KAUFLAND MORNINGTON ECONOMIC IMPACT ASSESSMENT PEER REVIEW

EXPERT EVIDENCE STATEMENT

PAUL SHIPP, DIRECTOR, URBAN ENTERPRISE PTY LTD

15 FEBRUARY 2019 PLANNING AND PROPERTY PARTNERS

Urban Enterprise Urban Planning / Land Economics / Tourism Planning / Industry Software

www.urbanenterprise.com.au

1 CONTENTS

1. QUALIFICATIONS ...... 1 2. ENGAGEMENT ...... 2 3. PROPOSAL ...... 3 3.1. CONTEXT 3 3.2. SUBJECT SITE 3 3.3. PROPOSAL 4 3.4. ECONOMIC ASSESSMENT TRIGGERED 5 4. ECONOMIC IMPACT ASSESSMENT ...... 6 4.1. CONTENT AND STRUCTURE 6 4.2. KEY ELEMENTS AND OVERALL COMMENTS 6 5. PEER REVIEW FINDINGS ...... 7 5.1. TRADE AREA 7 5.2. COMPETING RETAILERS 9 5.3. ESTIMATED SALES POTENTIAL 11 5.4. RETAIL EXPENDITURE PROJECTIONS AND MARKET SHARE 12 5.5. ECONOMIC IMPACTS 14 5.6. NET COMMUNITY BENEFIT 16 6. SUBMISSIONS ...... 18 7. CONCLUSIONS ...... 20 APPENDICES ...... 21 APPENDIX A REQUIREMENTS OF PLANNING PANNELS VICTORIA – EXPERT EVIDENCE 21

FIGURES

FIGURE 1 SUBJECT SITE LOCATION AND SURROUNDING CONTEXT ...... 3 FIGURE 2 MAIN TRADE AREA ADOPTED IN EIA ...... 7 FIGURE 3 SECTIONS OF THE MTA IN EXCESS OF 10 MINUTE DRIVE FROM SUBJECT SITE ...... 8

TABLES

TABLE 1 SUMMARY OF PROPOSAL FLOORSPACE ...... 4 TABLE 2 MTA POPULATION AND PROJECTION ESTIMATES ...... 9 TABLE 3 COMPETING AND FLOORSPACE IN MTA ...... 9 TABLE 4 POTENTIAL FLOORSPACE AND TURNOVER BREAKDOWN, BASED ON EIA ASSUMPTIONS ...... 11 TABLE 5 REVISED ESTIMATES OF MARKET SHARE AND ECONOMIC IMPACT ...... 14

1. QUALIFICATIONS

1. My name is Paul Shipp and I am a Director of Urban Enterprise Pty Ltd, situated at Level 1, 302-304 Barkly Street, Brunswick. 2. Urban Enterprise is a firm of urban planners, land economists and tourism planners based in Melbourne. The firm has 30 years’ experience providing consultancy services to all levels of Government and a wide range of private sector organisations in Victoria and in other States of Australia. 3. I am a qualified urban planner and economist with 13 years’ experience consulting on planning, economic and tourism matters. 4. My educational qualifications and memberships of professional associations include:  Bachelor of Urban Planning and Development, University of Melbourne;  Master of Commerce, RMIT University;  Registered Planner, Planning Institute of Australia;  Member, Victorian Planning and Environmental Law Association 5. I specialise in the field of urban economics and have prepared a wide range of economic assessments for the residential, retail, commercial, industrial and tourism sectors to inform planning strategies, economic strategies, structure plans and economic impact assessments and Planning Scheme Amendments. 6. I have appeared as an expert witness at Planning Panel, Advisory Committee and VCAT hearings on many occasions in respect of urban economic and development contributions matters.

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2. ENGAGEMENT

7. I was instructed by Planning and Property Partners on behalf of Australia Pty Ltd to prepare an expert evidence statement to present at the Advisory Committee hearing in relation to this matter. 8. My instructions were to prepare an expert witness statement for the Mornington site which:  Provides a peer review of the Kaufland Australia Proposed Store Mornington, Melbourne Economic Impact Assessment, November 2018, Dimasi and Co (the Economic Impact Assessment, or the EIA);  Provides a response to submissions received, as relevant to my expertise;  Provides an analysis of the anticipated impact on nearby Activity Centres; and  Notes that the store operating hours will be 7am to midnight. 9. I have reviewed the following relevant documentation:  Kaufland Australia Proposed Store Mornington, Melbourne – Economic Impact Assessment, November 2018, Dimasi & co (the EIA);  Kaufland in Victoria, Consumer and Economic Impacts – Overview, June 2018, Dimasi & co (the Consumer and Economic Impacts Overview);  Town Planning Assessment, Kaufland Network – Victorian Entry Proposal, Part Seven, 1158 Nepean Highway, Mornington, Revision 2, Planning and Property Partners (the Planning Assessment); and  Town Planning Application Drawings and Designs Rev E1, Kaufland, Mornington, Leffler Simes Architects (June 2018) (the exhibited TPA Plans), and an amended set of plans shown as Rev ACP (Amended Plans).

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3. PROPOSAL

10. In this section, I provide a summary of the proposal as relevant to my instructions and expertise.

3.1. CONTEXT

11. Kaufland is a major German supermarket brand seeking to establish a presence in Australia and Victoria. 12. In the initial phase of its introduction to Victoria, Kaufland Australia propose to establish six Kaufland supermarkets in Melbourne in the suburbs of Dandenong, Epping, Oakleigh South, Coolaroo, Chirnside Park and Mornington.

3.2. SUBJECT SITE

13. In Mornington, a new Kaufland supermarket is proposed to be established at 1158 Nepean Highway, Mornington (the subject site). I provide an aerial image of the subject site and surrounds at Figure 1. 14. The subject site is currently within the Industrial 3 Zone of the Mornington Peninsula Planning Scheme. 15. The subject site has frontage to the Nepean Highway, which is a major arterial road connecting central Melbourne with the Mornington Peninsula, traversing through most major townships along the Port Phillip Bay coastline. 16. The subject site is located adjacent to the Mornington Industrial Park and an existing large format retail centre (known as Peninsula Home), which contains an supermarket and several major national large format retailers including Bunnings Warehouse, Forty Winks, Officeworks, Repco, BCF, Harvey Norman and Rebel Sport. 17. The subject site is located approximately 2km east of the Mornington Activity Centre, or 3.5km (7 minutes) by road.

