Expert Witness Statement - Amazon S3 · 2.8 In preparing this expert witness statement I have undertaken my own necessary investigations and analysis related to each relevant store

N o v e m b e r 2 0 1 8

Kaufland Stores in Victoria

Advisory Committee

Expert Witness Statement

Sean Andrew Stephens, B. Econ (Honours)

Managing Partner, Essential Economics Pty Ltd

Contact details

For further details please contact Essential Economics Pty Ltd at one of our offices:

96 Pelham Street Carlton Victoria 3053 Australia PH +61 3 9347 5255 FAX +61 3 9347 5355

Level 26 / 44 Market Street Sydney New South Wales 2000 Australia PH +61 2 9089 8654

EMAIL [email protected] WEB www.essentialeconomics.com

ABN 92 079 850 427

Project Number: 18173

Contents

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

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

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

4 EPPING STORE ASSESSMENT ......................................................................................... 13

5 DANDENONG STORE ASSESSMENT ................................................................................ 28

6 CHIRNSIDE PARK STORE ASSESSMENT ........................................................................... 43

7 REVIEW OF ECONOMIC CONSIDERATIONS AND NET COMMUNITY BENEFIT .................... 56

8 SUMMARY AND CONCLUSIONS ..................................................................................... 58

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

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 Managing Partner and Senior Economist at Essential Economics Pty Ltd of 96 Pelham Street, Carlton.

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; and

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

(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 (Epping, Dandenong and Chirnside Park) are consistent with the achievement of a net community benefit, as is related to economic matters within my expertise. All three 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 all three 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 all three instances, the trade area to be served by the relevant Kaufland store is experiencing population growth, with future population growth forecast until at least 2031. 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) being considered initially.

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




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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.




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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 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 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 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 E P P I N G 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 Epping, including a review of the economic and land use context.

Project Location and Context

4.2 Kaufland Epping is proposed for the eastern side of High Street, approximately 19km north of the Melbourne CBD.

4.3 The proposed store will occupy the former Bunnings site and integrate with the existing Epping Hub precinct which also incorporates a range of retail and showroom uses.

4.4 Access to the store from High Street is via a signalised intersection, which includes direct access to the Pacific Epping Shopping Centre immediately opposite. In addition, an access point will be provided via Cooper Street in the north. Overall levels of accessibility and exposure offered by the site are excellent.

4.5 The proposed development scheme includes:

- A total site size of 3.1 hectares

- A Kaufland store of approximately 5,440m2

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

- Parking for 494 vehicles

- Public amenities and other service areas.

4.6 Epping is identified as a Metropolitan Activity Centre in Plan Melbourne, and as such is a particular focus for a diverse range of land uses including retail serving a regional function. The proposed Kaufland store integrates into the existing centre, and represents a progression in the emerging role of the centre as a key focus for retail and commercial activities that complements existing components including:

- Pacific Epping

- Costco Epping (opened August 2018)

- Numerous retail and showroom uses in High Street and Cooper Street, including integrated directly with the proposed store.

4.7 Overall, I consider the attributes of the site to be highly 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. Overall, the proposed store will add further to the overall range and scale of retail facilities available in the Epping metropolitan activity centre.




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Map 4.1 Kaufland Epping Locational Context

Source: Essential Economics with Mapinfo, Street Pro, Nearmap




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Trade Area Review

Trade Area Definition

4.8 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.

4.9 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.

4.10 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.

4.11 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.

4.12 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.

4.13 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.

4.14 When considering the likely trade area for a Kaufland store, it is important to recognise that at present no similar outlet is operating 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.

4.15 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.

4.16 On this basis, I have reviewed the trade area for the proposed Epping Kaufland store and agree that it represents a realistic basis for considering the economic context for the proposed store. This view is based on:

- Epping Metropolitan Activity Centre: The proposed Epping store benefits from exposure to the wider customer generated by the metropolitan activity centre.

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




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- Physical Barriers: The presence of the Metropolitan Ring Road to the south, Craigieburn Bypass to the west and various easements in the east 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.

4.17 An overview of the trade area for the proposed Kaufland store in Epping is provided in Map 4.2.

Trade Area Demographics

4.18 I have prepared a summary of socio-economic characteristics of the trade area population using our own internal demographic template. Although some differences are apparent with some of Mr Dimasi’s figures, again these are relatively minor in nature. Overall the trade area is characterised by:

- Income levels below the Greater Melbourne benchmark

- A higher than average share of population overseas born

- A high share of families with children

- Higher than average share of homes owned outright.

Table 4.1 Kaufland Epping Trade Area Socio-Economic Characteristics, 2016

Category Epping Trade Area Greater Melbourne

Income Median individual income (annual) $25,460 $35,100 Median household income (annual) $64,650 $80,990 Age Structure Median Age (years) 34 36 Country of Birth Australia 51% 65% Overseas 49% 35% Other Major English-Speaking Countries 2% 7% Other Overseas Born 47% 28% Household Composition Couple family with no children 23% 24% Couple family with children 42% 35% Lone person household 17% 23% Tenure Type (Occupied Private Dwellings) Owned outright 34% 31% Owned with a mortgage 38% 37% Rented 27% 31%

Source: ABS 2016 Census of Population and Housing




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Map 4.2 Kaufland Epping Trade Area and Competition

Source: Essential Economics, Bing Images, Mapinfo




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Population Trends and Forecasts

4.19 In 2018, the population of the trade area is estimated at 91,360 persons. This represents an increase of +26,020 persons on the 2011 population, as shown in Table 4.2.

4.20 By 2021, the population of the Kaufland Epping trade area is forecast to be 100,460 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 121,910 persons.

Table 4.2 Kaufland Epping Trade Area Population Trends and Forecasts, 2011 to 2031

2011 2016 2018 2021 2026 2031

Population (No.)

