Countdown goes on PR offensive

BACKLASH: Countdown boss Dave Chambers says the company has lost revenue and market share since claims were made in Parliament over its treatment of suppliers.
BACKLASH: Countdown boss Dave Chambers says the company has lost revenue and market share since claims were made in Parliament over its treatment of suppliers.

Countdown managing director Dave Chambers is going on a PR offensive following a massive consumer backlash to allegations made under parliamentary privilege that the supermarket chain was badly treating its suppliers.

Dave Chambers is facing the most stressful and testing time of his grocery career, a career which started back in 1979 when he was 17, packing supermarket shelves for Foodtown.

The managing director of Countdown looks like the pressure is starting to tell. He also looks like he'd make a tough adversary. And he had a typical Kiwi male reaction when asked how he was dealing with the stress.

"How do people deal with anything?," he countered. "It goes with the responsibility of the role."

Accusations of anti-competitive behaviour are a serious problem and one that has taken a significant financial toll on the company to date despite deeper discounting to try to win back market share.

As we spoke it was six weeks and one day - yes, Chambers is counting - since Labour MP Shane Jones stood up in Parliament under the privileged protection that provides, and accused Countdown of blackmail and extortion against its New Zealand suppliers. He claimed families had lost their businesses after standing up to Countdown, while another had been given just hours to produce money to make up for poor trading.

Chambers has put his reputation on the line by categorically denying Jones's allegations, saying legal action would have been taken if they hadn't been made in Parliament. He hasn't met with Jones to discuss the claims, but I doubt he'll be voting Labour this general election.

Chambers has also spent the six weeks and one day doing a comprehensive internal investigation into all dealings with its 1200 suppliers, including following the email trails of the 160 people within the merchandise team whose job it is to negotiate with those companies. He wanted to ensure, he said, there had been "no rogue" he didn't know about. Nothing untoward was found, he said.

What he'd also like to know is which suppliers have laid complaints with Jones or the Commerce Commission which is still investigating the allegations. The commission has said only that it had received several supplier complaints - fewer than 30 - and mostly against Countdown. It refused to confirm Labour's claims, again made in Parliament, that it had received a complaint that was later withdrawn, from a supplier relating to a $2 million retrospective payment.

Chambers said he has written to the commission asking for more detail around the complaints and is awaiting a reply. So far that's been the extent of his interaction with the regulator. What he'd like, he says, is a quick end to the inquiry so the allegations can be laid to rest. The commission was unable to say how long its inquiry would take.

Jones said in Parliament that an Australian merchandise manager who had fled from a regulatory investigation in Australia had "caused these dramas". Chambers said a new merchandise manager, who happened to be an Australian, started with the chain in November.

It gets under his skin when the chain's ownership by Australia-based Woolworths gets referred to constantly by its critics and the media. Other New Zealand subsidiaries - he pointed to the owner of the Sunday Star- Times, Fairfax Media New Zealand, as one - don't constantly get called "Australian-owned". "We employ over 18,000 New Zealanders and other nationalities . . . and paid over $60 million of tax in New Zealand last year," he said heatedly. In fact, it was $62m of tax off revenue of nearly $5.8 billion. Profit was $155m in the year ending June 30, up $26m or so on the year before.

Wellington born and raised in Auckland, Chambers is a proud Kiwi. "There's only one flag flying outside this building."

Chambers started an accountancy degree at Auckland University after having an after-school job working in a supermarket. But he didn't last a year, turning instead to a management training scheme offered by Foodtown, as the chain was once known. He prefers the cut and thrust of business, saying "grocery gets in your blood".

Woolworths bought the company in 2005, cutting down to just one grocery brand three years later, a brave move given grocery retailers around the world have struggled to change brands successfully. Chambers was part of the management team executing that brand change and moved to the managing director role three years ago, just one week before the Christchurch earthquake struck.

That baptism by fire has paled in comparison to the current challenge he's facing, which is why he's finally embarked on a PR campaign with the media, wanting to "get some balance" in what has been reported. The biggest backlash has been on social media - so much so that Chambers said he had to stop reading most of it. What he's focused on has been communicating with staff around the country and allaying their concerns.

So how would he characterise Countdown's relationship with its suppliers? On the whole, it's pretty good, he said. But then you'd expect him to say that.

"I'm not saying that tongue in cheek or in a smart way," he said.

