Patrick Noone: former Costco managing director explains why it's difficult for retailers to enter the NZ market

The Finance Minister is looking to boost competition in New Zealand's supermarket sector - with a final push to encourage new players to enter the market.

Nicola Willis says any new retailers looking to enter would be given 'VIP treatment' from the Government, removing regulatory hurdles impeding its growth.

Former Costco managing director Patrick Noone explains that international retailers have to deal with their own challenges when trying to enter the New Zealand market.

"Real estate prices were a massive barrier - there's just not a lot of retail space available to be purchased or rented. So I think that's a huge barrier."

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Episode Transcript

Speaker 1 (00:00):
So Nicola Willis speaking, I've got the two names. You're
only two names you need to mention in politics today
out there, Nichola Willis and Winston Peters. And they're both
on the program anyway. Nicola Willis, she's there after six.
At the weekend, had her big supermarket announcement and suggested
that food Stuffs and Woolwurst could sell parts of their
business to a new entrant or and this was the
big stick that she's waving around risk the government breaking

(00:23):
the duopoly up. Patrick Noon is a former managing director
of Costco and he's with me this afternoon to talk
about this. Good afternoon.

Speaker 2 (00:33):
Hello Ryan, how are you really good?

Speaker 1 (00:34):
Thanks? You were quite heavily involved in setting up shop
here in New Zealand for Costco. How hard is it
to do?

Speaker 2 (00:42):
Coming into a new country is always more difficult and
there's a lot of you know, you have to work
with a lot of the government regulations, et cetera. But
New Zealand was a pretty much a monopoly market, so
there was a lot of opportunity for price and bring
goods to the country at a better price than what
was being sold there. And also we can bring goods
from overseas that New Zealanders couldn't get so that we

(01:03):
had a we didn't have a lot of help, but
we saw a lot of opportunity in New Zealand. For sure.

Speaker 1 (01:08):
Is breaking up the supermarkets the way to go about this.
I mean, what for you were the biggest barriers?

Speaker 2 (01:16):
The government regulation? I suppose real estate prices was a
massive barrier and is a massive barrier. Just not a
lot of retail space available to be purchased or a rent,
so I think that's a huge barrier. And then logistics
as well, getting stuff into the country at a nice

(01:36):
timely manner was also of an issue, but we got
past that in the end. But for a new entrant
going to the market, it's simply the cost of getting
into the market, which was a big barrier.

Speaker 1 (01:48):
And that was less to do with what the competitors
were doing, but more to do with regulation. Do you
mean like zoning of land and stuff?

Speaker 2 (01:56):
Yeah? Absolutely. I mean when we built a building in
auct and we have to build a a three story
building or a four story building, because typically a costco
around the world is you know, fourteen hectares of land
or fourteen as the land I should say, with you know,
seven hundred car parking spaces on one level in New
Zealand that simply wasn't the bible to purchase at all.

(02:19):
And so part of the cost of getting into the
country is you have to buy a limited amount of
retail land, which costs a lot more money to buy.
And then because you're building a structure that's multy story,
it costs two or three times more than what a
typical structure would cost anywhere else in the world.

Speaker 1 (02:34):
With logistics, is that you've clearly something that COSTCO was
able to overcome. But is that something that we just
have to accept. I mean, we are so far away
from the rest of the world.

Speaker 2 (02:45):
No, you don't have to accept it. All you have
to there has to be more more ships, more often
going into the country, which you can give the which
gives you a better certainty of supply, and that works
both ways. It works with we will buying New Zealand
merchandise to sold Australia. Getting that certainty of sailings and

(03:05):
getting to arrive on time was also pretty important. So
I think that's a country problem and it's the same
in Australia as well, just a different scale.

Speaker 1 (03:12):
Are you surprised that the government hasn't just picked up
the phone and rung Elder yet, you know, to try
and find out what their views are. Why the hell
they aren't coming here.

Speaker 2 (03:22):
Well, it's a good it's a really good question. I
know that coming to New Zealand from North America, or
coming to New Zealand from Asia, or coming to New
Zealand from Europe, it's a long way down there, and
to start an operation down there without any infrastructure is
a pretty complicated business and whiskey. But most of the country,

(03:44):
most of the companies are investing in New Zealand. Who
can invest in New Zealand at first start of their
operations in Australia. So they've got an infrastructure in place
like Costco did and they're able to leverage that and
bring those goods, the same goods to market into the
New Zealand market. So yeah, I think Oldie would a
great fit for the New Zealand market.

Speaker 1 (04:02):
To be honest, why do you think they're not here?

Speaker 2 (04:06):
They're a pretty conservative light. I don't have much to
do with them, but you know they like to build
their infrastructure and expand from there. So I would be
surprised if they haven't looked at the New Zealand market
in more than a few times. But I don't have
any inside tack on why they're not there already.

Speaker 1 (04:23):
And yeah, we've definitely tried to get them on a
lot of a number of times. It's not for lack
of trying. Hey, what's with Costco having one store? Do
you think are their plans for more? Do you know
like what it is that edit?

Speaker 2 (04:38):
Yeah, no, there was when I I've been retired now
for a year or a year and a bit now,
so when I left it, it definitely was. We're looking
at different parts of the New Zealand market Auckland and
christ Church and Wellington with the cities of interest. So
where that's at right now, I don't know. I can't
help you with that one.

Speaker 1 (04:56):
All right, Patrick, You've helped us with a lot more
than that, so I appreciate your time. Patrick, Noon, Men director,
former managing director, I should say cost code.

Speaker 2 (05:03):
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Speaker 1 (05:05):
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