FIGURE 1 SUBJECT SITE LOCATION AND SURROUNDING CONTEXT

Source: Urban Enterprise.

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3.3. PROPOSAL

18. Kaufland propose to establish a new Kaufland supermarket, ancillary retail floorspace and car parking at the subject site (the proposal). 19. My peer review was based on the TPA Plans and not the Amended Plans. I have reviewed the Amended Plans and note that the floorspace allocations are identical to those in the TPA Plans, with minor differences to internal space and car parking noted below. 20. Based on my review of the TPA Plans (p.5) and the Planning Assessment, the proposal will consist of:  A Kaufland supermarket containing 5,528 sqm of leasable floorspace;  Two separate retail tenancies with a combined total of 554 sqm of leasable floorspace (including a Food Hall in the Amended Plans);  Egress, entry, mall and toilet areas totalling 931sqm of non-leasable area; and  430 car parking spaces (380 spaces in the Amended Plans). 21. In Table 1, I provide a summary of the proposal in terms of leasable retail floorspace, derived from the TPA Plans and the Planning Assessment. 22. I calculate that the proposal will contain approximately 6,082sqm of leasable retail area. 23. In the course of my peer review, it was not clear to me whether the EIA assesses the impact of the Kaufland floorspace only (i.e. 5,528 sqm) or the total leasable area of the proposal (6,082 sqm).

TABLE 1 SUMMARY OF PROPOSAL FLOORSPACE

KAUFLAND LEASABLE OTHER RETAIL TENANCY TOTAL LEASABLE USE AREA (SQM) LEASABLE AREA (SQM) RETAIL AREA (SQM) Supermarket 3,610 0 3,610 Liquor 354 0 354 Administration and ‘back of house’ 1,564 0 1,564 Other tenancies 0 554 554 Total 5,528 554 6,082 Source: TPA,, pg. 5.

POSITION IN THE SUPERMARKET HIERARCHY

24. The Kaufland supermarket model is considerably larger in terms of floorspace than the typical full-line supermarket model of Coles and Woolworths which make up the majority of supermarkets in Australia. 25. Full-line Coles and Woolworths supermarkets commonly contain in the order of 3,000sqm to 4,000sqm of retail floorspace, however some more recent supermarkets contain between 4,000sqm and 5,000sqm. 26. Larger format supermarkets are less common in Melbourne, however there are some examples such as Costco (Docklands, Epping, Ringwood and Moorabbin, approximately 13,000 sqm – 14,000sqm) and La Manna (Essendon Fields, 10,000sqm). 27. Smaller format supermarkets are becoming increasingly common in Victoria, driven by the ongoing roll-out of Aldi stores across the state (commonly in the order of 1,500sqm) and IGA stores which commonly range from 1,000sqm to 3,000 sqm. 28. The Kaufland model will be positioned at the upper end of the full-line supermarket range in terms of floorspace, and will be considerably larger than the ‘typical’ full-line Coles or Woolworths supermarket in metropolitan Melbourne. As a result, I note that there is a relative lack of precedent for key economic elements of the proposal such as likely trade area and trading performance.

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3.4. ECONOMIC ASSESSMENT TRIGGERED

29. I understand that a Planning Scheme Amendment is required to facilitate the proposal. 30. Ministerial Direction 11 (Strategic Assessment of Amendments) and Planning Practice Note 46 (Strategic Assessment Guidelines for preparing and evaluating planning scheme amendments) require that a comprehensive strategic evaluation of a Planning Scheme Amendment is undertaken. In respect of economic issues, this primarily includes:  An assessment of how the amendment addresses any economic effects; and  An assessment of the Net Community Benefit of the amendment. 31. My peer review focuses on the extent to which the content of the EIA addresses these economic considerations. 32. My instructions and scope of work do not extend beyond these economic considerations, such as to matters of planning policy.

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4. ECONOMIC IMPACT ASSESSMENT

4.1. CONTENT AND STRUCTURE

33. The EIA contains 44 pages of economic and retail analysis and commentary with the following structure:  Section 1 presents a general overview of the supermarket sector in Australia and Melbourne, containing similar information to the Consumer and Economic Impacts Overview report, which related to the overall introduction of Kaufland to Victoria and the broader economic and retail conditions within the supermarket sector, along with commentary on the opportunity for Kaufland to meet the growing food and grocery needs of the Melbourne population;  Section 2 presents information about the nature of the Kaufland store format and attributes of the retail offer that are distinct from other supermarket and retail offerings, similar to content provided in the Consumer and Economic Impacts Overview report;  Section 3 contains 24 pages of analysis of the proposal itself, focusing primarily on the expected trade area, competing supermarkets, sales potential and an analysis of expected market share across the various retail types. Section 3 also includes commentary on the expected impact of the proposal on existing supermarkets in the trade area and commentary on the expected community benefits of the proposal. 34. In my view, the substantive content of the EIA relevant to forming a view on the size of the market for a new supermarket, the economic impact of the proposal and the net community benefit of the proposal is contained in Section 3 of the EIA. Sections 1 and 2 essentially provide contextual information for the proposal and inform some of the assumptions applied in Section 3. 35. For this reason, I have focused my review on the content and findings of Section 3 of the EIA.

4.2. KEY ELEMENTS AND OVERALL COMMENTS

36. The elements or ‘building blocks’ of Section 3 of the EIA that in my view are most consequential are as follows:  Establishing an appropriate Trade Area;  Accurately quantifying the population, demographic and growth profile of the Trade Area;  Identifying and accurately quantifying the competing supply of retail floorspace in the Trade Area;  Estimating the likely sales potential of the proposal at the outset and over time;  Estimating and projecting retail expenditure potentially available to the proposal from within and outside the Trade Area, considering population growth, retail expenditure growth and the role of passing trade and visitors;  Assessing the likely market share of the proposal. 37. These ‘building blocks’ are then used to inform subsequent analysis and conclusions drawn in relation to:  The economic impact of the proposal on existing retailers and centres; and  The net community benefit of the proposal. 38. Overall, it is my view that the method and structure of the EIA are sound and follow the method commonly applied in retail economic assessments. 39. I consider that the resulting assessments of economic impact and net community benefit are relatively limited in scope and depth. As a result, despite the comprehensive analysis of the key economic elements of the proposal, I have undertaken a closer review of the potential impact of the proposal on competing activity centres and of the elements which form part of a Net Community Benefit assessment in order to form my own conclusions on these matters. 40. The findings of my review are included in the following section of my statement.

