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Kaufland stores in Victoria

Advisory Committee – Tranche 2

Statement of evidence of Anthony Dimasi

20 February 2019

Dimasi & Co

Tony Dimasi

[email protected]

Table of contents

Expert witness details 1

Introduction 3

1. Coolaroo proposal 4

2. Oakleigh South proposal 6

3. Mornington proposal 8

Appendix 1: Curriculum Vitae 24


Advisory Committee – Tranche 2 1 Statement of Evidence of Anthony Dimasi

Expert witness details

Name and address of expert

Mr Tony Dimasi

Economic Consultant

Dimasi & Co

12 Argent Court

Riddells Creek VIC 3431

[email protected]

Expert’s qualifications and experience

• Bachelor of Arts (Hons.), University of Melbourne

• Master of Arts, University of Melbourne

My CV is included as Appendix 1 to this statement of evidence. I have extensive experience

in the field of retail economics and analysis gained over the past 32 years, having provided

independent advice on numerous retail development projects and proposals throughout

all parts of Australia, to a broad range of clients.

Expert’s area of expertise

• I have practised as a consulting economic and retail analyst since 1982. During that

time I have worked in all states of Australia and also in New Zealand and Asia, and

have advised on many thousands of retail developments of all types and sizes.

• My assessments have covered demand and supply analysis, commercial feasibility

assessments and economic impact assessments, for many thousands of shopping

centres of all sizes and mixes, as well as numerous freestanding retail stores, including

supermarkets, discount department stores, toys category killer stores, book stores,

special apparel stores, smaller foodstores and packaged liquor stores of all sizes.

• I have appeared as an expert witness in the various jurisdictions across all states of

Australia and New Zealand on numerous occasions, including:

- The Administrative Appeals Tribunal (AAT) of Australia;

- The Land and Environment Court of New South Wales;

- Independent Ministerial Panels and VCAT in Victoria;

- The Planning and Environment Court of Queensland;

Expert witness details



- The State Administrative Tribunal in Western Australia;

- The Environment, Resources and Development Court of South Australia;

- The Resource Development Planning Commission in Tasmania;

- The Liquor Licensing Court of South Australia; and

- The Petroleum Products Retail Outlets Board of South Australia.

I have also appeared as an expert witness before various government and ACCC

inquiries into the retailing of food, liquor and groceries industry in Australia, including:

- the 1999 Joint Parliamentary Inquiry into the Australian Retail Sector (the Baird

Inquiry);

- the Inquiry into the Competitiveness of Retail Prices for Standard Groceries (2008)

undertaken by the Australian Consumer and Competition Commission (ACCC);

and

- the 2004 ACT Grocery Inquiry (the Martin Inquiry).

• Over the past 36 years I have provided, and continue to provide, research and

advisory services to a wide range of clients, including major retailers and most of

Australia’s shopping centre management and development groups.

• I have undertaken work on numerous occasions throughout Coolaroo, Oakleigh

South and Mornington, relating to both existing and proposed retail developments.

I have made all the inquiries that I believe are desirable and appropriate and no matters of

significance which I regard as relevant have to my knowledge been withheld from the

Panel.

Anthony Dimasi

20 February 2019



Introduction

This statement focusses on the matter of economic impacts relating to the proposed

Kaufland stores at Coolaroo, Oakleigh South and Mornington. The statement has been

prepared, for the assistance of the Advisory Committee, on the instructions of Planning &

Property Partners, acting for Kaufland Australia Pty Ltd.

I have previously prepared an Economic Impact Assessment (EIA) for each of the proposed

Kaufland developments at these three locations, and I adopt the prepared EIA as my expert

evidence in each case.

Prior to preparing the EIA for each of the three proposals, I also prepared an overview report

titled : Kaufland in Victoria, Consumer and Economic Impacts – Overview, June 2018. I also

adopt that report as part of my expert evidence, subject to any qualifications which I set

out in this statement.

I have now had the opportunity of reading the various submissions made to the Committee

on each of the three proposals, and in the balance of this statement I respond to the matters

relating to economic impact that have been raised in those submissions as well as the

matters raised in the Directions letter issued by the Panel, dated Feb. 11, 2019.



1. Coolaroo proposal

1.1 Two submissions have been made in relation to economic impact regarding the

proposed Coolaroo store, by Vicinity Centres Pty Ltd (Vicinity) which is the owner of

Roxburgh Village shopping Centre (also known as Roxburgh Park SC) and Morgan’s

IGA, the operator of the IGA supermarket located at Meadow Heights shopping

centre.

1.2 The submission from Vicinity contends that the proposed Kaufland store “..will cause

deleterious economic impact on the retail hierarchy.”

1.3 The Morgan’s IGA submission is more general in nature, but claims, among other

things, that “…little shops and shopping strips will die…”.

1.4 I consider that there is nothing raised in either submission which has not been

addressed in the EIA.

1.5 With regard to Roxburgh Village, I indicated at page 39 of the EIA that the

supermarkets within that centre – Coles, Woolworths, Aldi and Freshplus – are likely to

be impacted to a greater degree than the average level, given that they are the

closest chain supermarkets to the proposed Kaufland store. However, there is no

likelihood, in my view, that the resultant impact will in any way threaten the viable

operating future of the centre or of any supermarket within the centre, given the likely

order of impact as outlined in the EIA.

