Kaufland Stores in Victoria Advisory Committee
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Kaufland Stores in Victoria Advisory Committee Expert Witness Statement Sean Andrew Stephens, B. Econ (Honours) Managing Partner, Essential Economics Pty Ltd November 2018 Contact details For further details please contact Essential Economics Pty Ltd at one of our offices: 96 Pelham Street Level 26 / 44 Market Street Carlton Sydney Victoria 3053 New South Wales 2000 Australia Australia PH +61 3 9347 5255 PH +61 2 9089 8654 FAX +61 3 9347 5355 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 KAUFLAND STORES ADVI S O R Y P ANEL ECONOMIC EVIDENCE – SEAN ANDREW STEPHENS 1 INTRODUCTION 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. Essential Economics 1 KAUFLAND STORES ADVI S O R Y P ANEL ECONOMIC EVIDENCE – SEAN ANDREW STEPHENS 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. Essential Economics 2 KAUFLAND STORES ADVI S O R Y P ANEL ECONOMIC EVIDENCE – SEAN ANDREW STEPHENS 2 DETAILS OF THE PROPO SAL 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. Essential Economics 3 KAUFLAND STORES ADVI S O R Y P ANEL ECONOMIC EVIDENCE – SEAN ANDREW STEPHENS 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. Essential Economics 4 KAUFLAND STORES ADVI S O R Y P ANEL ECONOMIC EVIDENCE – SEAN ANDREW STEPHENS Map 2.1 Kaufland Stores Metropolitan Melbourne Location Context Source: Kaufland, Essential Economics with MapInfo and Bing Maps Essential Economics 5 KAUFLAND STORES ADVI S O R Y P ANEL ECONOMIC EVIDENCE – SEAN ANDREW STEPHENS 3 CONTEXT FOR KAUFLAND 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