What do we stand to lose?
There are not many Licensing Trusts left in NZ that enjoy monopoly rights. Just four left: Invercargill, Mataura, Portage and Waitakere. A key plank in the argument for keeping these monopolies is that the profits from their alcohol businesses are returned to their community. Here in West Auckland, The Trusts have made ‘Giving Back’ part of their core purpose and it is prominent in their communications. From the Western leader in June 2018:
The Trusts chief executive Simon Wickham said there was a “very small vocal group of people” that are trying to persuade locals that liquor profits going to supermarkets and private bottle stores would be good for the community.
“We’d make sure people understood what they stand to lose if a referendum was held,” he said. “Our plans to give back millions more over coming years wouldn’t be possible if a referendum was held and The Trusts current model was undermined.”
So, do we really stand to lose millions of dollars of community funding? Let’s take a look at how that might happen.
If The Trusts find themselves in a competitive environment, they will need to decide if their current business remains fit-for-purpose. The management and directors of The Trusts would most likely conduct a strategic review – perhaps with the help of an external consultant – and it is highly likely that The Trusts would need to change the shape of their business to remain profitable. They could:
- Continue to operate the same number of outlets / venues
- Open more outlets and venues. Without the monopoly, they are free to operate businesses outside their districts. They could back themselves as industry leading operators, pursue a growth strategy and expand outside West Auckland (thereby achieving the scale necessary to compete with other liquor retailers)
- Sell a number of outlets and venues, retaining a smaller number of profitable sites. It is likely the liquor stores would need to position themselves as specialist retailers or align with a larger banner group (e.g. Super Liquor) to remain viable in a competitive market
- Choose to sell all of their alcohol businesses and instead act as a landlord or make other investments with their funds
How do these options stack up?
- Option 1 would be a brave move. The Trusts core business is struggling to make a profit in a monopoly environment, so if we add competition then some of the existing stores/venues would almost certainly not be viable
- Option 2 would be taking a heroic risk. Any attempts at expansion would certainly put assets (and therefore community funding) at risk given the highly competitive liquor retailing and hospitality markets
- Option 3 is lower risk, though it is certainly not risk-free
- Option 4 is relatively safe and with commercial real estate yields currently at about 6.5% (and valuing The Trusts assets at $100M) the community could expect returns of about $5M to $6M each year under option 4
So, is it a petition and referendum that threatens our community funding? No. The threat lies with the decision making capability of the directors of WATS Ltd (the joint venture company that manages The Trusts commercial operations) and the elected members of the Trusts. Will they make sensible decisions? Let’s hope they do.