1.6 I also outlined the expected growth in population in the relevant areas, at page 41 of

the EIA, which offers the opportunity for all existing facilities to achieve future growth

in sales. Roxburgh Village is a strong centre, and already has four supermarkets as

anchors, including all three national chains. On the Vicinity Centres website the centre

is listed as having an occupancy rate of 99.4%, i.e. a vacancy rate of 0.6%. While I

expect the centre to be impacted, I consider there is no threat whatsoever to its

continued successful operation, given all the above.

1 Coolaroo proposal



1.7 The Morgan’s IGA supermarket anchors the small Meadow Heights neighbourhood

centre. That centre is conveniently located within a residential neighbourhood and

has a Middle Eastern focus in its specialty food offer, reflecting the socio-demographic

profile of that neighbourhood. While the Morgan’s IGA store is also likely to be

impacted by a new Kaufland store at Coolaroo, my expectation is that the impact

would be more likely to be lower than average. I do not consider that there is any

threat to the continued operation of Morgan’s IGA.

1.8 Therefore, while I agree with the two submitters that there will be some trading impacts

on their respective centres as a result of additional supermarket competition – which

is the purpose of a new supermarket entrant - those impacts will not threaten the future

of either centre, and nor will they threaten the surrounding retail hierarchy. Further, the

significant community benefits that I have outlined in the EIA will serve, in my view, to

more than offset any community disbenefits which might be said to result from existing

supermarkets suffering a modest and short-term reduction in sales.



2. Oakleigh South proposal

2.1 There are four relevant submissions made on economic issues relating to the Oakleigh

South Kaufland proposal. Vicinity, as owner of Oakleigh Central shopping centre,

objects to the proposal, again claiming that it “..will cause deleterious economic

impact on the retail hierarchy.” The other three submissions are from the

owners/operators of three small convenience stores, being Murrumbeena Cellars and

IGA X-press; Bentleigh East Foodworks Local; and Mulgrave IGA X-press.

2.2 Oakleigh Central is located adjacent to the Oakleigh train station some 4 kms. by road

from the subject site and is a double-supermarket based centre anchored by Coles

and Woolworths supermarkets. The centre is approximately 14,000 sq.m. in size and is

shown on the Vicinity Centres website to be 100% occupied. There are two other

Woolworths supermarkets (at The Links shopping centre and Clarinda) and also two

other Coles supermarkets (both at Clayton) situated closer to the subject site than

Oakleigh Central.

2.3 In my view, the impacts on those four supermarkets are likely to be slightly above

average, while the estimated impact on the Oakleigh Central supermarkets will most

likely be close to but somewhat lower than the average impact across all trade area

supermarkets. Further, as I have pointed out in the EIA, there will be real growth in

available supermarket business enjoyed by existing stores in the period until the new

Kaufland store, if built, will open, and additional real growth in subsequent years. I

consider that there is, therefore, no likelihood of any threat to the continued operation

or future viability of Oakleigh Central.

2.4 With regard to the other three objectors noted above, the premises in question are

not what could reasonably be termed supermarkets, but rather are generally

convenience stores, in all three cases less than 500 sq.m GLA in size in my estimation.

These outlets are operating effectively even though they sit in the shadows of full-scale

supermarkets which are much closer to each of them than the new Kaufland store will

be. In the case of Bentleigh East Foodworks Local, both the Supa IGA store at Bentleigh

East and Woolworths at The Links are much closer; in the case of Murrumbeena IGA

X-press and Cellars, there are some ten supermarkets situated closer, at Carnegie,

Chadstone, Oakleigh, Oakleigh South and East Bentleigh. The Mulgrave IGA X-press is

situated some 7.3 kilometres by road to the east of the subject site, in a residential

2 Oakleigh South proposal



neighbourhood. It has at least 8 chain supermarkets that are located closer to it than

the subject site.

2.5 These small foodstores are not substitutes for the typical weekly supermarket shopping

which the vast majority of Australian consumers undertake on a regular basis. Rather,

they operate as convenience stores, with most purchases usually being generated as

spur of the moment, emergency, passing by, or walk-in trade. That is not to say that

some consumers might not wish to use them for all of their supermarket shopping –

there might well be some customers who, for whatever reason(s), prefer to shop at

such small premises. In those instances though, the reasons why those customers

choose to use such small foodstores in preference to the larger supermarkets will not

change simply because another large supermarket is added somewhere within the

surrounding region.

2.6 In my various inspections of all of the above facilities, as well numerous other smaller

supermarkets, which I have undertaken as part of the fieldwork research for

preparation of the three EIAs which have been submitted in these proceedings as well

as other assessments, I have observed that the presentation and apparent trading

performance of these various small convenience stores/foodstores can vary

noticeably between premises. In my view, the management of these stores is

paramount in their trading success, as typically they are very dependent on a small,

localised catchment. The examples that I have observed which are well presented,

well stocked and appear to me well managed – usually with some point of difference

from a typical Coles or Woolworths supermarket – generally appear to be successful

regardless of the competitive context in which they operate. The Mulgrave IGA X-

press, as a case in point, makes a feature of single malt whiskies in its front window

display, not a typical feature of small IGA foodstores. The customer offer available in

these smaller foodstores is very different to the offer of a full-scale/full range

supermarket, particularly such as Kaufland, and the reasons why each attracts

customers are quite different. These two quite different offers co-exist across all parts

of the Melbourne metropolitan area.