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5. PEER REVIEW FINDINGS

41. In this section, I set out the findings of my peer review of the EIA, with a focus on the key elements of Section 3 of the report.

5.1. TRADE AREA

42. The EIA adopts a Main Trade Area (MTA) which extends from Frankston South in the north to Mount Martha in the south, encompassing the suburbs of Mornington, Mount Eliza and Mount Martha, along with small sections of Moorooduc and Frankston South. 43. The trade area adopted in the EIA is shown in Figure 2.

FIGURE 2 MAIN TRADE AREA ADOPTED IN EIA

Source: EIA, 2018 (pg 24). 44. The EIA identifies that “the main trade area is relatively extensive, and is larger in extent than would be the case for most typical Australian supermarkets, such as those operated by Woolworth or Coles.” (pg. 25). 45. The EIA identifies three major reasons for the large main trade area as:  “The scale and nature of the proposed Kaufland store and its offer, including the many new attributes which the store will bring to food & grocery shopping for residents of the Mornington Peninsula” (p.25); and  “The site location and its accessibility, as previously noted. Almost all of the populated parts of the main trade area shown on Map 3.2 fall within a 10-minute drivetime of the site, the only exception being the southernmost part of Mt. Martha” (p.25); and  “The surrounding competitive network of supermarkets” (p.25). 46. I note that the EIA does not include consideration of secondary trade areas, which is common (but not ubiquitous) in retail assessments. Secondary trade areas account for areas peripheral to the primary trade area where residents are likely to use the retailer but less frequently than residents of the primary trade area due to lesser proximity / convenience and the likelihood of stronger competition for trade from other centres.

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47. Overall, I agree with the proposition in the EIA that the Kaufland supermarket is likely to have a larger catchment than a typical full-line Coles and Woolworths supermarket due to the differentiated retail offer and the larger overall floorspace. 48. My view is that the primary catchment for the proposal should reflect the offer of a new large format full-line supermarket which will primarily compete with other major supermarkets in the area for weekly food, groceries and liquor shopping. 49. I have reviewed the catchment area and note that sections of Mount Martha within the MTA are up to 15 minutes’ drive from the subject site and have access to an intervening full-line supermarket at Bentons Square and the proposed Mornington East Coles. This area includes approximately 8,600 residents (12% of the MTA population) that are more than a 10 minute drive from the subject site (see Figure 3). 50. In my view, these circumstances warrant a minor reduction in the trade area to exclude parts of Mount Martha and small sections of Frankston South.

FIGURE 3 SECTIONS OF THE MTA IN EXCESS OF 10 MINUTE DRIVE FROM SUBJECT SITE

Source: Urban Enterprise, using ABS SA1 base map provided by Remplan Mapbuilder.

MAIN TRADE AREA POPULATION AND GROWTH

51. The EIA states (p.26) that the MTA had an Estimated Resident Population of 69,599 people in 2016. 52. I have reviewed and confirmed this scale of population by reference to ERP data published by the ABS for small areas. I calculate that the population of the adopted MTA to be 70,222 in 2016, marginally higher than the EIA figure. 53. The EIA identifies that over the period of 2016-2021, the MTA will experience an average population growth of 0.5% per annum (p.34) and adopts an average growth rate of 0.4% between 2021 and 2031 (p.40). 54. I have prepared my own assessment of population growth within the MTA based on population projections prepared for Mornington Peninsula Shire Council by .id for the three areas of Mornington, Mount Eliza and Mount Martha which comprise the majority of the MTA. My estimates are shown in Table 2. 55. Based on my projections, I consider that the population estimates, projections and growth rates adopted in the EIA are broadly appropriate.

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TABLE 2 MTA POPULATION AND PROJECTION ESTIMATES

YEAR 2016 2021 2026 2031 AAGR (16-31) Peer Review Estimate 70,222 71,738 73,287 74,869 0.43% Economic Impact Assessment 69,599 71,874 72,964 74,568 0.46% Source: Urban Enterprise, using ABS ERP and Forecast ID.

5.2. COMPETING RETAILERS

56. The EIA (p.27-8) identifies eight existing and one proposed competing supermarkets within the MTA, with a combined floorspace of 18,000 sqm. 57. My review of desktop information and industry sources verified the competing supermarkets identified. In terms of floorspace, I estimate that the total competing supermarket floorspace is approximately 18,300sqm, slightly higher but broadly equivalent to the estimate in the EIA. 58. I note that the combined supermarket floorspace in the MTA following completion of the proposed Mornington East Coles and the proposed Kaufland would be in the order of 27,500sqm, a 50% increase on the current supply.

TABLE 3 COMPETING SUPERMARKETS AND FLOORSPACE IN MTA

FLOORSPACE LOCATION BRAND SOURCE (SQM) Mornington Village Woolworths 2,894 1 Bentons Square Woolworths 4,200 2 Mt Eliza Woolworths 2,717 3 Mornington Shopping Centre Coles 2,810 2 Mornington Village Aldi 1,334 1 Peninsula Home Aldi 1,571 1 Mt Martha IGA 930 2 Mt Eliza IGA 1,801 1 Total Existing 18,257 Mornington East (Proposed) Coles 3,700 1 Total Existing and Proposed 21,957 Source: 1. Shopping Centres Online Directory, PCA, 2017. 2. Desktop Research. 3. Development Assessment Committee report, 16/8/2010.

59. I undertook site visits to several competing supermarkets and activity centres and make the following observations: a. Mount Eliza:  Although relatively small, both supermarkets have been recently renovated and were busy at the time of my visit.  The activity centre includes a range of uses including offices, cafes, takeaway food, retail services and medical in shopfront premises with very limited internal shopping centre / mall space.  The location internal to the suburb (not on the Nepean Highway or other major through-road) and the focus on groceries, food and services indicates that the retail turnover of the centre would primarily be derived from local residents and workers in my view.  Mount Eliza is separated from the subject site by a 1.8km non-urban break (Green Wedge Zone) which primarily includes agricultural, educational and events uses with very few residences.