Kaufland Epping Trade Area 65,340 84,430 91,360 100,460 114,260 121,910

Average Annual Growth (%)

Kaufland Epping Trade Area +5.3% +4.0% +3.2% +2.6% +1.3%

Average Annual Growth (No.)

Kaufland Epping Trade Area +3,820 +3,470 +3,030 +2,760 +1,530

Source: Essential Economics, Victoria in Future 2016 and other relevant sources

Competitive Context

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

4.22 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.

4.23 The balance of the Epping Metropolitan Activity Centre includes the Pacific Epping shopping centre which incorporates Woolworths, Coles and ALDI supermarkets, as well as other major traders and approximately 220 shops.

4.24 Costco Epping has also recently opened on Deveny Road to the south-west of the subject site. Although Costco does sell some grocery product lines, the store model for Costco is very different to a traditional supermarket, noting:

- The membership-based model including a high share of business customers

- A more limited product range with an emphasis on large product sizes

- An extensive range of non-food and business-related items of no relevance to the supermarket industry

- A large geographic trade area extending to typically include 700,000-plus persons.




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4.25 In combination, the overall Epping activity centre draws consistent sales and patronage from across a much wider geographic area than the trade area defined for Kaufland Epping.

4.26 On the northern edge of the Kaufland Epping trade area is the Aurora Village centre on Harvest Home Road which will also draw sales from residents north of the defined trade area.

4.27 I estimate total supermarket floorspace in the trade area is approximately 31,000m2.

Table 4.3 Kaufland Epping Competition

Distance from

Subject Site Selection of Major Traders

Within Trade Area

Pacific Epping 0.5 km Coles (3,400m2), ALDI (1,400m2), Woolworths (4,500m2), Costco

Dalton Village 1 km ALDI (1,400 m2)

Greenbrook Shopping Centre 2 km IGA (1,200m2)

Lalor 2 km Coles (3,100 m2), Woolworths (2,750 m2)

Lalor Plaza 3 km Coles (2,000m2)

Epping North 3 km Woolworths (3,100 m2)

Thomastown 3 km SUPA IGA (1,750 m2), IGA (1,250 m2),

Foodworks (550 m2)

Aurora Village 4 km ALDI (1,700m2), Coles (4,000m2)

Beyond Main Trade Area

Westfield Plenty Valley 4 km ALDI, Coles, Woolworths

Mill Park 4 km Woolworths

University Hill 5 km Coles

Campbellfield Plaza 7 km ALDI, Coles

Source: Essential Economics with published sources

Market Assessment

Retail Spending

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 MTA are shown in Table 4.4 and are compared with the metropolitan Melbourne average.




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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 MTA residents is estimated at $11,430 which is approximately 19.6% below the metropolitan Melbourne average.

4.32 Spending levels of FLG, which is of most importance to the proposed Kaufland Epping, is estimated at $5,230 per capita, or 9.7% below the Melbourne average. This emphasises to me the value to consumers of an additional source of price competitive groceries.

Table 4.4 Kaufland Epping 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)

Kaufland Epping Trade Area $5,210 $1,400 $4,490 $330 $11,430

Greater Melbourne $5,790 $1,930 $5,970 $520 $14,210

Variation from Greater Melbourne average

Kaufland Epping Trade Area -10.0% -27.5% -24.8% -36.5% -19.6% Source: Essential Economics with MarketInfo

4.33 Estimates of total retail expenditure by MTA 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.

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

4.36 Total spending by Kaufland Epping trade area residents is forecast to increase from $1,043.8 million in 2018 to approximately $1,177.2 million in 2021 and $1,558.4 million by 2031 (in constant 2018 dollars). This represents average total growth in retail spending of 3.3% per annum between 2018 and 2031. All retail expenditure categories are expected to experience strong growth primarily due to the population forecast for the trade area.




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Table 4.5 Kaufland Epping Trade Area Retail Spending Forecasts, 2018 to 2031 ($2018)

Retail Category 2018 2021 2026 2031 Average Annual Growth

FLG $475.9m $527.7m $608.4m $658.2m 2.6%

Food Catering $128.1m $143.0m $166.7m $182.4m 2.9%

Non-Food $409.9m $472.6m $581.7m $671.8m 4.0%

Services $29.9m $34.0m $40.9m $46.1m 3.5%

Total Retail $1,043.8m $1,177.2m $1,397.7m $1,558.4m 3.3%

Source: Essential Economics with MarketInfo

4.37 Total spending by trade area residents on FLG products is estimated at $475.9 million in 2018, and is expected to increase to $527.7 million by 2021 and $658.2 million by 2031.

Forecast Sales and Market Share

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

4.39 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.

4.40 I am also of the view that a realistic expectation for Kaufland is initial sales levels of between $40 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.

4.41 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 $45 million to $50 million per store on average.

4.42 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




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Kaufland supermarket. For practical purposes these sales 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.

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

4.44 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.

4.45 With total sales for the Kaufland Epping store of $50 million in 2021, I estimate that:

- A total of 80% of sales will be in FLG product categories, with the balance of 20% of sales in non-food, food catering or services categories.

- Of the 80% of sales in FLG product categories (or $40 million), approximately 85% will be generated from trade area residents – this is equivalent to $34 million or 68% of total store sales. The balance of $6 million in FLG sales will be generated from non-trade area residents.

4.46 On this basis, the market share of FLG spending will be 6.4% in 2021, representing $34 million of sales from a total spending market of $528 million at this time (see also my Table 4.5).

Table 4.6 Kaufland Epping Forecast Sales and Market Share

Turnover ($m) Turnover

Distribution (%) FLG Spending

($m) Market Share

(%)

Trade Area FLG Sales $34 m 68% $528 m 6.4%

FLG Beyond Trade Area $6 m 12% 12%

Plus Non Food Sales $10 m 20%

Kaufland Epping Total Sales $50 m 100% Source: Essential Economics Note: Figures subject to rounding

4.47 On the basis of the above, I estimate that Kaufland Epping will generate a 6.4% 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 experience an average reduction in sales equivalent to approximately 6% of their sales in 2021 if Kaufland Epping had not proceeded at this time.