3. Mornington proposal

3.1 There are seven submissions made in relation to economic impact regarding the

proposed Mornington store, made by

i. Vicinity, owner of Mornington Central shopping centre;

ii. Newpac Investment Group Pty. Ltd., owner of Mornington Village shopping

centre;

iii. Blackbrook Pty. Ltd., owner of Eliza Square shopping centre;

iv. Mornington Peninsula Shire Council;

v. Mornington Chamber of Commerce;

vi. Mt. Eliza Chamber of Commerce; and

vii. Ritchies Pty. Ltd., operator of a chain comprising some 75 supermarkets

throughout Victoria, New South Wales and Queensland. The closest Ritchies

store to the subject site is at Mt. Eliza.

3.2 The main thrust of the various submissions, from an economic perspective, can be

summed up in the Vicinity proposition which, similar to Vicinity’s position on each of

the other two proposals, is that the Kaufland Mornington proposal “..will have a

deleterious economic impact on the retail hierarchy.” The same objection is put by

Blackbrook Pty. Ltd., while Mornington Peninsula Council’s submission is that the

proposal “…will significantly impact on the Mornington Peninsula activity centre

hierarchy…”. Newpac Pty Ltd submits that the proposal has the potential to

“..significantly undermine..” the Mornington Activity Centre

3.3 The other three submissions are more general in nature, variously claiming that

“..precinct shops could be destroyed..” at Mt. Eliza; “This is a major concern for the

local small traders in Mornington, particularly Main Street where overall rents are high,

shopping numbers are down, and small businesses are failing” at Mornington; and

“Just as has happened in other parts of the world, the High Street will die, shops will

close, and the community atmosphere that was so attractive and a great source of

tourism will just vanish” in the case of Ritchies’ submission.

3.4 In order to consider the economic veracity of these various submissions it is helpful to

provide some context regarding the Kaufland proposal and the area which it will

serve. First, Table 1 below shows the proportions of total shopfront space, and total

3 Mornington proposal



centre/precinct space, for which the Kaufland proposal will account within this area,

taking account of the existing floorspace at the locations represented by these

various objectors.

3.5 As shown in the above table, the total Kaufland project will account for 6.8% of the

shopfront floorspace and 5.5% of the total centre/precinct floorspace (i.e. including

non-shopfront uses) that already exists in the various centres/precincts which are

claiming that potentially dire economic consequences could eventuate following

the Kaufland development. I have not included the substantial amounts of

Restricted Retail floorspace within the trade area, at locations such as Peninsula

Home centre, the former Masters site and elsewhere along the highways/main roads

within these numbers. If those facilities are also included, then the Kaufland share of

total retail floorspace within the main trade area is considerably lower than 5%.

3.6 Further, the relevant resident population in the main trade area that is served by

these facilities, as detailed in the EIA, numbers approximately 70,000, spending in

excess of $1.1 billion on retail goods annually – of which the proposed Kaufland store

is expected to attract in the order of 3%. On these measures alone, in my view, it

Centre

Shopfront Commercial Total

Mornington Town Centre 57,000 16,000 73,000

Bentons Square 8,900 500 9,400

Mt. Eliza 13,900 4,300 18,200

Mt. Martha 3,800 500 4,300

Mornington Masters redevelopment* 4,350 - 4,350

Peninsula Home* 1,571 - 1,571

Total 89,521 21,300 110,821

Kaufland project 6,082 6,082

% of Total 6.8% 5.5%

* Excluding Restricted Retail floorspace

Source : Morningt on Peninsula Act ivit y Cent res St rat egy, 2018

Floorspace (sq.m)

Table 1

Mornington Trade Area Shopfront & Commercial Floorspace




can reasonably be concluded that the expressed economic concerns are greatly

overblown.

3.7 However, there are other, arguably even more compelling, reasons - all in publicly

available, independently prepared documents - to conclude that the expressed

economic concerns are not reasonable or supportable. The first of those is the view

of Mornington Peninsula Council’s commissioned independent economic advice,

provided by Macroplan Dimasi. The following are relevant excerpts from that report,

which is titled “Kaufland Mornington, Economic Impact Assessment, November

2018” (Macroplan Report):

“The sales potential for Kaufland Mornington is estimated at between $42 - 46

million in FY21(assumed to be the first full year of trade). Due to the scale, offer

and likely destinational attraction of the supermarket, it is likely to serve a large

trade area encompassing some 240,000 residents at 2018. As the trading

impacts are expected to spread across the Mornington Peninsula, as a result of

the broad destinational draw of Kaufland, modest trading impacts are

assessed at surrounding activity centres in the region. The most affected retail

facilities are assessed to be the Aldi supermarket at Peninsula Hub, as well as

the supermarkets at the Mornington Major Activity Centre and the Mount Eliza

and Bentons Square Town Centres.” (p. i)

“Overall, the development of a Kaufland supermarket at the subject site is not

expected to have a significant impact on any one retail precinct in the

surrounding area, and is not likely to affect the viability of any retailer in the

area. It is also not considered to impact on the primacy of the Mornington

MAC and will also will likely result in a number of community benefits.” (p ii)

“The following observations and conclusions can be drawn from this impact

analysis:

• Existing full range supermarkets in the primary sector are projected to

experience modest impacts of up to approximately 5 - 6% following the

development of Kaufland Mornington, with impacts expected to be larger on

the Aldi supermarkets which are (sic) considered to be a closer competitor to

Kaufland.

