Archive for 'Thoughtpieces'

I received a letter in the mail from Tony Gibbs today.  Not that I was the only one who was privileged in this way.  Every shareholder of Turners & Growers would have received the same letter.  Yes, you have heard right, Sauerkraut likes to keep his nose close to the wind and therefore invests in produce companies.  Not that you will find my name on the share register – John Key and I both manage our investments through trusts.  There are two significant differences though.  Firstly, John Key has access to a smidgen more capital than Sauerkraut and therefore tends to purchase slightly larger share parcels– and secondly, there is nothing blind about Sauerkraut’s trust!

Bu t I digress.  Anyway, this letter arrived today inviting me to the Turners & Growers AGM.  A couple of proxy forms were also floating around in the envelope and then there was this other letter.  A letter from one Howard Cedric Zingel.  If you now want to know who Howard Cedric Zingel is, you are asking the wrong cabbage head.  A quick Google search reveals that Howard Cedric Zingel lives in Tauranga and seems to be someone who invests in the share market from a position of knowledge, being a longtime member of the NZ Shareowners Association Inc.  So we have to assume Mr. Zingel takes his investing serious.

And serious investor that he is, Mr. Zingel intends to propose a Motion at the 2010 Annual General Meeting of Turners & Growers Ltd on 24 June 2010.  If you are interested in reading the Motion in full, you can satisfy your curiosity here, and if you want to know what Tony Gibbs thinks of the Motion you can check that out here.

The short version goes something like this:

Mr.  Zingel wants Turners & Growers to engage the services of Price Waterhouse Coopers  in order to establish whether shareholder dividends and capital could be maximized if “the growing assets of the Group could be split off and the worth thereof returned to shareholders.”

Alan Gibbs’ letter inviting me to the meeting and advising me that I get to vote on Howard Cedric Zingel’s Motion gets straight to the point.  “The Board,” says Tony Gibbs, “does not support this resolution on the basis that the retention and growing assets is consistent with the long-term strategic objectives of the group.”

So there you have it.  As the Board votes the majority of the stock, Mr Zingel’s Motion will be handsomely defeated.  And this is where this story could stop.
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What comes to your mind when you see a vehicle like this?  Brightly coloured, two front bits and no rear end, a re-engineered middle and a ruddy great banana on the top of the roof?

I don’t know about you, but what comes to my mind is that this very cleverly put together promotional vehicle reflects the state of our produce retail  industry.

The two front bits represent respectively the supermarkets – Foodstuffs (New World, Pak N’ Save) at one end and Progressive (Countdown/Wooolworths/Foodtown)  at the other.  The ‘bit in the middle’ is the rest of the retail industry – the urban green grocers, the fruit shops at the edge of town, the gate sellers, the farmers markets, the opportunitists at the roadside selling produce from their vans, the office fruit bowl stockists and the internet ‘box of stuff’ vendors.

There are several questions that play on my mind in connection with this state of the retail industry:

• How big are the two front bits, i.e., the supermarket produce share, really?
• What is a realistic level for the supermarket share of produce sales before it disturbs the industry value chain equilibrium?
• To what extent is ‘the middle bit’ dependent upon the two ‘engine drivers’ for its well being as opposed to being in control of its own destiny?
• How will the local New Zealand model be impacted by international trends in the next five years?

Let me start with this observation.

Fruit and vegetable ranges stocked in supermarkets are continuing to reduce, driven by item based shrink and profit consideration at both merchandise and buying office level. Buyers and category managers whose performance is judged by the profitability of narrow product categories are not prepared to gamble by stocking niche products.  Store staff with insufficient training are not best placed to sell non-mainstream produce.  So if I am looking for whitloof, fennel and red currants, I know that I will not find those in the supermarkets.

This thread will be continued over the next few weeks and comments are as always welcome.

There are several levels to this debate. The first and most basic level is – what is a margin and how do I calculate it? I don’t want to waste my time writing about something every retailer should understand, but unfortunately too few do.

The second level is product or category related margins. What should the margin on potatoes be, compared to the one earned by strawberries, bananas or turnips? What is a realistic margin, what is a fair margin and what is downright obscene?
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I bought a book the other day. There is nothing surprising in that as I buy quite a few. The book’s title, “How to catch a fish”, should also not raise any eyebrows. I do enjoy trout fishing and catching a “fish” in this instance means trout.

What is fascinating though is the author’s approach. Kevin Ireland is no mug. He is one of New Zealand’s most acclaimed writers and has published four novels, two memoirs and fifteen volumes of poetry. He also likes trout fishing and has taken a very methodical approach in his book. Izaak Walton, the 17th century English author revered in trout literati circles, wrote in the Compleat Angler that “… fishing was employment for his idle time… that was not idly spent… a rest to his mind, a diverter of sadness, a moderator of passions… a procurer of contentedness; and that it begat habits of peace and patience in those that professed and practiced it.”
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