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4.48 I agree with Mr Dimasi that the competitive trading impacts arising from the development of the proposed Kaufland Epping 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.

4.49 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.

4.50 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).

4.51 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.

4.52 A broad examination of the impact of the proposed Kaufland Epping 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 Epping, 2018 to 2031 ($2018)

2018 2021 2026 2031

Kaufland Epping

Kaufland Epping FLG Sales from Trade Area ($m)1 $34 m $39 m $42 m

Main Trade Area FLG Spending ($m) $476 m $528 m $608 m $658 m

FLG Sales to Other Retailers ($m)2 $476 m $494 m $569 m $616 m

Change in FLG Sales to Other Retailers Relative to 2018 ($m) +$18 m +$93 m +$140 m

Change in FLG Sales to Other Retailers Relative to 2018 (%) +4% +20% +29%

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

4.53 In 2018, trade area residents generate approximately $476 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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4.54 With the proposed Kaufland Epping in 2021, an estimated $34 million of trade area FLG spending – out of $528 million in available spending – will go to the new store. The balance of MTA spending, or $494 million, will be available to all other retailers. In 2021, this spending available to other centres and retailers will be approximately +$18m million higher than current levels or 4% higher relative to currently available spending, or 6% down relative to spending otherwise available in 2021.

4.55 Overall, the assessment considers that the average impact on supermarkets serving the Kaufland Epping trade area is likely to be in the order of a 6% reduction in sales in 2021 relative to sales which might have been achieved in that year without Kaufland Epping proceeding. However, overall sales for these supermarkets is likely to increase on average from current 2018 trading levels based on the analysis in Table 4.7.

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

4.57 I am in agreement with Mr Dimasi that the supermarkets at Pacific Epping are likely to experience a trading impact greater than the average of -6% in 2021. In indicative terms this might be a trading impact in the order of -8% to -10%. Given the strong observed levels of customer traffic at Pacific Epping and my understanding of trading levels, any such impact will not undermine the viability of the relevant traders (Coles, Woolworths and ALDI) and in particular be of marginal impact to the overall role and function of the Pacific Epping shopping centre. This is particularly true in an environment of rapid population and spending growth in the surrounding region over the next 15-years.

4.58 I am also in agreement with Mr Dimasi that the balance of relevant supermarkets in the surrounding region are likely to experience an impact of sales in 2021 below the 6% average impact. This is well within the normal bounds of a competitive retail sector and I have no concerns that the role and function of the surrounding centres hierarchy will be undermined by this level of impact.

4.59 Beyond the initial trading impact associated with Kaufland Epping 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 +$93 million higher than current levels.

4.60 Quite clearly, although the proposed Kaufland Epping 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.

4.61 From a strategic land use policy perspective, the proposed Kaufland Epping store will not undermine the role and function of other centres in the hierarchy, and in fact is consistent with the operation of Epping as a metropolitan activity centre.




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Net Community Benefit Considerations

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

- 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.

- Metropolitan Activity Centre. The proposed Kaufland store directly integrates into a metropolitan activity centre, and supports the role and function of Epping as the higher-order centre serving the outer northern suburbs of Melbourne.

Trading Impacts. It is forecast that the proposed Kaufland Epping 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 -6% of sales in 2021 relative to sales in that year which might otherwise have been achieved, with the potential for a 4% average increase in sales relative to current 2018 sales levels. By 2026, overall supermarket sales could be 20% higher than current levels for existing stores even with the proposed Kaufland Epping proceeding.

Response to Submissions

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

City of Whittlesea E03

4.64 The submission from Council identifies that the proposed store location “is within a very high order activity centre and within the retail core of the centre”. Notwithstanding further commentary in the submission on urban design matters which are outside of my expertise, the Council response to the proposal reflects the strong strategic land use policy support for a use such as Kaufland at the subject site. In general terms, I note that the proposed Kaufland Epping represents a land use outcome which is both more intensive and includes a wider mix of uses than the previous Bunnings store on the site.




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4.65 The Council submission has concerns related to the proposed liquor store component of the Kaufland store. In response to the broad issues raised it is important to recognise that:

- The proposed liquor store will need to comply with all relevant legislation related to licencing, responsible service of alcohol, harm reduction etc

- The co-location of liquor stores and major supermarkets is a relatively common industry practice across Australia and is consistent with contemporary consumer expectations for the ability to combine take home liquor and grocery purchases

- The trading patterns for the liquor outlet will be closely associated with the balance of the Kaufland store with sales generated from across a relatively wide geographic area

- Approximately 82% of adult Australians drink alcohol within a 12-month period according to the ABS Australian Health Survey (Cat No. 4364.0.55.001) and on this basis, liquor retailing forms an important part of the overall retail sector

- The take home liquor industry is being impacted by a decline in overall levels of per capita alcohol consumption (ABS Cat No. 4307.0.55.001) and is balanced by an increased preference for lower alcohol liquor brands and mixes (mid-strength beer etc).

4.66 In my view, providing an appropriate network of liquor stores is the critical consideration in the ability to meet the contemporary expectations of consumers and the general community for access to take home liquor products.

4.67 This includes delivering a diversity of liquor outlets that allow individual consumers to have choice and the ability to access take home liquor products in a manner that is safe, convenient and minimises costs in terms of both time and money. The proposed Kaufland store is appropriate in this context.

Capri Parmar – IGA Epping E07

4.68 The IGA Epping submission is similar to those prepared by other IGA stores in relation to the other Kaufland proposals.

4.69 The submission considers that the proposed Kaufland “will completely undermine local shopping attractions”. In my view, this opinion is not supported by any background analysis, and is inconsistent with my own investigations as outlined in this witness statement.