• Kaufland Mornington is expected to divert some business from the Mount Eliza

Town Centre, predominantly due to its proximity, with impacts expected to be

around 3% for the supermarkets.

• The potential impacts on specific anchors in the secondary sectors are

expected to be relatively minor, estimated up to 2%.

• The overall impact of Kaufland Mornington on the identified retailers/retail

precincts within the main trade area is estimated to be relative modest at 2.5%

of FY21 sales.” (p. 43)




“Overall, while the forecast sales of Kaufland Mornington is substantial, estimated

at between $42 - 46 million in FY21, the potential impacts on the surrounding

network of activity centre are considered modest, as the impacts will be spread

across a broad range of facilities. This analysis indicates that no existing operator

will be impacted to an extent which will imperil their operations. Similarly, the

trading impacts are unlikely to have a substantial effect on the overall

performance of the network surrounding Activity Centres, and all centres will be

able to continue to serve their role in serving the needs of the local community.”

(p. 44)

“The development of Kaufland Mornington has the potential to result in a range

of community benefits, summarised as follows:

• Improving shopping choice and convenience for the surrounding

population. Kaufland Mornington will bring an experienced operator to the

Mornington Peninsula, expanding the range of previously unavailable

products and brands to the surrounding population providing greater choice

and convenience for the consumer;

• Potential downward pressure on prices. The entry of another operator in the

supermarket sector is likely to have a deflationary effect on grocery and food

prices as a result of stronger competition. The recent Coles campaigns and

the disruption of the discount Aldi model have highlighted the sway of price

competition, and the entry of Kaufland is likely to heighten this theme.

• The development of Kaufland Mornington will add to the provision of retail

floorspace in the area, and would result in a reduction of retail expenditure

escaping from the Peninsula.

• Kaufland Mornington will create a number of new jobs during the

construction and related industries (sic) during the construction phase, and

for the local economy once completed.” (p.44)

3.8 The second independent source of relevant economic information and analysis is the

Mornington Peninsula Activity Centres Strategy, May 2018, prepared by Essential

Economics (the Centres Strategy). The following are relevant extracts from the

Executive Summary of that document.

“Total retail sales generated in the Mornington Peninsula are estimated at

approximately $1,830 million in 2015, including $1,582 million in sales to

Mornington Peninsula residents. Non-permanent residents and visitors to

Mornington Peninsula generate approximately 14% of total retail sales in the

Shire. Escape spending from the Mornington Peninsula is estimated at 25% of

spending by residents.

At present, the Mornington Peninsula Shire accommodates a total of

approximately 335,500m2 of Shopfront floorspace, including 295,800m2 of




occupied retail floorspace. Policy should be seeking to deliver appropriate

development in activity centres which can accommodate an additional

105,000m2-plus of new shopfront and commercial floorspace by 2036, having

regard for growth in population, tourism and real spending per person.”

(p.1, my emphasis).

3.9 At page 31, the Centres Strategy notes that at 2015 there were close to 300,000 square

metres of retail floorspace on the Mornington Peninsula, and that the per capita

provision has been increasing over time, as follows :

“Retail floorspace provision on the Mornington Peninsula has increased from

217,700m2 in 2004 to 296,000m2 in 2015. This represents average growth of

approximately 7,000m2 per annum, although in reality this development has

occurred in ‘lumps’ as specific developments have been completed and

occupied during this time.

As a result of this development, the provision of retail floorspace per capita (for

permanent residents) has increased from 1.59m2 per person in 2004 to 1.90m2

per capita in 2015.”

3.10 With regard to Mornington Activity Centre, the Centres Strategy presents the following

observations and findings :

“The Mornington activity centre is located on Main Street, extending for

approximately 1.5km north-west of the Nepean Highway in Mornington. As the

largest activity centre in the Shire, Mornington includes a significant street-based

component, as well as the Mornington Central and Mornington Village

shopping centres. A mixed business area is located to the eastern end of Main

Street and in proximity to the Highway. Major community, administrative,

recreation and health services and infrastructure are also located at the centre.

Mornington contains a highly diverse and sophisticated retail and commercial

sector which means that visitation and sales are drawn from across the

Peninsula.

