The Community Trusts?

What happens to The Trusts if West Auckland chooses competition?

There seems to be a fairly widely held misunderstanding that the petition (and subsequent referendum) will ‘get rid of the trusts’. That’s not what we’re campaigning for. The petition just earns us the right to choose between competition or monopoly. Here’s the wording from the 2003 referendum (which we expect will be the same again):

That the (Waitakere or Portage) Licensing Trust give up its present exclusive right to hold on-licences in respect of hotels and taverns, and off-licences in respect of any premises other than certain club premises and premises on which any kind of liquor is made, within the Trust district, and, in return for giving up that right, gain the right to carry on any business (within its objects) outside as well as within the district.
I vote FOR the proposal
I vote AGAINST the proposal

If a majority vote FOR the proposal, then The Trusts would lose their monopoly over certain types of alcohol licenses and gain the right to operate outside West Auckland (which they’re currently not allowed to do).

They are the only changes. A licensing trust doesn’t go away unless the elected members choose to dissolve it themselves – which is highly unlikely and not in West Auckland’s interests.

Obviously, our trusts would need to evolve if they are to prosper in a competitive environment but how they choose to evolve is entirely up to them.

Options for The Trusts in a competitive environment

With the monopoly in place, The Trusts have somewhat of an obligation to provide their community with bars and bottle stores. That is their legislated function and no-one else is allowed! But in a competitive environment the Trusts would be free from that obligation. They could choose to continue in hospitality and retailing alcohol, or they could do something completely different.

The “deer in the headlights” option is continuing to operate a similar number of outlets and venues. With competition, we can expect the supermarkets to take about half of the revenue from their bottle stores. Bottle stores (such as Super Liquor etc) would presumably also enter the market and take market share. The Trusts’ hospitality offerings are already struggling to cover their own costs and their performance would deteriorate further. Overall, The Trusts would be unlikely to remain profitable.

The “double or bust” option is to go large. The Trusts could back themselves and expand their retail business outside West Auckland. If they opened West Liquor stores across Auckland, they might achieve sufficient scale to cover their overheads and remain profitable. They’re already aware that they’re not great at hospitality, so if they decided to go large it would almost certainly be in retail. It’d be ballsy.

The “one foot in each camp” option is to reduce their footprint but remain in the retail and/or hospitality space. They could keep a number of their best performing stores and venues and exit / sell the others. There is certainly something appealing about buying your alcohol from a community owned bottle store and they also have existing stores in prime locations. They could be very successful if they get it right. To maintain their profitability, they would need to cut their head office costs considerably.

The “get the hell out of Dodge” option is to exit their alcohol and gambling businesses entirely. If they liquidated all their assets, they’d have about $100 million to do something else with – and they would have free reign to choose what they did with it.

The Community Trust option

There is an option for a licensing trust to convert to a community trust. There are two main differences between these types of trusts.

A licensing trust’s function is to sell / supply alcohol and provide accommodation. They are (somewhat) obliged to fulfil these functions.

305 Functions of licensing trust
(1) The functions of a licensing trust are to—

(a) sell and supply alcohol; and

(b) establish and operate premises for—

(i) the sale and supply of alcohol; and
(ii) the provision of accommodation for travellers; and
(iii) the sale and supply of food and refreshments; and

(c) carry on any other business that, in the trust’s opinion, can be conveniently carried on in conjunction with the functions set out in paragraphs (a) and (b).

(2) For the purpose of performing its functions, a licensing trust may—

(a) do anything that a natural person may do; and
(b) issue debt securities.

A community trust however has no such obligations. They are free to hold alcohol licenses but there is explicitly no requirement for them to do so.

364 Functions of community trust
(1) For the purpose of performing its functions, a community trust may—

(a) do anything that a natural person may do; and
(b) issue debt securities.

(2) A community trust is authorised, but not required, to hold 1 or more licences under this Act and to carry on the business of selling or supplying (or selling and supplying) alcohol.

The other key difference is how they may spend their profits. A licensing trust is not obliged to distribute any of its profit to the community – it can withhold whatever amount it likes.

307 How licensing trust may spend profits
A licensing trust may spend or distribute the net profit that it makes in performing its functions for all or any of the following purposes:
(a) the promotion, advancement, or encouragement of education, science, literature, art, physical welfare, and other cultural and recreational purposes:
(b) building, laying out, maintaining, or repairing buildings or places intended to further any of the purposes described in paragraph (a):
(c) any other philanthropic purposes.

Whereas a community trust is obliged to return its profits to its community.

365 How community trust may spend profits
(1) A community trust must apply the net profit that it makes in performing its functions to charitable, cultural, philanthropic, recreational, and other purposes that are beneficial exclusively or principally to the community in the region of the community trust.
(2) However, a community trust may, instead of applying all of its net profit as required by subsection (1), retain so much of its net profit as it thinks prudent for the purposes of its activities (including any proposed activities).

What’s the best option?

Who knows?! Thankfully, that’s a question for the elected members to debate and decide.

Personally though, I think conversion to a community trust is a great option and reduces the risk that our licensing trusts go back into empire building mode.

I would also like to see our licensing trusts move away from selling alcohol and gambling. Hospitality is a fickle business and way too risky when you’re playing with community money. Retail is just too hard. It is dominated by the two big supermarket chains, with the rest of the market split between a handful of successful specialist retailers (who have managed to find themselves a niche) and independent owner-operators (many of which work long hours for moderate returns).

I’d also really like to see The Trusts assess how they could use their capital to deliver maximum benefit to the community. That might mean using a portion of that capital as seed funding to help West Auckland businesses get started or expand – thereby creating jobs and reducing deprivation in West Auckland. Who knows, maybe they could provide support to community collectives (following the example of Crave in Morningside) who want to setup venues in places like Glen Eden, Avondale, Henderson or elsewhere. With the rest of their capital, they could invest (either directly or through a managed fund) and use the dividends/rents to give back to the schools, clubs and community groups that have traditionally received support from The Trusts.

We can’t guarantee that if we choose competition that The Trusts will make good decisions and evolve into something better immediately. And whilst I’m not confident they’ll get it right straight away, I am confident that they will get there quickly enough. Ultimately, responsibility lies with all of us to elect the right people to steer The Trusts through a time of change.

Please note – this isn’t a position statement for WALTAG. This is simply a blog post expressing the views of the author. WALTAG advocates for competition and doesn’t have an agreed position on what The Trusts should do in a competitive environment