4.70 The IGA Epping is located on McDonalds Road, approximately 1.5km north-east of the proposed Kaufland store. Part of the so-called Greenbrook convenience centre, the IGA store has excellent exposure and accessibility to McDonalds Road which is a key east-west road link. The store serves primarily a convenience and top-up shopping role and function which is very different to the major supermarket offering provided by the proposed Kaufland Epping. In my experience, well-located convenience centres such as Greenbrook do not have their role and function undermined by development in major centres such as the Epping Metropolitan Activity Centre, given that the consumer need




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for quick top-up shopping trips remains notwithstanding the provision of large retail outlets less suited to quick shopping visits.

4.71 I disagree with the characterisation that the proposed Kaufland will not increase employment opportunities. Although Kaufland does utilise self-service checkouts, which are now a common feature of the supermarket industry, these self-service checkouts are supervised at all times and complemented by staffed checkouts. In any instance, checkout staff form only a component of overall employment within a supermarket. Overall, I am certain the proposed Kaufland store represents a net increase in employment and economic opportunity.

Bernard McNamara – BMDA Development Advisory (On Behalf of Pacific Epping) E08

4.72 The BMDA submission was prepared on behalf of the owners of the Pacific Epping shopping centre located immediately opposite the proposed Kaufland Epping, and which includes supermarkets which would be competing with the proposed new store (as identified above in my statement).

4.73 Notwithstanding town planning and urban design matters outside my expertise also considered in the submission, I disagree with the general characterisation of the proposed Kaufland as “not strategically justified and will result in the under-development of strategically located land with a designated metropolitan activity centre land (sic)”. As identified in my evidence, the development of a Kaufland store in a metropolitan activity centre, and in a core retailing area of the centre has strong strategic land use policy support in terms of State and Local policies. I also again note that the proposed Kaufland (and ancillary retail) represents an intensification of activity and a broader mix of uses than the previous hardware store located on-site.




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5 DA N D E N O N G 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 Dandenong, including a review of the economic and land use context.


5.2 The proposed Kaufland Dandenong is located at 1 Gladstone Road in Dandenong around the three-way intersection of Gladstone Road, David Street and the Princes Highway (Dandenong Road).

5.3 Formerly the location of a Bunnings store, the former tenancy has now been demolished and the site is available for development of the proposed Kaufland store.

5.4 A signalised intersection to the Princes Highway is provided immediately adjacent to the site, while north-south access is also provided by Gladstone Road which links to Heatherton Road and ultimately Police Road in the north.

5.5 Although the proposed scheme is primarily oriented to Gladstone Road, the site itself has excellent exposure and visibility from the Princes Highway. Accessibility from the surrounding region is also good.

5.6 The proposed development scheme includes:

- A total site size of 3 hectares





5.7 Forming part of an area in the Commercial 2 Zone approximately 1km north-west of the Central Dandenong Metropolitan Activity Centre (MAC), the subject site is in proximity to a range of retail, commercial, light industrial and showroom uses. In general terms, the site also comprises the northern edge of the Dandenong National Employment and Innovation Cluster which includes the nearby Chisholm Institute and Dandenong Hospital.

5.8 It is my opinion that the proposed site is appropriate for development of the proposed Kaufland in view of the specific locational attributes of the site, and the proximity to the Dandenong MAC and other key activity generators. In a well-established urban environment such as exists around Dandenong, the subject site represents one of the few opportunities to accommodate the unique site requirements of Kaufland (see Chapter 2) at a location that fulfils broader strategic land use policy objectives.




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Map 5.1 Kaufland Dandenong Locational Context

Source: Essential Economics with Mapinfo, Street Pro, Bing Maps




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Trade Area Review








5.15 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.


5.17 On this basis, I have reviewed the trade area for the proposed Kaufland store at Dandenong. Overall, I am in agreement that the trade area represents a realistic basis for considering the economic context for the proposed Dandenong store. I base this opinion on the following considerations:

- Prominent Site: The subject site is a prominent location with strong access to the surrounding local road networks with Dandenong Road in particular forming an important ‘spine’ for movement patterns.




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- Physical Barriers: I generally agree (see my Point 5.18) with the impact that the surrounding urban context will have on the trade area, including the significant industrial areas in Dandenong South and the Monash Freeway.


5.18 In the south-west of the trade area, Mr Dimasi defines the boundary only so far as the Dandenong rail corridor in areas such as Noble Park. In my view, the recent opening of the new ‘skyrail’ and grade separation of the former railway crossings means that patronage from areas south-west of the trade area might also be expected. Having reviewed drive time data, this prospect seems reasonable although the road connections from this region to the subject site are indirect. On balance I believe the trade area defined by Mr Dimasi is reasonable and I endorse it as a reasonable basis for analysis, although in the south-west it is potentially conservatively defined.

5.19 An overview of the trade area for the proposed Kaufland store in Dandenong is provided in Map 4.2.


5.20 I have prepared a summary of socio-economic characteristics of the trade area population using our own internal demographic template. Although some differences are apparent with some of Mr Dimasi’s figures, these are relatively minor in nature and are primarily due to definitional matters. Overall the Dandenong trade area is characterised by:

- Income levels lower than for Greater Melbourne

- A relatively young age profile

- A very high share of the population overseas born, in particular from non-English speaking backgrounds

- An above-average share of lone person households

- High share of homes which are rented.

5.21 Overall, the socio-economic profile indicates that residents will be particularly cost conscious and that easy access to price competitive household groceries and items will be a positive influence on disposable incomes and liveability.




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Map 5.2 Kaufland Dandenong Trade Area and Competition

Source: Essential Economics, Mapinfo, Nearmap




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

Category Dandenong Greater Melbourne

Income Median individual income (annual) $24,870 $35,100 Median household income (annual) $56,570 $80,990 Age Structure Median Age (years) 34 36 Country of Birth Australia 39% 65% Overseas 61% 35% Other Major English Speaking Countries 4% 7% Other Overseas Born 57% 28% Household Composition Couple family with no children 21% 24% Couple family with children 34% 35% Lone person household 24% 23% Tenure Type (Occupied Private Dwellings) Owned outright 27% 31% Owned with a mortgage 28% 37% Rented 44% 31%



5.22 In 2018, the population of the Dandenong trade area is estimated at 89,240 persons. This represents an increase of +10,210 persons on the 2011 population, as shown in Table 5.2.