Key issues for the Strategy Review to address for the Mornington activity centre

include:

− Supporting ongoing growth and intensification of activity in a well-

established urban environment

− Relationship with the homemaker retailing and mixed business areas located

east of the Nepean Highway

− Very low vacancy rates and limited opportunities for new businesses to

locate in the centre

− Continued demand for higher-density residential development

− Retaining the higher-order role of Mornington in the activity centres

hierarchy.” (p. 32-33; my emphasis)




3.11 There seems to be little doubt that the two retail precincts which are currently servicing

the majority of the food and grocery shopping needs of trade area residents, and

which I expect will be the two existing facilities likely to be impacted to a greater

degree than the average – Mornington Activity Centre and Benton’s Square shopping

centre - are economically robust. Vicinity indicates on its website that Mornington

Village is 100% leased while the Centre’s Strategy also notes, at page 84, that

“Bentons Square is an extremely successful shopping centre with high trading

levels and facilities which are at capacity during peak periods, despite the

absence of a significant tourist/visitor customer base.”

3.12 Further background information on the general health of this region’s supermarkets is

provided in VCAT’s decision of November 2017 in the matter relating to the approval

for the Coles supermarket which is now under development at Mornington, on the

former Masters site, VCAT having found as follows :

“Evidence of the undersupply is that trading at existing supermarkets is

at levels well above national averages, that is, supermarkets in the

region are trading strongly. It is unchallenged that Bentons Square is

one of the best trading in Victoria and the best in Vicinity’s portfolio.” (p. 15)

3.13 In my view, the third facility likely to be impacted to a greater degree than average

will be the large Coles supermarket that is being added at Mornington, which I

understand will open in mid-2019, while the fourth is the Aldi store at Peninsula Home

centre. By contrast, I expect that trading impacts on the Mt. Eliza and Mt. Martha

facilities will be below average.

3.14 With regard to the additional demand for retail facilities generated by sources other

than the residential population, the Centres Strategy presents the following findings :

“Non-Permanent Residents

Non-permanent residents are persons who own a holiday home or regularly

occupy another fixed address (such as a caravan site) on the Mornington

Peninsula.

These residents maintain a permanent link to the Mornington Peninsula through

regular visitation, but for the purposes of ABS statistics and the economic

analysis, are not considered to be permanent residents.

Non-permanent residents are an important customer base for many activity

centres on the Mornington Peninsula. In general, non-permanent residents are

more likely to have spending patterns relatively similar to permanent residents

than tourists, given the permanent connection to the Mornington Peninsula




and that the average length of stay is considerably longer than for most

tourists.

According to the Mornington Peninsula Holiday Home Research Report (2013),

approximately 24,000-plus dwellings on the Mornington Peninsula are

estimated to be holiday homes, accommodating in excess of 60,000 non-

permanent residents during peak periods. The holiday home figure is

confirmed in the State Government’s publication Victoria in Future 2016

(DELWP).

Tourist Visitation

Tourists and other visitors comprise day-trip visitors and overnight visitors to the

Mornington Peninsula who do not own a holiday home or fixed address in the

municipality, but stay overnight at campgrounds, caravan parks, hotels,

airbnb, short-term rental accommodation etc.

In 2013-14, tourism on the Mornington Peninsula accounted for $979 million

(10.2%) of the municipality’s gross regional product. During the same period,

the tourism industry employed approximately 9,800 persons and equivalent to

9.4% of employment. Tourism currently occupies a large share of the region’s

economy and the sector has experienced considerable growth during the

past five years. In the period 2010 to 2014, total annual domestic overnight

visitors to the Mornington Peninsula increased from 906,000 visitors to 1,336,000

visitors. This represents an average annual increase of 10.2% and compares

very favourably to the remainder of regional Victoria at 5.9%.”

(p. 53-54; my emphasis)

3.15 With regard to the total retail expenditure generated by Mornington Peninsula

residents, and the sales achieved by Mornington Peninsula retailers, the Centres

Strategy estimates as follows :

“Residents of the Mornington Peninsula are estimated to have spent (in round

terms) $2,110 million on retail merchandise in 2015 (expressed in constant 2015

dollars) and this includes $1,098 million on food merchandise, $932 million on

non-food merchandise, and $80 million on retail services.” (p. 56)

“In 2015, retail facilities in the Mornington Peninsula were estimated to achieve

total sales in the order of $1,830 million, as shown in Table 4.4. This (rounded)

figure comprises:

• $807m of retail sales in Mornington Peninsula’s Major Activity Centres

• $595m of retail sales in Mornington Peninsula’s Small and Large township

centres

• $173m of retail sales in Mornington Peninsula’s Local and Convenience

centres

• $255m of retail sales in other locations outside of the activity centres

hierarchy.




In this context, total retail turnover comprises sales that are attributable to

residents of the Mornington Peninsula, and to non-residents, including tourists.”

(p. 57; my emphasis)

3.16 With regard to the overall need and demand for additional retail facilities within the

Mornington Peninsula, the Strategy reaches the following conclusions :

“Opportunities for new development in the activity centre hierarchy serving

the Mornington Peninsula will occur as a result of the following factors:

• Population growth, which generates additional demand for retail goods

and services

• Real growth in per capita retail spending, which is ongoing in an

environment of economic growth, and which generates additional

demand by existing and future residents

• Opportunities for additional ’market share’ of the available spending by

residents of the Mornington Peninsula, and from tourists and other visitors

• Opportunities to increase the share of resident spending that is captured

by retail facilities in the region (i.e. a reduction in escape spending).