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b. Mornington Activity Centre:  Coles supermarket is located in a modern enclosed shopping centre and was busy at the time of my visit. A limited number of national brand specialty stores are also within the centre which is co- anchored by a large Target Discount Department Store. Substantial under-croft and at-grade car parking is available.  Woolworths supermarket and Aldi are located at the opposite end of the Activity Centre and were not observed to be as busy as other supermarkets visited. This shopping centre includes a number of discount shops (eg. Reject Shop) and does not appear to have been renovated or updated as recently as competing shopping centres and supermarkets (with the exception of the Aldi store).  Main Street accommodates a wide range of retail services, specialty retailers, hospitality and commercial floorspace. The streetscape is well presented, no vacancies were evident and both pedestrian and vehicle traffic was busy at the time of visit. Although premises are relatively old, most are well presented and many have new signage and modern internal fit-outs and furniture.  The substantial linear distance of the continuous shopfront strip along Main Street (approximately 900m), separation of supermarket anchors (600m) and strong observed footfall indicates to me that the activity centre does not rely solely on the supermarkets and convenience retail offer. To the contrary, there are a range of other drivers of visitation to the centre, including entertainment (Mornington Cinemas), hospitality (two hotels, restaurants and numerous cafes), employment and tourism.  At the residential interface of the Activity Centre substantial residential intensification is evident, in the form of townhouses, units and some apartments. c. Other Mornington supermarkets:  Bentons Square Woolworths is a large format full-line supermarket that was very busy at the time of visit, with young families particularly prominent. The supermarket is modern and provides a wide range of groceries, supported by a small number of food and non-food specialities and a Dan Murphy’s liquor store within the well presented shopping centre.  Bentons Square is located on a busy collector road (Dunns Road), is easily accessed from all directions by road and is central to the residential areas of Mornington. In my view, this appears to be a considerable advantage of this centre and a driver of its strong recent performance. Supermarkets in the Mornington Activity Centre are less accessible to outer lying residential areas given the location of the Activity Centre with a ‘single-sided’ catchment due to the proximity to Port Phillip Bay.  The proposed Coles Supermarket in Mornington East appears to be under construction within the former Masters hardware building. The site is located in close proximity to Bentons Square (1.3km on the same road) and therefore I expect it will primarily compete directly with the Woolworths for trade. 60. I agree with the view expressed in the EIA (p.28) that smaller convenience stores will not be materially impacted by the proposal given that these will provide a different offer to the larger format weekly shopping offer at Kaufland. 61. Although two local retail clusters are located in proximity to the subject site, such as Foodworks Mornington (1.2km) and a series of shops on Belaura Hill Road including a café, takeaway food and bakery (1km), these centres provide small-scale local convenience goods and services to the immediately surrounding residential areas. 62. Such convenience centres provide a different offer to full-line supermarkets in that they offer quick ‘top-up’ groceries and pre-prepared food for regular and ad-hoc shopping trips. Full-line supermarkets provide far greater choice and scale and generally provide for weekly shopping trips. 63. In my view, successful retail networks include a range of centre types and sizes across a hierarchy which includes higher order centres (such as Mornington), neighbourhood centres (such as Bentons Square and Mount Eliza) and local convenience strips such as that anchored by Foodworks Mornington.

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64. For these reasons, I agree with the EIA approach to exclude quantified consideration of retail impact of the proposal on centres which do not contain a supermarket.

5.3. ESTIMATED SALES POTENTIAL

65. The EIA (p.28) acknowledges that estimating the turnover of a Kaufland supermarket is difficult in the absence of existing operating stores in Australia. 66. The EIA (p.29) adopts the following distribution of sales for the proposed supermarket:  70% of sales from food and grocery items;  20% of sales from general merchandise; and  10% of sales from packaged liquor. 67. The EIA (p.28) notes that turnover densities for discount department stores (non-food) are approximately one-third or less of the levels generated by supermarkets (food and groceries). 68. On this basis, the EIA adopts a sales potential of the supermarket of between $40 million and $50 million per annum (p.29). This appears to relate to the supermarket only (i.e. excluding the ancillary retail tenancies and food hall). 69. The sales estimate equates to a turnover density of between $7,236/sqm and $9,045/sqm, 18-34% lower than current Coles and Woolworths average trading performance which is in the order of $11,000/sqm according to the Consumer and Economic Impacts Overview report (p.7). 70. In order to review the appropriateness of the sales potential estimate, I have derived an indicative floorspace distribution table (see Table 4) based on information included in the Town Planning Application and the EIA. 71. I note that the floorspace quantities are based on Gross Leasable Area (GLA), with leasable administration and back of house areas allocated to ‘food and groceries’ and ‘general merchandise’ in proportion to selling space breakdown.

TABLE 4 POTENTIAL FLOORSPACE AND TURNOVER BREAKDOWN, BASED ON EIA ASSUMPTIONS

FLOORSPACE TURNOVER ANNUAL % OF SALES / RETAIL TYPE (SQM) DENSITY ($/SQM) TURNOVER ($M) TURNOVER Food and Groceries 2,786 6 $11,307 6 $31.56 70%1 Liquor 3543 $12,7126 $4.56 10%1 General Merchandise 2,388 6 $3,769 4 $9.06 20%1 Totals 5,5285 $8,140 6 $45.02 100% Source: Urban Enterprise, 2019. Notes: 1. Distribution of sales by retail type, EIA p.29; 2. Mid-point of potential sales range, EIA p.29; 3. Liquor sqm, TPA p.5; 4. Derived based on general merchandise at one-third of food and groceries; 5. TPA p.5. 6. Derived. 72. My observations relating to Table 4 are as follows:  A significant proportion (43%) and quantum (approximately 2,400sqm) of supermarket floorspace would be dedicated to General Merchandise based on the information presented in the EIA, greater than would usually be the case in a typical Australian full-line supermarket;  The resulting turnover densities for each retail type appear appropriate when considered against current performance of supermarkets in Melbourne; and  Although the overall expected trading performance of the supermarket appears low at $8,140 per sqm, this is influenced by the significant proportion of sales from general merchandise. 73. The EIA notes that despite the low initial turnover density, it is anticipated that the gap between the turnover density of Kaufland and Australian full-line supermarkets will reduce over a 5 – 8 year period (p.30). I note that the EIA bases its impact assessment and conclusions on the initial trading performance in 2021.