5.23 By 2021, the population of the Dandenong trade area is forecast to be 93,610 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 108,540 persons.

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

2011 2016 2018 2021 2026 2031

Population (No.)

Kaufland Dandenong Trade Area 79,030 86,810 89,505 93,610 100,750 108,540


Kaufland Dandenong Trade Area +1.9% +1.5% +1.5% +1.5% +1.5%


Kaufland Dandenong Trade Area +1,560 +1,350 +1,370 +1,430 +1,560

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




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Competitive Context

5.24 An existing framework of centres operates in the region surrounding the proposed Kaufland Dandenong. This includes a number of centres within the MTA, as well as centres located beyond the MTA boundary.


5.26 The Dandenong Metropolitan Activity Centre is the dominant centre within the trade area and includes multiple supermarkets includes Coles (x2), ALDI (x2), Woolworths and an independent supermarket (Bestway).

5.27 A number of small independent food stores are also located across the trade area, often providing a specific ethnic focus which reflects the diverse background of people living in the region.

5.28 A number of other supermarkets are also located in centres located just outside the trade area, including at Noble Park, Waverley Gardens and Parkmore Keysborough.


Table 5.3 Kaufland Dandenong Competition

Distance from

Subject Site Selection of Major Traders

Within Trade Area

Dandenong Market 1 km Coles (3,300m2), ALDI (1,500m2)

Dandenong Plaza 1.5 km Coles (3,200m2), Woolworths

(3,900m2), ALDI (1,400m2)

Dandenong Balance 1.5 km Bestway (1,500m2)

Total Dandenong MAC

Doveton 3 km Foodworks (700m2)


Noble Park 3km Coles

Parkmore Shopping Centre 3 km Coles, Woolworths

Springvale South 5 km ALDI, Foodworks

Waverley Gardens 5 km Coles, Woolworths

Springvale (including Springvale North and South)

5 km ALDI, Coles, Woolworths

Dandenong South 5 km Woolworths

Endeavour Hills Shopping Centre 5 km Coles, Woolworths, ALDI Source: Essential Economics with published sources




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Market Assessment

Retail Spending








5.33 Overall, average per capita retail spending by MTA residents is estimated at $10,800 which is approximately 24.0% below the metropolitan Melbourne average.

5.34 Spending on FLG, which is of most importance to the proposed Kaufland Dandenong, is estimated at $5,070 per capita, or 12.4% below the Melbourne average.

Table 5.4 Kaufland Dandenong 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)

Kaufland Dandenong Trade Area $5,070 $1,350 $4,080 $290 $10,800

Greater Melbourne $5,790 $1,930 $5,970 $520 $14,210

Variation from Greater Melbourne average

Kaufland Dandenong Trade Area -12.4% -30.1% -31.7% -44.2% -24.0% Source: Essential Economics with MarketInfo






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5.37 Total spending by MTA residents is forecast to increase from $966.8 million in 2018 to approximately $1,036.4 million in 2021 and $1,308.3 million by 2031 (in constant 2018 dollars). This represents average total growth in retail spending of 2.4% per annum between 2018 and 2031. All retail expenditure categories are expected to experience strong growth primarily due to the population forecast for the MTA.


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


FLG $453.9m $478.6m $522.1m $570.2m 1.8%


Non-Food $365.5m $400.9m $467.1m $544.7m 3.1%

Services $26.3m $28.4m $32.3m $36.7m 2.6%

Total Retail $966.8m $1,036.4m $1,163.3m $1,308.3m 2.4% Source: Essential Economics


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










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5.42 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.

5.43 I have undertaken an estimate of the likely market share for the proposed Kaufland at Dandenong assuming total sales of $50 million in 2021, as shown in Table 5.6.


5.45 With total sales for the Kaufland Dandenong store of $50 million in 2021, I estimate that:

- A total of 80% of sales will be in FLG product categories, with the balance of 20% of sales in non-food, food catering or services categories.

- Of the 80% of sales in FLG product categories (or $40 million), approximately 85% will be generated from trade area residents – this is equivalent to $34 million or 68% of total store sales. The balance of $6 million in FLG sales will be generated from non-trade area residents.

5.46 On this basis, the market share of FLG spending will be 7.1% in 2021, representing $34 million of sales from a total spending market of $479 million at this time (see also my Table 5.5).

Table 5.6 Kaufland Dandenong Forecast Sales and Market Share

Turnover ($m) Turnover

Distribution (%)

FLG Spending ($m)

Market Share (%)




Kaufland Dandenong Total Sales $50 m 100% Source: Essential Economics Note: Figures subject to rounding

5.47 Based on the above analysis, I estimate that other existing supermarkets serving trade area residents would experience an average reduction in sales equivalent to no more than 7% of their sales in 2021 as a result of the new Kaufland Dandenong.




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5.48 I agree with Mr Dimasi that the competitive trading impacts arising from the development of the proposed Kaufland Dandenong 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.







5.52 A broad examination of the impact of the proposed Kaufland Dandenong 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 Dandenong, 2018 to 2031 ($2018)

2018 2021 2026 2031

Kaufland Dandenong

Kaufland Dandenong FLG Sales from Trade Area ($m)1 $34 m $37 m $41 m

Trade Area FLG Spending ($m) $454 m $479 m $522 m $570 m


Change in FLG Sales to Other Retailers Relative to 2018 ($m) -$9m +$31 m +$76 m

Change in FLG Sales to Other Retailers Relative to 2018 (%) -2% 7% 17%






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5.54 With the proposed Kaufland Dandenong in 2021, an estimated $34 million of trade area FLG spending – out of $479 million in available spending – will go to the new store. The balance of MTA spending, or $445 million, will be available to all other retailers. In 2021, this spending available to other centres and retailers will be approximately -$9m million lower than current levels or just -2% down relative to currently available spending (or -7.1% down relative to spending otherwise available in 2021). By 2026, the increase in FLG spending available to other traders will be +$31 million higher than current levels.