These factors form the basis for this assessment of opportunities for new

development in the Mornington Peninsula Shire over the period 2015 to 2036.”

(p. 60)

and

“In combination, an opportunity exists for activity centre policy to support an

additional $808 million of retail spending in the Shire of Mornington by 2036

(expressed in constant 2015 prices). This total comprises:

• $698 million of spending by permanent residents, and

• $110 million of visitor spending.

Importantly, not all new retail sales will necessarily be reflected in new retail

development. Existing retailers can also expect to experience ongoing sales

growth associated with increased population and available retail spending.

With approximately one-third of additional retail sales to be directed to existing

retailers, the potential exists for approximately +78,000m2 of additional retail

floorspace in the Mornington Peninsula Shire over the period 2015 to 2036. This is

summarised in Table 4.6 above.

Allowing for approximately 15% of total shopfront floorspace to be associated with

non-retail uses such as offices, personal services equivalent, it is appropriate for the

Activity Centres Strategy Review to consider the potential for total growth in

shopfront floorspace of approximately +90,000m2 over the next 20-years.”

(p. 61; my emphasis)




3.17 Thus, the background to the Kaufland proposal at Mornington, in economic terms,

can be summarised as follows:

i. the residents of the Mornington Peninsula, at 2015, spent an estimated $2.1

billion on retail good – the amount would be considerably higher today – of

which an estimated 25% or $528 million was escaping – again, the amount

would be higher today;

ii. non-permanent residents plus tourists contributed a further $250 million to

available spending – similarly, the amount would be much higher today;

iii. the retail facilities on the Mornington Peninsula, which totalled 296,000 square

metres, recorded an estimated $1.83 billion in retail sales – again, the amount

would be much higher today;

iv. an opportunity exists for activity centre policy to support an additional $808

million of retail spending in the Shire of Mornington by 2036 (expressed in

constant 2015 prices); and

v. it is appropriate for the Activity Centres Strategy Review to consider the

potential for total growth in shopfront floorspace of approximately 90,000

square metres over the next 20-years.

3.18 Against that background, the proposed Kaufland store would account for less than

5% of the total retail floorspace within the main trade area that I consider it is likely to

serve and around 2% or less of the total retail floorspace on the Mornington Peninsula.

Further, on the basis of both my estimate and the estimate of Council’s independent

economic expert, the store will achieve sales in the order of $40-$45 million, or a

market share of around 3% of total retail spending by residents of the main trade area

which it will serve – and less than half of that figure (i.e. less than 1.5%) if applied across

the total retail expenditure of Mornington Peninsula residents. In addition, the store is

unlikely to be operational for at least another two years and possibly longer.

3.19 However, despite these metrics Mornington Peninsula Council and a number of

established commercial interests claim that the Kaufland proposal has the capacity

to undermine the centres hierarchy of the Mornington Peninsula.

3.20 In my view this claim is entirely without foundation. I would go further and say that in

terms of the economic well-being of the Mornington Peninsula, and the identified

need for approximately 90,000 square metres of additional shopfront floorspace within

the Peninsula over the next 18 years, it is a myopic and protectionist position to adopt,

for which there is no reasonable economic basis. Not only would the proposed




Kaufland store help to deliver some (though a relatively small proportion) of the

additional retail services required on the Mornington Peninsula, it would also provide

a particularly convenient service for visitors to the peninsula, especially non-

permanent residents, thereby potentially contributing to the growth in tourism on the

Peninsula.

3.21 The simple fact that there might be some trading impacts on existing supermarkets

does not by any means equate to a “..deleterious economic impact on the retail

hierarchy” and nor does it amount to a threat to “..significantly undermine..” the

Mornington Activity Centre. Rather, the key economic consideration is whether the

proposal will affect the role, function and viability of any activity centre and the

network of activity centres, against the economic benefits that the proposal is likely to

deliver. In this instance, in my view, all the available information and independent

analysis makes clear that there is no likelihood that the role, function and viability of

any activity centre will be threatened, while the consumer and economic benefits

that the proposal will deliver will be substantial, as I have outlined in the EIA.

3.22 The Macroplan Report, as Council’s commissioned independent economic

assessment, estimates the likely trading impacts on existing centres to be even lower

than my estimates, stating at page 43 :

“The overall impact of Kaufland Mornington on the identified retailers/retail

precincts within the main trade area is estimated to be relatively modest at 2.5%

of FY21 sales.”

At the same time, the report is unequivocal about the economic benefits that the

proposal will deliver, as I have outlined at para. 3.7 above.