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74. It is my view that the overall turnover density of the store is likely to remain lower than competing supermarkets due to the significant general merchandise floorspace at Kaufland. 75. In my opinion, the overall sales potential estimate adopted in the EIA is reasonable.

5.4. RETAIL EXPENDITURE PROJECTIONS AND MARKET SHARE

76. The EIA includes projections of available retail expenditure by residents within the MTA over the period 2016 to 2021 based on the following:  A population growth rate of 0.5% per annum (p.34);  Average retail expenditure of $14,748 per person per annum in 2016; and  An assumption that retail expenditure will increase in real terms at a rate of 1.2% per annum across all retail types on average and 1.5% real growth per annum for food and groceries. 77. Estimates of retail expenditure per person used in economic assessments of this nature are commonly sourced from independent data produced by Market Data Systems known as ‘MarketInfo’ data. This data is produced through micro-simulation, a modelling process which aligns socio-economic characteristics of spatial areas to aggregated retail expenditure data to produce small area estimates of average retail expenditure per person. 78. Based on my subscription to Market Info data, I estimate the average retail expenditure in the MTA in 2016 at approximately $14,385 per person. The difference between this amount and the EIA amount ($14,748) may be due to the base year of the data or the exact catchment area boundary. On this basis, I consider that the scale of per capita retail expenditure adopted in the EIA is appropriate. 79. Over the 10 years to March 2016, I estimate that retail expenditure per capita increased by approximately 1.15% per annum in real terms.1 Therefore, I consider that it is appropriate to forecast ongoing real growth in the order of 1.2% per annum across all retail types in the short to medium term. 80. In the case of this EIA, the majority (approximately 80%) of the projected growth in available food and grocery retail expenditure within the catchment (Table 3.7 of the EIA) is due to the expectation of real expenditure growth, with only 20% of the growth resulting from population growth in the catchment. Although I consider this to be a reasonable projection based on current conditions, if real growth does not occur as projected, average impacts could be marginally higher than estimated in the EIA. 81. Although the EIA does not utilise retail expenditure projections to estimate the quantum of additional supermarket floorspace that could be supportable over time, I agree with the overall assertion in the EIA that there will be an increase in expenditure in the MTA over time relevant to supermarkets and that this will generate the opportunity for additional supermarket floorspace to be provided in the catchment.

MARKET SHARE

82. The EIA (p.36) estimates the market share of the proposed supermarket in 2021 for each retail type. The key market share estimates are:  An overall market share of between 3.0% – 3.3%; and  Food and grocery market share of between 5.5% – 6.1%. 83. I have reviewed and verified the calculations of market share. 84. The sales distribution applied to calculate the market shares aligns with previous data in the EIA regarding a split of 70% food and groceries, 10% liquor and 20% general merchandise, combined with an additional assumption that 25% of all trade will be drawn from beyond the MTA.

1 Urban Enterprise, using National Accounts and Estimated Resident Population data sourced from the ABS.

EXPERT EVIDENCE – PAUL SHIPP KAUFLAND MORNINGTON EIA PEER REVIEW 12 PLANNING AND PROPERTY PARTNERS

85. My interpretation of Table 3.5 of the EIA is that the 25% ‘external’ trade allowance applies equally to all retail types based on their share of sales. The EIA bases this allowance on “the regional accessibility of the location and also the regional attraction of the large footprint Kaufland offer. The significant level of week-end and holiday visitation to the Mornington Peninsula would also drive beyond trade area business for the store” (p. 37). 86. In my experience, it is appropriate to allow for a proportion of supermarket trade to be drawn from beyond a particular residential catchment area to reflect the likelihood of passing trade, business expenditure and purchases by visitors. Allowances often ranges from 5% to 15% or higher, depending on factors such as:  Exposure and accessibility to major roads;  Proximity to major employment areas, institutions and other sub-regional attractors;  Proximity to major tourist areas, attractions and accommodation; and  The relative attractiveness of the retail mix to visitors and businesses. 87. Although the Nepean Highway is a major arterial road carrying substantial traffic volumes, the Mornington Peninsula Freeway (also known as Peninsula Link) is located in close proximity to the Nepean Highway through the Mornington area and significantly more visitors to the region use Peninsula Link and/or the Moorooduc Highway (77%) than the Nepean Highway (12%) as an arrival route to the municipality.2 88. The MTA attracts a degree of visitation and accommodates some holiday homes (particularly in Mount Martha), however the tourism role of the MTA is significantly less than other parts of the Mornington Peninsula such as Sorrento, Rye, Rosebud, Flinders and Balnarring. For example, only 13% of dwellings in Mornington were unoccupied on Census night in 2016 compared with 66% in the Portsea / Sorrento area, 47% in Flinders and 43% in Dromana (ABS, 2016). Unoccupied dwellings are a strong indication of holiday homes, taking into consideration a natural rate of dwelling vacant as indicated by Melbourne’s average of 10% unoccupied in 2016 (ABS). 89. Although some visitors to the region may be encouraged to stop at Kaufland on route to visitor destinations elsewhere in the region, I consider that the proportion of trade that will be generated from visitors to the region may be less than that shown in the EIA. However, I agree that the Kaufland store would attract some residents from beyond the ‘primary’ catchment due to the different product offer and mix to what is available in the majority of full-line supermarkets in the region at present. 90. The Mornington Peninsula Activity Centres Strategy (2018) estimates that the average proportion of retail sales generated by visitors across the municipality is 14% (p.32). This average takes into account areas such as Sorrento, Rye and Rosebud where a significant proportion of retail trade is generated by visitors in the summer months. 91. For these reasons, it is my view that a more appropriate allowance for trade outside the MTA would be in the order 20%, acknowledging the significant passing traffic on Nepean Highway, the nearby business area and schools, and the differentiated product offer of Kaufland compared to other full-line supermarkets. Adopting my allowance would result in a marginally higher market share of the Kaufland store compared to that shown in the EIA.

2 Urban Enterprise primary research based on a random sample of 814 visitors to the Mornington Peninsula conducted in January 2019.