5.55 Quite clearly, the proposed Kaufland Dandenong store will generate some moderate trading impacts on some existing supermarket operators. This includes the five major supermarket operators in the Dandenong MAC who can expect a trading impact marginally higher than the average impact of -7.1% in 2021. Other trading impacts will be distributed across a range of supermarkets and grocery/liquor retailers, including stores at centres such as Waverley Gardens, Parkmore, Endeavour Hills and Stud Park.

5.56 Overall, these trading impacts will be 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.

5.57 From a strategic land use policy perspective, the proposed Kaufland Dandenong store will not undermine the role and function of other centres in the hierarchy.


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




- Trading Impacts. It is forecast that the proposed Kaufland Dandenong 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 on average 7%




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higher than current levels for existing stores even with the proposed Kaufland Dandenong proceeding.


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

Pagan K Barrett-Woodbridge D01

5.60 Of matters raised in the submission D01, only Point 3 related to alcohol sales and service is of partial relevance to my expertise.

5.61 In relation to liquor sales it is important to recognise that:

- The proposed liquor store will need to comply with all relevant legislation related to licencing, responsible service of alcohol, harm reduction etc

- The co-location of liquor stores and major supermarkets is a relatively common industry practice across Australia and is consistent with contemporary consumer expectations for the ability to combine take home liquor and grocery purchases

- The trading patterns for the liquor outlet will be closely associated with the balance of the Kaufland store with sales generated from across a relatively wide geographic area

- Approximately 82% of adult Australians drink alcohol within a 12-month period according to the ABS Australian Health Survey (Cat No. 4364.0.55.001) and on this basis, liquor retailing forms an important part of the overall retail sector

- The take home liquor industry is being impacted by a decline in overall levels of per capita alcohol consumption (ABS Cat No. 4307.0.55.001) and is balanced by an increased preference for lower alcohol liquor brands and mixes (mid-strength beer etc).

5.62 I am of the view that the proposed liquor component reflects contemporary retail industry and consumer expectations, and ensures that people can undertake grocery shopping in combination with making take home liquor purchases.

The GPT Group D02

5.63 The submission prepared on behalf of the GPT Group considers broad strategic land use policy related to out-of-centre development. Although I recognise that the proposed Kaufland store is outside of the core retail and commercial areas of Central Dandenong (as designated by the extent of the CDZ), the site itself is:

- Part of a general corridor of business and community related uses extending along the Princes Highway north-west of Central Dandenong

- Is within the Commercial 2 Zone where uses such as a supermarket may be considered subject to a permit




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- Has been the location for a long-standing previous large-format retail use (Bunnings)

- Has excellent accessibility to the surrounding community

- Is located in proximity to a range of business, including some retail uses.

5.64 Overall, I believe the proposal demonstrates:

- An alternative site of similar scale and locational suitability is not available in Central Dandenong as identified through my own review of aerial imagery

- The role and function of the activity centres hierarchy serving the surrounding region will not be undermined

- The proposal represents achievement of a net community benefit (as related to areas of my own expertise).

Ben and Fasvi Adili – IGA Dandenong D06 and Ferdi Tairi – Menzies Cellars D07

5.65 The IGA Dandenong and Menzies Cellars submissions are is similar to those prepared by other IGA stores in relation to the other Kaufland proposals, and are almost identical to each other in terms of content and thus I make joint comment on both.

5.66 The submissions consider that the proposed Kaufland Dandenong “will completely undermine local shopping attractions”. In my view, this opinion is not supported by any background analysis, and is inconsistent with my own investigations as outlined in this witness statement.

5.67 I note that both the Menzies Cellars and IGA Dandenong are located in small convenience-oriented centres meeting basic day-to-day needs and top up shopping requirements. In my view, the role and function of centres such as these is not undermined by the proposed Kaufland Dandenong which will be competing more directly with larger supermarkets in centres such as Central Dandenong, Waverley Gardens etc.

City of Greater Dandenong D09

5.68 The City of Greater Dandenong submission highlights concerns related to the out-of-centre context for the proposed Kaufland Dandenong store. Although the submission notes the location of the site outside the Dandenong Activity Centre, it does not:

- Provide guidance on a suitable alternative location within the Dandenong Activity Centre

- Recognise the edge-of-centre context for the subject site noting the proximity and active connection to the Dandenong Activity Centre

- Recognise the site is within the Commercial 2 Zone where a supermarket may be considered and approved subject to a planning permit being issued.




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5.69 No analysis or evidence is made to support the contention that the proposal may have a negative overall economic impact and community dis-benefit. This conclusion is inconsistent with my own investigations as outlined in this statement.




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6 C H I R N S I D E PA R K S TO R E A S S E S S M E N T

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


6.2 The proposed Kaufland Chirnside Park is located on the south-east corner of the Maroondah Highway and Fletcher Road. Forming part of the Chirnside Park Major Activity Centre, the subject site at 266-268 Maroondah Highway is relatively central to an extensive range of retail, commercial, showroom and other employment functions.

6.3 Formerly approved for a Masters store, the subject site is adjacent to a recently opened Dan Murphy’s store in the north and will integrate with the Eastridge complex to the south.

6.4 Exposure of the site to the very busy Maroondah Highway (30,000-plus vehicles per day) is excellent, with accessibility to the site via either Fletcher Road or Maroondah Highway. General accessibility for the surrounding region is very good. The site also benefits from exposure to the broader movement and visitation patterns generated by the balance of the Chirnside Park Major Activity Centre, which includes the Chirnside Park Shopping Centre.