3.23 The Macroplan Report expresses the caveat that “However, there is not considered

a need for a large scale supermarket in the local area, and its development in an

out-of-centre location is likely to have implications on the Activity Centres hierarchy”

(p.ii)

3.24 I have addressed at length the economic implications for the Activity Centres

hierarchy in the above paragraphs. The claimed lack of “need” by Macroplan rests

on calculations of supermarket floorspace provision per 1,000 residents, for various

parts of Australia, set out at p. 34-35 of the report. Those calculations lead

Macroplan to conclude first of all that the current provision of supermarket

floorspace within what it has defined as the primary sector of relevance to the




proposal, estimated by Macroplan at 292 sq.m. per 1,000 residents, is “slightly below”

the metropolitan Melbourne benchmark though it is well below the national

benchmark of 340 – 350 sq.m. per 1,000, which Macroplan also provides. Secondly,

Macroplan also concludes that “If a Kaufland hypermarket were to be developed in

the short term, this is projected to increase the overprovision of supermarket

floorspace in the main trade area. The addition of a 5,500 sq.m Kaufland is forecast

to heighten supermarket floorspace to 423 sq.m in 2021 per 1,000 residents.” (p. 35)

3.25 To conclude from the above calculations that such a level of supermarket provision,

if accurate, is proof that there is no “need” for a new Kaufland store is not supportable,

for a number of reasons. First, it goes without saying that for any regional, let alone

national, “average” there will inevitably be areas that sit above it and areas that sit

below it. Macroplan does not mention, for example, that rural areas and outer

suburban areas typically have much higher provisions than the metropolitan average,

for a number of reasons, including the availability of fewer non-supermarket

alternatives, such as fresh food markets and specialty stores; the greater availability of

sites to accommodate full scale supermarkets; and the often lower income levels of

consumers, resulting in a greater inclination to shop at supermarkets. Second, in order

to arrive at such a conclusion Macroplan allocates 5,500 sq.m. of supermarket

floorspace to Kaufland when clearly a substantial proportion of the store’s space – in

my assessment at least 30% and possibly more – will be utilised for the retailing of goods

other than food and groceries.

3.26 Third, the “average” has been increasing over time – not surprising given the very

strong long-term growth in Supermarkets and Grocery Stores sales in Melbourne and

Victoria as outlined in Section 1 of the EIA. Fourth, which “average” should be used

to determine whether or not there is “oversupply”, and for which area or region

should it be calculated/applied ? And fifth, as acknowledged by Macroplan, the

supportable supermarket floorspace provision within the Kaufland Mornington main

trade area should be above “average”, given that the peninsula accommodates

large non-permanent resident and tourist populations, particularly during the peak

holiday season.

3.27 One of the factors that has under-pinned the increase in relative supermarket

floorspace provision over time has been a new entrant – Aldi – which commenced

operations in Australia in 2001 and has since rolled out more than 500 stores, totalling

in the order of 900,000 square metres or some 37 square metres per 1,000 people.




Over the same time, both Woolworths and Coles have continued to roll out new

stores generally at a faster rate than population growth, particularly Woolworths,

thereby adding further to space per 1,000.

3.28 Like Aldi was in 2001, Kaufland is a new retail format to be introduced to Australia, and

Kaufland stores will be approximately 3-4 times the size of typical Aldi stores. Globally,

Kaufland is a significantly larger retailer than Aldi. The introduction of such a new

shopping alternative will bring many consumer and economic benefits, as noted

throughout the EIA. At the same time, it is to be expected that there will be some

additional competitive tension particularly, though not solely, within the food &

grocery market as a result of the introduction of Kaufland. Indeed, it is the additional

competitive tension that will generate the new benefits for consumers, because things

will change. One of the manifestations of that additional competitive tension must be

an increase in supermarket floorspace per 1,000 people. If the consumer and

economic benefits that the new entrant will bring are to be enjoyed, then an

increasing relative provision of floorspace is to be expected.

3.29 The key point to be made here is that the supermarket sector is dynamic and strongly

growing, and that new entrants, like Aldi or Kaufland, will inevitably result in significant

increases in the “average” provision of supermarket floorspace. Therefore, using an

average for any region, city, state or country at any one point in time to make a case

for restricting or limiting new entrants is a spurious argument. Rather, the concept of

“need” is much better dealt with by addressing the likely net community benefit

outcome from any proposal such as the Kaufland Mornington project.

3.30 To demonstrate this point, across the area which I have defined in the EIA as the

relevant trade area for the proposed Kaufland store – which differs only slightly from

the area defined by Macroplan as the primary trade area sector for the proposal –

the estimated level of supermarket floorspace provision, after allowing for the Coles

store under development at the former Masters site in Mornington, will be

approximately 320 square metres – some 22,700 sq.m. of supermarket floorspace

across a resident population, at 2019, of approximately 71,000. However, for the region

to its immediate south, which could be labelled the Mornington South region, and

which is shown on the following map, the relative provision is some 440 square metres

per 1,000, or some 30% higher, with approximately 24,500 sq.m. of supermarket

floorspace and a resident population of 55,400 at 2018.




3.31 The Panel, in its Directions letter of Feb. 11, 2019 has requested a number of sensitivity

analyses for the Mornington proposal, in particular :

- what if the trade area for the Kaufland store were to be halved in extent ?; and

- what if 80% of store sales were to be drawn from the trade area, rather than 75% ?

3.32 The trade area that I have defined for the proposed Mornington store is in my view

reasonably defined, and I note that the trade area defined by Macroplan is in fact

considerably more extensive than my definition. Almost all of the trade area I have

defined falls within a 10-minutes drivetime of the site, and due to the site’s highway

location, the majority of trade area residents would, most likely, drive past it on a

regular basis, for various reasons and purposes. Given the nature of the surrounding

area, which is outer suburban/semi-rural, such a drivetime to access what will be a

unique offer in Kaufland, is not unreasonable. In geographic extent, it is to be

expected that the trade area for a Kaufland store would be more extensive in a

location such as Mornington compared to a middle-suburban location at Oakleigh.