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5.5. ECONOMIC IMPACTS

IMPACTS ON EXISTING RETAILERS

92. The EIA states that:  Existing supermarkets within the MTA would expect to see a “modest trading impact” of between 5% - 6% (p.38), which would be a one-off impact after which all businesses would compete equally for future growth; and  The EIA also states that the introduction of Kaufland would result in “little or no real growth for 2-3 years for existing operators, on average” (p.38). 93. The EIA does not include any calculations or detailed analysis to underpin or enable verification of the above statements. 94. The trading impact for supermarkets in the MTA of 5-6% reflects the estimated market share of Kaufland within the food, groceries and liquor categories, meaning that the impacts shown in the EIA represent an average impact across all food, grocery and liquor retailers across the MTA on the assumption that all of these retailers compete equally for trade within the MTA. 95. As noted earlier in my statement, I have identified suggested changes to the EIA assumptions relating to the catchment area of the proposed supermarket and the proportion of trade that might be drawn from outside this catchment. I have calculated the revised market shares (and therefore economic / trading impact) on supermarkets in the MTA, adopting all other assumptions, base data and methods from the EIA. 96. The results are shown in Table 5. Using the method set out in the EIA, I estimate that the food liquor and groceries market share and economic impact of the Kaufland proposal is likely to range from 6.6% to 7.6% at commencement of trading, depending on the assumed turnover of the supermarket at commencement ($45m or $50m).

TABLE 5 REVISED ESTIMATES OF MARKET SHARE AND ECONOMIC IMPACT

ECONOMIC IMPACT PEER REVIEW ASSESSMENT RETAIL CATEGORY $45M $50M $45M $50M Food & Groceries 5.50% 6.10% 6.60% 7.40% Liquor 5.70% 6.30% 6.80% 7.60% Food Catering 0.00% 0.00% 0.00% 0.00% Apparel 1.70% 1.90% 2.10% 2.30% Homewares 0.90% 1.00% 1.10% 1.20% Leisure 2.80% 3.10% 3.30% 3.70% General Retail 1.60% 1.80% 1.90% 2.10% Retail Services 0.00% 0.00% 0.00% 0.00% Total 3.00% 3.30% 3.60% 4.00% Source: Urban Enterprise, based on EIA.

DISTRIBUTION OF IMPACT

97. I agree with the assertion in the EIA (p.38) that trading impacts may be higher for some retailers than others. As noted in the EIA, the extent to which individual retailers are initially impacted by the proposal will vary based on a wide range of factors, primarily:  Proximity to the subject site;  Comparability and scale of product offer; and  Relative quality, presentation and accessibility of premises. 98. In my view, trading impacts will be spread across several supermarkets in the MTA, including:

EXPERT EVIDENCE – PAUL SHIPP KAUFLAND MORNINGTON EIA PEER REVIEW 14 PLANNING AND PROPERTY PARTNERS

 Two Aldi supermarkets which currently offer a discount grocery model similar to Kaufland, albeit at a considerably lesser scale; and  Four full-line supermarkets which currently operate in the MTA (with a fifth approved) which offer a complete range of food, liquor and groceries. 99. I expect these six (soon to be seven) supermarkets to be impacted most by the introduction of Kaufland, with further impacts to smaller supermarkets in the catchment, as well as some further impacts to retailers beyond the catchment area, particularly in the non-food category. Three of the supermarkets are located within the Mornington Activity Centre, while the other three are each in separate small retail centres. 100. Importantly, there is no direct / equivalent competitor for Kaufland in Mornington of comparable scale and product offer. This means that impacts are likely to be relatively evenly spread throughout the catchment. 101. Although some economic impact assessments seek to quantify the expected trading impact on individual retailers, the wide range of supermarkets in the MTA makes this type of exercise difficult to estimate with any certainty in Mornington. It is my view that the level of impact on individual retailers is less relevant than the potential level of impact on existing activity centres, primarily in relation to retailers which ‘anchor’ an activity centre. The most relevant question in respect of economic impact (and subsequently a key input to Net Community Benefit) in my view is whether the retail role of a particular activity centre is impacted to the extent that its ongoing viability is threatened, especially if a retail anchor were to fail.

MORNINGTON ACTIVITY CENTRE

102. The Mornington Peninsula Activity Centres Strategy (ACS) identifies Mornington as a “Major Activity Centre” (p.32) and Bentons Square and Mount Eliza as “Large Township Centres” (p.36). 103. As noted earlier in my evidence, Mornington Activity Centre includes a wide range of land uses and activity drivers, including employment, entertainment, retail, civic, hospitality, open space and tourism. 104. In respect of Mornington, the ACS identifies that:  The role of the Activity Centre is that of a higher order centre which “contains a highly diverse and sophisticated retail and commercial sector” (p.32).  The Activity Centre contains 73,100sqm of total retail and commercial floorspace in 2018, including 47,300sqm of retail floorspace.  There are “very low vacancy rates and limited opportunities for new businesses to locate in the centre” (p.32). 105. By comparison, the Kaufland proposal is for a large format supermarket and minor ancillary retail floorspace with approximately 6,000sqm of retail floorspace. When considered together with the Aldi supermarket at Peninsula Home, the core retail floorspace in the wider precinct would total 7,500sqm, less than one-sixth of the retail floorspace in the Mornington Activity Centre. 106. In my view, the Mornington Activity Centre is anchored by a range of retail and non-retail businesses such that the supermarkets play an important yet contributory role as part of the overall performance of the centre. 107. My assessment has found that expected trading impacts on Mornington supermarkets will range from 6.6% to 7.6%. The strong performance of the centre, as indicated by low vacancies, diversity of uses, quality of shopfronts and level of patronage indicate that the short term trading impacts experienced by supermarkets as a result of the introduction of Kaufland would not, in my view, compromise the overall performance, sustainability or viability of the activity centre or compromise the primacy of the centre as part of the Mornington Peninsula hierarchy. 108. It is my experience that the economic performance of ‘town centres’ or ‘major’ activity centres of comparable scale and attributes to Mornington generally benefits from differentiation from neighbourhood and supermarket-based centres by providing a mix of uses which together create a destination with diverse experiences including hospitality, recreation, entertainment, employment, tourism and higher order shopping

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appeal, often supported by higher surrounding residential densities. This differentiated role is evident in Mornington.