6.5 The proposed Kaufland development scheme at Chirnside Park incorporates the following:

- A total site size of 4 hectares





6.6 The proposed location is very well-located to complement the operation of other nearby land uses. Fletcher Road connects directly to Kimberley Street which provides access to the retail and shopping centre uses to the north, while a short distance to the south is a significant concentration of bulky goods uses in the Chirnside Homemaker Centre.

6.7 It is my view that the proposed Kaufland at Chirnside Park integrates effectively into the Chirnside Park Major Activity Centre, and will make a significant contribution to supporting the higher-order role and function of the centre in the activity centre hierarchy serving the region.




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Map 6.1 Kaufland Chirnside Park Locational Context

Source: Essential Economics with Mapinfo, Street Pro, Nearmap




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Trade Area Review








6.14 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.


6.16 The trade area for the proposed Kaufland Chirnside Park 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 Chirnside Park store. This opinion reflects the following:

- Chirnside Park Major Activity Centre: the proposed location within the Chirnside Park Major Activity Centre maximises the exposure to the spending and visitation patterns generated from other uses across the centre. In this respect, the trade area will be geographically extensive.




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- Site Context: With excellent exposure to the Maroondah Highway and easy access from all four directions, the locational attributes of the site are supportive of serving a relatively wide trade area definition.

- 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.


6.17 An overview of the trade area for Kaufland at Chirnside Park is provided in Map 6.2.


6.18 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 Kaufland Chirnside Park trade area is characterised by:

- Relatively high income levels

- A very high share of the population Australian born

- An above average share of family type households.

Table 6.1 Chirnside Park Socio-Economic Characteristics, 2016

Category Chirnside Park Greater Melbourne

Income Median individual income (annual) $36,100 $35,100 Median household income (annual) $85,330 $80,990 Age Structure Median Age (years) 38 36 Country of Birth Australia 81% 65% Overseas 19% 35% Other Major English Speaking Countries 8% 7% Other Overseas Born 10% 28% Household Composition Couple family with no children 26% 24% Couple family with children 39% 35% Lone person household 20% 23% Tenure Type (Occupied Private Dwellings) Owned outright 33% 31% Owned with a mortgage 47% 37% Rented 19% 31%





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Map 6.2 Kaufland Chirnside Park Trade Area and Competition

Source: Essential Economics, Mapinfo, Nearmap




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6.19 In 2018, the population of the Kaufland Chirnside Park trade area is estimated at 77,230 persons. This represents an increase of +7,660 persons on the 2011 population, as shown in Table 6.2.

6.20 By 2021, the population of the Kaufland Chirnside Park trade area is forecast to be 80,170 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 89,750 persons.

Table 6.2 Chirnside Park Population Trends and Forecasts, 2011 to 2031

2011 2016 2018 2021 2026 2031

Population (No.)

Kaufland Chirnside Park Trade Area 69,570 74,940 77,230 80,170 84,730 89,750


Kaufland Chirnside Park Trade Area +1.5% +1.5% +1.3% +1.1% +1.2%


Kaufland Chirnside Park Trade Area +1,070 +1,150 +980 +910 +1,000

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

Competitive Context

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


6.23 Within the Chirnside Park Major Activity Centre is the Chirnside Park Shopping Centre including Coles, ALDI and Woolworths supermarkets. Chirnside Park Shopping Centre is considered a strong performing centre with overall sales in excess of $270 million and average sales productivity levels which are at the upper end of comparable centre benchmarks.

6.24 In the east, the Lilydale Town Centre includes Coles, Woolworths and ALDI supermarkets, while other centres are located at Mooroolbark (Coles) and Croydon North (Coles).





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Table 6.3 Kaufland Chirnside Park Competition

Distance from Subject Site

Selection of Major Traders

Within Trade Area

Chirnside Park Shopping -Centre

1 km Coles (3,200m2), ALDI (1,400m2),

Woolworths (4,200m2)

Croydon North 1 km Coles (2,100m2)

Mooroolbark 2 km Coles (2,900m2)

Lilydale Town Centre 4 km ALDI (1,300m2), Woolworths (4,000m2),

Coles (3,700m2)


Croydon Hills 4 km Jefferies

Croydon Central 4 km ALDI, Coles

Croydon 4 km Foodworks, Woolworths

Churinga Shopping -Centre

4 km ALDI, Woolworths

Kilsyth shopping centre 4 km Coles

Burnt Bridge 6 km Coles

Croydon South 6 km IGA X-press

Kilsyth South 6 km Woolworths Source: Essential Economics with published sources

Market Assessment

Retail Spending











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6.29 Overall, average per capita retail spending by MTA residents is estimated at $14,230 which is approximately 0.1% above the metropolitan Melbourne average.

6.30 Spending on FLG, which is of most importance to the proposed Kaufland Chirnside Park, is estimated at $6,000 per capita, or 3.6% above the Melbourne average.

Table 6.4 Kaufland Chirnside Park 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) Kaufland Chirnside Park Trade Area $6,000 $1,770 $5,970 $490 $14,230 Greater Melbourne $5,790 $1,930 $5,970 $520 $14,210

Variation from Greater Melbourne average Kaufland Chirnside Park Trade Area 3.6% -8.3% 0.0% -5.8% 0.1%

Source: Essential Economics with MarketInfo



6.33 Total spending by MTA residents is forecast to increase from $1,098.7 million in 2018 to approximately $1,171.3 million in 2021 and $1,436.9 million by 2031 (in constant 2018 dollars). This represents average total growth in retail spending of 2.1% per annum between 2018 and 2031. All retail expenditure categories are expected to experience strong growth primarily due to the population forecast for the MTA.


Table 6.5 Kaufland Chirnside Park Trade Area Total Retail Spending, 2018 to 2031 ($2018)


FLG $463.1m $484.8m $519.6m $558.2m 1.5%


Non-Food $461.3m $502.2m $574.6m $658.9m 2.8%

Services $37.8m $40.6m $45.3m $50.7m 2.3%

Total Retail $1,098.7m $1,171.3m $1,295.2m $1,436.9m 2.1% Source: Essential Economics




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







6.38 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.

