‘Suppliers are fed up with Coles and Woolies’: David Shafer on the opportunity behind Kogan Pantry

30 January 2015
BRW
‘Suppliers are fed up with Coles and Woolies’: David Shafer on the opportunity behind Kogan Pantry
Kogan.com has been “inundated” with expressions of interest from potential suppliers in the 24 hours since it launched its grocery play, Kogan Pantry, claims executive director David Shafer.
“They’re fed up with Coles and Woolworths – which have double or triple the margins of international peers like Tesco, Costco and Carrefour – and are desperate for a new distribution medium.”
Shafer didn’t volunteer names of aggrieved suppliers in particular, but said common gripes with the major supermarkets included having to “pay for shelf space” and facing penalties if pre-agreed sales targets were not met.
A Woolworths spokesperson denied the supermarket followed either practice.
Nevertheless, at least some consumers appear to be keen for a new outlet as well, with Shafer reporting the division sold more than 30,000 items in its first 12 hours, selling out of staples like Heinz ‘Big Red’ 500ml tomato sauce bottles priced at 50 cents.
Opening with some loss-leading attention-grabbers like 1-cent Kit Kats (limit of one per customer) and 1-cent Patak’s Indian stir fry sauces, Shafer says the non-perishable grocery business adheres to the defining Kogan principles of “high volume, thin margin” and cutting out costly middle-men from the supply chain.
As it’s done with its foundation electronics business, Kogan Pantry has done deals directly with manufacturers and wholesalers both here and offshore, circumventing the territorial distribution networks used by the bricks-and-mortar supermarkets.
Shafer doesn’t disagree that Nestle would not be thrilled to see Kit Kats on sale for 1 cent apiece, but says loss-leading and helping wholesalers clear excess stock were among Kogan Pantry’s strategies.
Kogan Pantry seems to be aiming in part for the ALDI market, with many of the brands on offer different to those in Australia’s major supermarkets. Meanwhile one well-known brand, Carman’s, is represented only by a 4-pack of apricot & almond muesil bars which the Carman’s website says it exports from Australia only.
Of the relatively few direct price comparisons BRW was able to make, Kogan Pantry was sometimes cheaper than one or both of the major supermarkets, but sometimes not. For instance Kogan’s 4-pack of Duracell AA batteries for $2.96 beat Coles’ $5.50 and Woolworths’ $3.99 (for EverReady brand); yet Kogan Pantry’s $3.75 for a 750ml pine Toilet Duck was more expensive than Woolworths ($3.49) and Coles ($3.63). Meanwhile its 220 gram Nutella for $2.96 was almost $1 cheaper than both majors – yet Woolworths was running a special on the 400 gram size for $3.50.
The main expenses involved in establishing Kogan Pantry were hiring in some grocery supply chain expertise, Shafer says, and establishing a new warehouse in Sydney – Kogan’s fourth, with the other three devoted to electronics.
Opening with 600 different products, Shafer sees this rising to perhaps 1500 variants but mot much higher.
“We’re not trying to be the supermarkets. We want to stay lean and efficient and it’s hard to do that when you’ve got 5000 SKUs [stock-keeping units]. We’re a value-led proposition, so wherever there is a tension between price and convenience, we’ll err on the side of the best price for customers.”
Kogan Pantry does not require bulk-buying, and there is a flat shipping cost of $9.99 to anywhere in Australia, through Australia Post – so it may be advisable to complement your cheap Kit-Kat with a few other necessities. Shafer says the average order size so far has been $50, plus shipping.
Shafer, a schoolmate and early backer of Kogan.com founder Ruslan Kogan, sees Kogan Pantry achieving “low double digit millions” revenue in its first year. The overall Kogan business now turns over in excess of $200 million.