LARGE TOWNSHIP CENTRES

109. Bentons Square is trading very strongly and is well located to a large residential catchment. Although Kaufland would introduce new competition to the Woolworths, it is my view that a trading impact in the order of 6% - 8% will not threaten the ongoing viability of the supermarket or the activity centre. 110. As noted earlier in my statement, Mount Eliza is a diverse activity centre which accommodates a range of food, hospitality, health and employment uses primarily within an attractive main street environment away from major roads and highways. Both supermarkets have recently been renovated and were observed to be trading well. 111. Similar to my view in relation to the Mornington Activity Centre, I consider that the Mount Eliza activity centre is sufficiently differentiated from the proposed Kaufland supermarket to withstand any short term diversion of supermarket trade from the centre of up to 6.6% - 7.6%. I also note that the non-food retail role of Mount Eliza is limited and therefore I would not expect the introduction of substantial non-food retail floorspace at Kaufland to materially impact the performance of the centre.

5.6. NET COMMUNITY BENEFIT

112. The EIA concludes that the proposal will result in a Net Community Benefit based on the following:  The trading impact “will not be such a magnitude as to imperil the continued operation of any existing store, and are highly likely to be experienced primarily by the two largest supermarket and grocery store chains in Australia – Woolworths and Coles”. (pg. 43);  “Development of the store will generate a large number of new jobs, both directly and as a result of consequent multiplier induced effects, in the Victorian economy”. The EIA estimates an expected creation of 100 direct ongoing jobs at the supermarket (pg. 43).  “The eventual level of new job creation from Kaufland’s entry into Victoria will be likely to be in the thousands” with operations creating an estimated 600 jobs directions and an estimated 400 jobs in the headquarters office in Melbourne. (pg. 44).  Substantially improved shopping choice and convenience;  Downward pressure on grocery prices; and  An additional avenue for retail sales for local suppliers. 113. Although I agree with the economic benefits identified, I note that there is little detail in the EIA relating to how the benefits were assessed or considered against associated costs. I now provide my view on the primary economic costs and benefits in turn.

EMPLOYMENT

114. A proposal of this nature will generate new employment opportunities in the Mornington area. Employment densities for retail trade vary across municipalities, however it is common for overall densities to range between 30sqm and 50sqm per job in retail trade businesses. Applying these densities to the Kaufland proposal, I estimate that direct employment could range from 110 to 180 jobs plus indirect (flow on) employment impacts. 115. In the short term, this employment will be offset to some extent by the trading impacts on existing supermarkets, however the nature and scale of the Kaufland offer is such that I expect net employment in the short term to be positive due to trade being drawn to the Mornington area that would otherwise be met in other parts of the region.

EXPERT EVIDENCE – PAUL SHIPP KAUFLAND MORNINGTON EIA PEER REVIEW 16 PLANNING AND PROPERTY PARTNERS

COMPETITION, CHOICE AND PRICE

116. A fundamental principle of a strong retail sector is competition. As noted by the Australian Competition and Consumer Commission, “competition is essential to our economic prosperity; it drives innovation and productivity, and it lowers costs and improves product quality."3 117. The Australian supermarket sector is relatively concentrated, with Woolworths and Coles accounting for 83% of supermarket sales in 2017 (Consumer and Economic Impacts Overview report). The introduction of the Kaufland proposal to the Mornington area would provide greater competition to existing retailers, especially Coles and Woolworths but also Aldi, creating an incentive for all retailers to lower costs and prices. In my view, this level of competition is likely to result in a considerable economic benefit to the Mornington community. 118. Importantly, the Kaufland supermarket would introduce a new retail format and product mix to the area given the larger floorplate, introduction of new brands and a greater focus on non-food products. In this way, I expect Kaufland to both compete with existing supermarkets as well as providing a new retail offer that may have greater appeal to different segments of the market than the core market for traditional Australian supermarkets. The successful introduction of Aldi into the market over recent years has demonstrated the opportunity for such differentiation. 119. In my view, the additional choice and product diversity offered by the proposal will create an economic benefit to consumers in the area, as well as greater accessibility and reduced travel time to supermarkets for some sections of Mornington.

ACTIVITY CENTRES ECONOMIC BENEFITS

120. In my view, an important consideration of Net Community Benefit assessments is to ensure that a proposal will not threaten or materially weaken the economic benefits associated with spatial areas of economic specialisation and agglomeration. 121. In this case, my assessment identified that although some retailers in the Mornington Activity Centre would experience modest short term trading impacts and associated costs, the existing strength and diversity of the centre is such that I expect the area to maintain existing economic benefits of agglomeration after the Kaufland store is opened. 122. On balance, I consider that the range of economic benefits expected to be created by the proposal would outweigh the short term and relatively modest economic costs that would be spread across multiple existing retailers and activity centres.

3 Enhancing competition in retail, ACCC Chairman Rod Sims, 28 September 2016

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6. SUBMISSIONS

OVERVIEW

123. I have reviewed submissions to the proposal and identified 46 submissions that raise issues relevant to my instructions. These issues have been categorised into the following groups:  Submissions arguing that existing retail supply is sufficient to meet demand and/or that there is no need for a new supermarket in the area;  Submissions raising concerns about the impact of the proposal on the activity centre hierarchy;  Submissions raising concerns about the economic impact of the proposal on particular retailers; and  Submissions arguing that the proposal would not result in a Net Community Benefit. 124. I now provide my view on each issue.

EXISTING SUPPLY AND NEED

125. A number of submissions raise issues relating to the lack of need for a new supermarket. 126. I note that demonstrating need is not a specific requirement of this type of assessment, rather Net Community Benefit should be demonstrated (which I consider the proposal will achieve). 127. In any case, I have reviewed the EIA and am satisfied that the projections of future retail expenditure within the trade area are well-founded. Due to the two main influences of population growth and expected real growth in retail expenditure per person, the food and grocery retail expenditure (and therefore the supermarket ‘needs’) of residents in the Mornington area has increased substantially in recent years and is projected to increase by a further 35% ($135m) over the period 2016 to 2031. 128. In my view, it is important that new supermarket floorspace is provided in the coming years within the catchment to maintain suitable provision, access, choice and competition in the Mornington area.