6.39 It is on this basis that I have undertaken an estimate of the likely market share for the proposed Kaufland at Chirnside Park assuming total sales of $50 million in 2021, as shown in Table 6.6.


6.41 With total sales for the Kaufland Chirnside Park 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




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7.0% in 2021, representing $34 million of sales from a total spending market of $485 million at this time (see also my Table 6.5).

Table 6.6 Kaufland Chirnside Park Forecast Sales and Market Share

Turnover

($m)

Turnover Distribution

(%)

FLG Spending ($m)

Market Share (%)




Kaufland Chirnside Park Total Sales $50 m 100% Source: Essential Economics Note: Figures subject to rounding

6.42 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.

6.43 In general terms, this means that other existing supermarkets serving trade area residents would experience an average reduction in sales equivalent to approximately 7% of their sales in 2021 if Kaufland Chirnside Park had not proceeded at this time.

6.44 I agree with Mr Dimasi that the competitive trading impacts arising from the development of the proposed Kaufland Chirnside Park 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.

6.45 In particular, I expect that supermarkets at Chirnside Park shopping centre and Croydon North will have trading impacts marginally above the average of 7%. This might be in the order of an 8% or 9% reduction in sales in 2021 relative to sales which might otherwise be achieved in that year. 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.








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6.49 A broad examination of the impact of the proposed Kaufland Chirnside Park over time is shown in Table 6.7. This Table shows how the proposed store is expected to change the distribution of FLG spending by trade area residents.

Table 6.7 General Impacts Kaufland Chirnside Park, 2018 to 2031 ($2018)

2018 2021 2026 2031

Kaufland Chirnside Park

Kaufland Chirnside Park FLG Sales from Trade Area ($m)1 $34 m $36 m $39 m

Trade Area FLG Spending ($m) $463 m $485 m $520 m $558 m


Change in FLG Sales to Other Retailers Relative to 2018 ($m) -$12m +$20 m +$56 m

Change in FLG Sales to Other Retailers Relative to 2018 (%) -3% 4% 12%



6.51 With the proposed Kaufland Chirnside Park in 2021, an estimated $34 million of trade area FLG spending – out of $485 million in available spending – will go to the new store. The balance of MTA spending, or $451 million, will be available to all other retailers. In 2021, this spending available to other centres and retailers will be approximately -$12m million lower than current levels or just 3% down relative to currently available spending (or 7% down relative to spending otherwise available in 2021). By 2026, the increase in FLG spending available to other traders will be +$20 million higher than current levels.

6.52 Although the proposed Kaufland Chirnside Park 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.

6.53 From a strategic land use policy perspective, the proposed Kaufland Chirnside Park store will not undermine the role and function of other centres in the hierarchy. The




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proposal is entirely consistent with the operation of Chirnside Park as a Major Activity Centre.


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




- Major Activity Centre. The proposed Kaufland store directly integrates into a major activity centre, and supports the role and function of Chirnside Park as the higher-order centre serving the outer eastern suburbs of Melbourne.

- Trading Impacts. It is forecast that the proposed Kaufland Chirnside Park 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 -3% 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 Chirnside Park proceeding.


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

Franklyn Perret CP02

6.56 In my view, the proposed development of Kaufland Chirnside Park does not represent a ‘fragmentation’ of retail as identified in the submission, but rather the consolidation of retailing within a higher-order activity centre. Chirnside Park activity centre has strong strategic support as a focus for higher-order activities and the proposed Kaufland is consistent with this role.




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Yarra Ranges Council CP04

6.57 I note the strategic support of Council for the subject site as a location for Kaufland, and reflect on this view in the context of my opinion expressed in Point 6.56 above.

Anthony Ingpen – Mt Evelyn SUPA IGA CP06

6.58 The submission considers that the proposed Kaufland “will completely undermine local shopping attractions”. In my view, this opinion is not supported by any background analysis, and is inconsistent with my own investigations as outlined in this witness statement.

6.59 I note the distance of the Mount Evelyn IGA from the proposed Kaufland Chirnside Park of 7km and that the store is outside the trade area defined for the Kaufland store. In any instance, the proposed Kaufland is supported by available market demand and will operating in an environment of ongoing population and spending growth which means any trading impacts will be temporary in nature.

6.60 I disagree with the characterisation that the proposed Kaufland will not increase employment opportunities. Although Kaufland does utilise self-service checkouts, which are now a common feature of the supermarket industry, these self-service checkouts are supervised at all times and complemented by staffed checkouts. In any instance, checkout staff form only a component of overall employment within a supermarket. Overall I am certain the proposed Kaufland store represents a net increase in employment and economic opportunity.

Jason Black – KTF Investment CP09

6.61 I note the recognition in the submission of the economic and jobs benefits associated with the proposed Kaufland store.




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7 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

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

Comments on Dimasi Assessment

7.2 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 are 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

7.3 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 considerations. I recognise that a range of social, environmental or other factors might also be a relevant consideration, and which are outside my own expertise.

7.4 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.




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- 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.

- 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, and 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.

7.5 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.

7.6 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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8 S U M M A RY A N D C O N C LU S I O N S

8.1 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 Epping, Dandenong and Chirnside Park which are the subject of this witness statement.

8.2 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.

8.3 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.

8.4 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.

8.5 In reviewing the economic implications of the three stores at Epping, Dandenong and Chirnside Park, 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. All three trade areas are experiencing population growth, and are expected to have population growth into the future to at least 2031.

8.6 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 6% and 7% 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.

8.7 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.

8.8 In summary, it is my opinion that the proposed Kaufland stores at Epping, Dandenong and Chirnside Park 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

15 November 2018




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A T T A C H M E N T :

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Documents

Expert Witness Statement - Amazon S3 · 2.8 In preparing this expert witness statement I have undertaken my own necessary investigations and analysis related to each relevant store