclusions of myself and Mr Dimasi.

Morgans IGA Supermarket C04

5.59 The Morgans IGA submission is focussed on considerations of potential trading impacts on their own store and the view that the supermarket industry is ‘saturated’. As identified in the analysis in this statement, it is my view that trading impacts associated with the proposed Kaufland Coolaroo will be moderate on existing supermarkets and grocery stores in the trade area, and average in the order of an 8% reduction in sales relative to that which otherwise would be achieved in 2021.

5.60 The Morgans IGA at Meadow Heights, which is a small store focussed on the top up shopping of local residents, has a very different role and function to that which will be served by the proposed Kaufland Coolaroo. As such, I consider it likely that the level of impact in the Morgans IGA will be even lower than an 8% reduction in sales in 2021. This is not at a level which I consider is likely to undermine overall trading viability for this store, particularly noting the ongoing opportunity for sales growth for Morgans IGA into the future as a result of population and spending growth.




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6 R E V I E W O F ECO N O M I C C O N S I D E R AT I O N S A N D N E T C O M M U N I T Y B E N E F I T

6.1 This Chapter of my statement provides context to the overall proposal for the Kaufland stores.

Comments on Dimasi Assessment

6.2 Having reviewed the economic assessment of Mr Dimasi, it is my opinion that:

- The assessment includes a methodology which is generally consistent with that adopted in my own assessment, although does include some differences in data sources and the structure of the analysis. These differences are relatively minor and I do not believe undermine the validity of the Dimasi analysis and conclusion.

- The trade area definitions for each relevant Kaufland store is appropriately defined.

- The overall assessment of potential sales, market share and trading impact is appropriate and is an appropriate balance between a meaningful analysis and the natural uncertainty of assessing a new retail model in the Australian context.

- The overall conclusions related to aspects of net community benefit and other consumer benefits are sound.

Economic Aspects of Net Community Benefit

6.3 When considering net community benefit, an important distinction that I make is that my own professional expertise only deals with economic considerations relevant to net community benefit. I recognise that a range of social, environmental or other factors might also be a relevant consideration, and which are outside my own expertise.

6.4 In summary, the key overarching economic benefits associated with the proposed Kaufland store roll out can be described as follows:

- Importance of Supermarkets. Supermarkets are a particularly important part of the retail sector in Australia and have a direct influence on the well-being and liveability of a substantial share of the population. In this sense, the introduction of Kaufland to Melbourne has the potential to generate positive benefits for the general community, even for those consumers who choose not to shop regularly at a Kaufland store.

- Competition and Consumer Benefit. The introduction of Kaufland to Victoria (and Australia) will have substantial benefits for consumers associated with increased choice, price competition and the availability of products which might otherwise not be available.

- New Retail Offer to the Market. Kaufland provides a scale and type of supermarket offer which will be unique in the Australian market and is not simply a duplication of current supermarket facilities.




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- Flow-on Benefits. The growth and development of Kaufland in Australia will generate flow-on benefits for supplier industries, such as primary producers. I understand that Kaufland has a policy which seeks to source products locally, where this is price effective and meets quality requirements, due to the benefits of a ‘short’ supply chain.

- Jobs and Investment. Each proposed Kaufland store will support up to 100 direct ongoing jobs, with additional employment also generated through the construction phase of each location. It is likely that total construction investment for each store will be in the order of $25 million. Further, Kaufland are proposing to locate their national headquarters in Melbourne (Oakleigh South), and this facility in the longer-term may employ up to 400 persons. Additional employment will also be developed as Kaufland establish a supply chain requiring transport and logistics infrastructure.

- Market Demand. Overall demand for supermarket-based retail facilities continues to grow in Australia, noting that spending on food, liquor and groceries is generally very stable with economic conditions. As demonstrated by the successful entry of ALDI into the Australian market over 15-years ago, new major supermarket chains can be supported by continuing population and spending growth in relevant product categories.

6.5 Notwithstanding some short-term and moderate potential trading impacts on existing supermarket operators, I have not identified any economic basis to suggest that the proposed Kaufland store network will undermine the activity centre hierarchy.

6.6 Overall, the proposed Kaufland entry to the Victorian market demonstrates a clear net community benefit in terms of economic matters relevant to my expertise. This is also consistent with the views of Mr Dimasi.




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7 S U M M A RY A N D C O N C LU S I O N S

7.1 Kaufland is part of the privately-owned Schwarz Group and uses a ‘hypermarket’ model which is effectively a very large-format and full-range supermarket. Kaufland have identified Australia as a preferred location for international expansion. As part of these expansion plans new stores are now proposed at Oakleigh South and Coolaroo which are the subject of this witness statement.