3.33 The trade area defined for the Coolaroo proposal similarly reflects a 10 minutes

drivetime in most directions, other than the south, because that would require

significant numbers of customers to drive past a major centre (Broadmeadows) in an

outboard direction. In the Mornington situation, there are no such centres which

residents of the defined trade area would need to drive past.

3.34 While I consider that the trade area that I have used in the EIA is reasonable under the

circumstances, I am even more confident that the percentage of total business which

Kaufland would draw from beyond that trade area at Mornington would be 25%

rather than 20%. Indeed, I consider 25% to be a conservative estimate of this metric,

due to the highway location of the site and the special circumstances of the

Mornington Peninsula, wherein some 14% of retail business is drawn from sources other

than the resident population, as the Centres Strategy has established. The Kaufland

store would be very well placed to service visitors to the Peninsula, particularly non-

permanent residents, while the 25% figure would of course also include business drawn

from residents of parts of the Mornington Peninsula other than the defined trade area,

which I would expect to be substantial.

3.35 That said, I have nonetheless run a sensitivity analysis adopting the various changes in

assumptions requested by the Panel, and present the results of that analysis in the

table below. The first point I wish to make in discussing such sensitivity analysis though

is that if the store’s trade area were to be much smaller in extent, and if the store were

to attract only 20% of total sales from beyond that much smaller trade area, then

inescapably the store would achieve a significantly lower sales volume. A store serving

a trade area of approximately half the extent that I have indicated (in the EIA) I would

expect the Kaufland store to serve would in effect be operating in similar fashion to a

typical existing Coles or Woolworths supermarket in the Australian context. It is

reasonable, for the purpose of sensitivity analysis, to consider likely sales outcomes of

$30 - $35 million for such a store, as in my view the store could only realistically expect

to achieve sales of that magnitude if operating in that manner. Therefore, in Tables 2a

and 2b below I show the resultant conclusions if the store were to achieve sales of $30

million and $35 million respectively.




3.36 On the following map I have shown the trade area extent adopted in the EIA along

with drivetime contours of 7 minutes and 10 minutes around the Kaufland site. The

resident population within the 7-minutes drivetime area is approximately half the

population of the EIA defined trade area, so in effect the analysis in Tables 2a and 2b

below adopts the 7-minutes drivetime area, more or less, as the trade area for the

store.

3.37 The results presented in Tables 2a and 2b below show that if one were to adopt both

the changes to trade area extent and distribution of store sales requested by the

Panel, then the likely order of trading impacts would be approximately 1.5 times the

impacts estimated in the EIA. Generally the impacts would be experienced by the

same supermarkets and retail precincts, with the exception of Mt. Martha - which even

under the assumptions adopted in the EIA would be expected to experience only a

marginal impact - and in broad terms the average impact would be likely to fall within

the range of 8% – 9%. The impacts would be lower if either one of the Panel requested

changes were to be adopted on its own.




3.38 In my view, the estimates in Tables 2a and 2b overstate the likely order of impacts on

existing retail facilities. However, if the outcome were to be in line with these estimates,

then there would still be no economic threat to any existing centres in terms of

affecting the role, function and viability of any activity centre and the network of

activity centres.

Category MTA Kaufland % of Kaufland

Exp. ($m.) Sales ($m.) Total Mkt Share

Food & Groceries 214.2 16.8 56.0% 7.8%

Packaged Liquor 29.8 2.4 8.0% 8.1%

Food Catering 69.9 - 0.0% 0.0%

Apparel 58.4 1.4 4.8% 2.5%

Household Goods 109.8 1.4 4.8% 1.3%

Leisure Retail 24.4 1.0 3.2% 3.9%

General Retail 42.8 1.0 3.2% 2.2%

Retail Services 22.4 - 0.0% 0.0%

Total MTA 571.7 24.0 80.0% 4.2%

Beyond MTA n.a. 6.0 20.0% n.a.

Total 30.0 100%

Table 2a

Mornington - MTA Market Shares at store sales of $30 mill., 2021

Category MTA Kaufland % of Kaufland

Exp. ($m.) Sales ($m.) Total Mkt Share

Food & Groceries 214.2 19.6 56.0% 9.1%

Packaged Liquor 29.8 2.8 8.0% 9.4%

Food Catering 69.9 - 0.0% 0.0%

Apparel 58.4 1.7 4.8% 2.9%

Household Goods 109.8 1.7 4.8% 1.5%

Leisure Retail 24.4 1.1 3.2% 4.6%

General Retail 42.8 1.1 3.2% 2.6%

Retail Services 22.4 - 0.0% 0.0%

Total MTA 571.7 28.0 80.0% 4.9%

Beyond MTA n.a. 7.0 20.0% n.a.

Total 35.0 100%

Table 2b

Mornington - MTA Market Shares at store sales of $35 mill., 2021

Appendix 1: Curriculum Vitae

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