It has 35,000 products in its catalogue and averages 24,000 products in store. "We get pressured to take 7000 new products a year and have to make ranging decisions because our shelves are full. When presented with attractive terms to take new ones over old ones, out of that some people will be happy and some unhappy." Some existing suppliers had offered better terms to avoid being replaced.

After the group analysed trading and other data to better understand its supplier arrangements in New Zealand and Australia late last year, it decided to change its purchasing stance. The Sydney Morning Herald reported last month that Woolworths was poised to regain its crown as Australia's fastest-growing food and liquor retailer after posting its strongest sales growth since 2011, aided by rising food prices, clever marketing and better relationships with its suppliers. Analysts said it was investing more on big data and engaging better with suppliers, focusing less on price cuts and more on strategies to grow category sales.

Here, Chambers said they discovered the large multinational suppliers that dominated their top 10 categories by sales value were charging significantly more for their products than in other countries. Woolworths was paying a lot less for the same goods in Australia than in its New Zealand subsidiary and Kiwi consumers were subsequently paying more for their groceries than they arguably should.

It went back to these suppliers demanding more transparency around the costs on transportation to New Zealand, and prices that better reflected what others were paying overseas. Again not all suppliers were happy, if any. Some have settled new terms while others are still negotiating.

Chambers' peppers his speech with reference to cheaper prices for customers. He raises it around every 10 minutes during our interview. He makes no excuse for being a hard negotiator with suppliers if it means better prices for customers.

"That's our job."

But he insists there's a marked difference between that and bully-boy tactics as it's not in Countdown's own long-term interests to have a bad relationship with suppliers or see them go out of business.

That echoes what his Australian boss, Woolworths CEO Grant O'Brien, said after it and rival Coles came under scrutiny by the competition watchdog over allegations of improper practices for squeezing suppliers. O'Brien said last month the chain operated between the customer wanting cheaper groceries and suppliers wanting a sustainable business.

"We operate in between and wear the praise of the customers and the scorn of suppliers sometimes and, on other occasions, it's the other way round. It's a balance and we're happy to do that but the relationship we favour is in the customers' direction."

Consumers often complain about paying more for groceries here than in other markets but Chambers said Countdown's earnings before income and tax were 5.1 per cent on sales.

"I make 2.5 cents in the dollar after interest and tax in New Zealand. Those profit margins are not out of line with other industries' and less than some. They're a lot less than some of our suppliers' margins."

The Green Party has suggested New Zealand copy Britain's supermarket code of conduct to prevent bullying of suppliers in a market with two dominant suppliers - Countdown and Foodstuffs. The Greens will push the code, including an adjudicator to oversee it, should it be asked to join a coalition to form the next government.

Unsurprisingly Chambers doesn't favour the idea, saying it would just increase prices. If one was introduced he said it should be voluntary as is the Australian one. He thought it should also work both ways, applying to supermarket operators and suppliers.

While expressing a desire to be transparent, Chambers was tight-lipped around the nitty gritty of terms with suppliers.

When asked what payments suppliers made to the chain he said "there are many things in the trading terms".

When pressed he added: "We do things by negotiation, not unilaterally. Our discussions with suppliers are around how to partner for growth."

Yeah, but what about the payments?

The terms may include retrospective payments if the agreed amount of sales are not achieved, he said.

"We have all sorts of things including volumetric rebates - for selling more we get a better deal. What I can say is those conditions are agreed upfront.

"The allegations were about cash payments with menaces. I have put my reputation on the line and stated publicly, those allegations are wrong."

When Chambers is feeling the pinch he likes to get out of the Mangere head office and either hits a store to chat with customers or dons a hard hat to wander through the adjacent distribution centre.

"You have to get on with things and the best way to get on and deal with the stress we're under is to focus on the business and do what we do well - trying to bring lower prices to Kiwis."

THE FUTURE

Countdown has an estimated 44 per cent share of the packaged goods grocery market, with its main rival Foodstuffs soaking up most of the rest.

As part of its shift to consider what a supermarket of the future may look like, Countdown is looking at what it can add to the grocery mix to grow its market share, particularly those goods that attract higher margins. It's adding more pharmacies to its supermarkets with an outside partner in order to get around fairly outdated restrictions on the number of pharmacies one pharmacist can own.

It's also considering a move into bottle stores as its Australian owner Woolworths has, expanded its kitchenware range, and is testing the waters on selling clothes. It started selling apparel in one West Auckland store last December and will trial it in six or seven stores nationwide before deciding whether to take it further.

Sunday Star Times