ACTIVITY CENTRE HEIRARCHY

129. Several submissions raise issues relating to the impact of the proposal on the existing activity centre hierarchy, including through the creation of a new ‘activity centre’. 130. I have set out my view in relation to this matter in detail in my statement. From an economic perspective, my view is that the proposal will not undermine the ongoing integrity of the activity centre hierarchy or the primacy of the Mornington Activity Centre. 131. I consider that the proposal could successfully operate alongside existing activity centres considering the differences in scale, product offer and non-retail environment offered in Mornington and Mount Eliza compared with the proposal.

MARKET SHARE AND ECONOMIC IMPACT

132. Several submissions raise issues of impact on existing retailers and potential loss of local businesses. 133. Having reviewed the EIA, I agree with the proposition that Kaufland would primarily compete with full-line and Aldi supermarkets in the area and not compete directly with smaller convenience retailers which provide a different retail offer to consumers by virtue of their location and scale. 134. .Although there may be some initial trading impact for smaller businesses, these businesses primarily occupy a different part of the retail market and will continue to provide a different offer to consumers to that proposed by Kaufland.

EXPERT EVIDENCE – PAUL SHIPP KAUFLAND MORNINGTON EIA PEER REVIEW 18 PLANNING AND PROPERTY PARTNERS

135. My review of activity centre impacts and by extension the various supermarkets and specialty retailers located within the centres found that the trading impacts are expected to be modest and would not, in my view, threaten the ongoing viability of any particular centre.

COMMUNITY BENEFIT

136. A number of submissions raise the possibility of the proposal resulting in a net community disbenefit, or suggest that a Net Community Benefit has not been demonstrated. 137. Although the assessment of Net Community Benefit include in the EIA is limited, I have reviewed the various economic benefits and costs that can be readily identified at this stage of the proposal and am of the view that the proposal will result in a Net Community Benefit for the reasons set out in this statement.

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7. CONCLUSIONS

138. I have undertaken a peer review of the EIA and consider that the method, content and calculations are accurate and soundly based. 139. I have identified certain elements of the EIA that in my view warrant changes, particularly in relation to the establishment of a retail catchment area and the extent of trade that might be drawn from beyond this area. When these changes are factored into the analysis of economic impact using the same method as the EIA, I estimate the initial trading impact of the proposal on existing supermarkets in the catchment to be in the order of 6.6% to 7.6%. 140. In my view, the trading impacts on existing supermarkets will not threaten the viability of any particular retailer or activity centre. The street-based activity centres of Mornington and Mount Eliza are performing well and provide an offer that is differentiated from the proposal. The economic impact on the overall retail and activity centre hierarchy will therefore be minimal in my opinion. 141. On balance, I consider that the proposal will result in a Net Community Benefit, particularly due to benefits associated with greater competition in the supermarket sector and greater choice through the introduction of a new retail format and product mix to the area.

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

Paul Shipp Director, Urban Enterprise Pty Ltd BUPD, MCom, RPIA.

EXPERT EVIDENCE – PAUL SHIPP KAUFLAND MORNINGTON EIA PEER REVIEW 20 PLANNING AND PROPERTY PARTNERS

APPENDICES

APPENDIX A REQUIREMENTS OF PLANNING PANNELS VICTORIA – EXPERT EVIDENCE

NAME Paul Shipp, Director, Urban Enterprise Pty Ltd.

ADDRESS 1/302-304 Barkly Street, Brunswick, Vic 3056.

QUALIFICATIONS AND MEMBERSHIPS My educational qualifications and memberships of professional associations include:  Bachelor of Urban Planning and Development, University of Melbourne;  Master of Commerce, RMIT University;  Registered Planner, Planning Institute of Australia;  Member, Victorian Planning and Environmental Law Association.

EXPERIENCE I specialise in the field of urban economics and have prepared a wide range of economic assessments for the residential, retail, commercial, industrial and tourism sectors to inform planning strategies, economic strategies, structure plans and economic impact assessments and Planning Scheme Amendments. I have appeared as an expert witness at Planning Panel, Advisory Committee and VCAT hearings on many occasions in respect of urban economic and development contributions matters.

AREAS OF EXPERTISE Areas of expertise include strategic urban planning, urban economics and development contributions.

EXPERTISE TO PREPARE THIS REPORT I have qualifications in urban planning and economics and extensive experience in the field of urban economics gathered over the course of 13 years. I have prepared many assessments of retail need and retail impact for a range of project types, along with numerous economic assessments for all urban land uses. I am therefore qualified to prepare this expert witness statement.

INSTRUCTIONS My instructions were to prepare an expert witness statement for the Mornington site which:  Provides a peer review of the Kaufland Australia Proposed Store Mornington, Melbourne Economic Impact Assessment, November 2018, Dimasi and Co;  Provides a response to submissions received, as relevant to my expertise;  Provides an analysis of the anticipated impact on nearby Activity Centres; and  Notes that the store operating hours will be 7am to midnight.

FACTS, MATTERS AND ASSUMPTIONS RELIED UPON I have relied on the following for my assessment:

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 Kaufland Australia Proposed Store Mornington, Melbourne – Economic Impact Assessment, November 2018, Dimasi & co;  Kaufland in Victoria, Consumer and Economic Impacts – Overview, June 2018, Dimasi & co;  Town Planning Assessment, Kaufland Supermarket Network – Victorian Entry Proposal, Part Seven, 1158 Nepean Highway, Mornington, Revision 2, Planning and Property Partners; and  Town Planning Application Drawings and Designs Rev E1, Kaufland, Mornington, Leffler Simes Architects (June 2018) and an amended set of plans shown as Rev ACP.  Site visits to the subject site and nearby supermarkets and activity centres; and  Relevant experience.

DOCUMENTS TAKEN INTO ACCOUNT See above.

IDENTITY OF PERSONS UNDERTAKING THE WORK Paul A. Shipp

SUMMARY OF OPINIONS Refer to Section 7: Conclusions.

EXPERT EVIDENCE – PAUL SHIPP KAUFLAND MORNINGTON EIA PEER REVIEW 22 PLANNING AND PROPERTY PARTNERS

Urban Enterprise

Level 1 302-304 Barkly Street, Brunswick VIC 3056

(03) 9482 3888 www.urbanenterprise.com.au