The unfolding saga about the online grocery business Soupie is very sad, but also enthralling.
In case you missed it, Soupie has been placed in Voluntary Administration and it appears that the Company does not have sufficient funds to meet the most basic of obligations, including outstanding creditors, and staff wages.
It’s sad because, no one likes to see the efforts of a young and entrepreneurial business go under. No one likes to see hard working people lose their jobs. And none of us like seeing suppliers, workers or for that matter shareholders or lenders, losing money.
However, it’s enthralling watching our collective reaction to the failure. Firstly, this is not the only business failure going at the moment. But the news headlines would suggest otherwise. Most of the bandwagon jumpers have leapt to the conclusion that Soupie’s failure is due to the monopolistic behaviour of our major supermarket chains.
At the risk of signing against the chorus, I’m not so sure.
You see, when it comes to the reasons that a new business start-up might fail there are plenty of places to look. Here are a few of the questions we should ask. Was the idea any good? Was the business model right? Was the execution of the idea well managed? Did they have the right people? Was their marketing any good? I’ve come across plenty of people this week who had never heard of them.
Then there are the matters of the financial structure. Did the business have enough capital relative to what it was trying to achieve? Was the cost base appropriate? We’re the margins sufficient to justify the cost base.
You get the idea. And there another plenty more questions if you’d care to think about it.
I’m not saying that the industry structure is not the reason for Soupie’s failure. But I am saying that there are plenty of places to look before we jump to conclusions.
The grocery industry is an interesting place. On the back of inflation, the outgoing government chose to make the big grocery retailers a target. We’ve had a crack at oil companies and banks in the past, so why not supermarkets.
But it doesn’t matter what industry we are talking about, taking on the big guys, companies that have been around for decades, at their own game, with a start-up is going to have some risk. In such circumstances you have to do things differently.
The reality is that there are grocery providers who seem to be traveling ok who do not form part of the so called duopoly.
Farro operate a number of stores in Auckland. Their offer is different. They targeted at the high end shopper who might want high quality product or luxury brands represented at the kitchen table.
My Food Bag or Hello Fresh are different again. Their focus is the delivery of groceries direct to home, and ready to cook.
All of these businesses are in the grocery industry. All have identified a niche that they think can work. As far as I know, all seem to be operating profitably.
“…when it comes to the reasons that a new business start-up might fail there are plenty of places to look. Was the idea any good? Was the business model right? Was the execution of the idea well managed?”
And yet, all I’ve heard from the news media, the consumer advocates, the executives from other big retailers, and outgoing government ministers, is that Soupie’s failure is because of the duopoly market structure.
Earlier in the week, the reactionaries to the Soupie administration included the chief product officer of The Warehouse, who on the radio, was lamenting the behaviour of Fonterra, Sanitarium, and other large grocery suppliers who supposedly favour our major supermarket chains. She was calling for those suppliers to provide similar terms and conditions for smaller or fledgeling grocery operators.
But in reality, why would they do that?
A combination of logic and experience will tell us that servicing the smaller players can be more expensive, will usually result in more deliveries of lower quantities and beyond that, will have additional financial risk attached.
There’s something about New Zealand that many of us don’t seem to understand. We’re not very big.
The reality in New Zealand is that our smallish market is often not big enough for multiple players. We have one and a half domestic airlines and two and a half full service telcos. There’s not a lot of room in a five million person market for more than two suppliers in many industry sectors.
And yet, just like Farro and My Food Bag, and with telco’s in particular, there have been a number of small niche operators who have done ok and created a few millionaires in the process.
At the moment we have craft breweries falling over every week. That’s sad too. I like my beer.
But it’s not the fault of Lion or DB and their monopolistic businesses that see them tying up the supply chain to bars and restaurants and access to bottle stores. Two big breweries is about all we can justify.
And so it probably is with grocery. If we had a population of 10 million people, I’m sure that an additional full service food grocery network would be able to get off the ground. However in the absence of population we will also see an absence of multi-layered competition.
And so, as the new Grocery Commissioner celebrates his first 100 days in office, and waits for our population to swell by a few million people, I’m wondering what he and his twenty odd new staff will do with their time? Perhaps he might be wondering too.
This article was first published on Newstalk ZB Plus, 2nd November 2023.
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