7.2 The overall scale of the typical Kaufland store will be significantly larger than for a typical full-line supermarket operated by Coles and Woolworths (and in some instances other independent operators). Given the relative scale of the Kaufland store model, the site size requirements are also relatively extensive. The core retail areas of an activity centre the physical scale of a Kaufland store means that finding appropriate and available locations will often be very difficult or simply impossible.

7.3 The significant scale of a Kaufland store allows consumers to be able to access a relatively wide range of products, brands and sizes within the typical grocery categories sold in supermarkets. In addition to traditional grocery items, the larger size of a Kaufland store allows for a greater range of complementary non-food items often sold in very limited amounts within full-line supermarkets.

7.4 Supermarkets are a critical component of the retail sector in terms of meeting the most basic food, grocery and other household needs required to support a contemporary lifestyle in Australia. In this respect, the proposed entry of Kaufland into the Australian market is expected to generate considerable community benefit, as has the previous entry of ALDI, through additional levels of service, choice and price competition.

7.5 In reviewing the economic implications of the two stores at Oakleigh South and Coolaroo, I have had reference to trade area defined by Tony Dimasi of Dimasi & Co. I believe that these trade areas are a reasonable reflection of likely trading patterns for the proposed stores, and reflect the relatively broad geographic draw likely to be generated by each store. Both trade areas are experiencing population growth, and are expected to have population growth into the future to at least 2031.

7.6 A review of spending levels for reach trade area shows that despite differing demographic profiles, each proposed Kaufland store will likely generate a market share of between 7% and 8% of food, liquor and grocery spending. This reflects the available market demand for the proposed new stores, and also indicates that trading impacts will be relatively moderate and spread across a wide range of supermarket and other primarily grocery retailers (including online stores) serving residents of those trade areas.

7.7 Although individual trading impacts will vary by store and centre, it is quite clear that the proposed Kaufland stores will not be generating trading impacts with the potential to undermine the role and function of other centres in the hierarchy. Further, ongoing




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demand growth means that any trading impacts will be one-off and that scope exists for all exists centres to subsequently increase sales levels over time.

7.8 In summary, it is my opinion that the proposed Kaufland stores at Oakleigh South and Coolaroo are consistent with the achievement of a net community benefit, including significant consumer benefits, project investment and ongoing employment.

Declaration

I have made all the inquiries that I believe are desirable and appropriate and no matters of significance that I regard as relevant have to my knowledge been withheld.

Sean Andrew Stephens Managing Partner Essential Economics Pty Ltd

19 February 2019




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A T T A C H M E N T :

S e a n S t e p h e n s C V

Sean has over eighteen years’ experience in undertaking economic assessments associated with urban development projects and economic development.

Sean has an Honours Degree in Economics from the University of Newcastle. He is a member of the Victorian Planning and Environmental Law Association (VPELA) and the District Council of the Urban Land Institute (ULI).

He has particular expertise in undertaking market assessments, location analysis and impact assessments for retail and commercial developments, and brings a detailed knowledge of the Australian property market to projects.

Sean is a property economist with experience working on a diverse range of projects across Australia for high profile clients. He has worked on market feasibility assessments for major retail developments and also provides strategic property advice to property owners, industry and government departments and agencies.

Sean’s relaxed manner and extensive industry knowledge means that he is in demand as a conference speaker. He also delivers tailored presentations and workshops to large groups in the public and private sector.

As one of Australia’s most experienced urban economists, Sean is regularly asked to appear in an expert witness capacity in planning and legal forums across Australia.

Jurisdictions in which Sean has provided expert witness services include:

• ACT Supreme Court• Land and Environment Court (NSW)• Planning and Environment Court (QLD)• Planning Panels (VIC)• VCAT (VIC)• Environment, Resources, Development Court

(SA)• SA Licencing Court• WA Liquor Commission• Tasmanian Planning Commission• Tasmanian Magistrates Court

(Administrative Appeals Division).Sean has also presented at numerous conferences and industry events across Australia and overseas.

A particular focus of Sean’s work is providing client advice which adds value to decision-making and incorporates leading practice urban development principles. This capability has been developed through a genuine passion for urban economics and understanding the importance of taking a highly practical and tailored approach to analysis.

Sean StephensDirector, Economics — B.Econ (Hons)

kaufland stores in victoria advisory ommittee group 2€¦ · 1.2 i hold the degree of economics...

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