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The commercial implications of the sugar tax debate

  • Opinion
  • April 20, 2016
  • Paul Keane
The commercial implications of the sugar tax debate

So how do the two merge and what are the effects?

From a commercial point of view, the focus on sugar content in food and the part it’s played in the obesity epidemic, sent a message to investors that there is potential for fewer sales in products whose content is predominantly sugar, like soft drinks. The result of this was that shares like Coca-Cola took a bit of a hit. Such companies are likely to bounce back when the protagonists move onto another “health challenge”.

However, what is apparent is that public opinion can be swayed by a commentators focus on one particular issue.

The attention has raised consumer “awareness” but the spotlight on sugar has meant other issues have been left out of the discussion.

For those of us who watch sport, KFC’s significant sponsorship of Super Rugby (with a predominant focus on fries and hamburgers) has been hard to miss. Restaurant Brands who own the KFC franchise in New Zealand recently announced their results for the February year end with a 7.8 percent growth in revenue and a full year dividend of 21cents. It is apparent that of all their various brands, KFC is the main contributor with something like $282 million of sales for the group of a total of $387 million. That’s 72 percent of the total Restaurant Brands national sales/

The key lesson here is that customers obviously love fried chicken. I wonder how many investors in KFC also have shares in Coca Cola, and what would happen to their share portfolios if fried chicken and sugar were jointly impacted by the “health challenge”.

Certainly, we need to be health conscious, but surely this is an individual’s responsibility, driven by parents who control their own and their children’s dietary needs, not something that is driven or controlled by Government departments.

If we extend that thinking, the need for a control on coffee consumption may be the next target. Imagine the debate if controls were put on the sale of coffee. The impact of decisions to control certain aspects of our daily lives through what we consume would be significant; employment, share portfolios, company values would all be impacted.

I recall in the 1950s a close relative going to the doctor and being concerned that their weight was a problem, the doctor told her to take up smoking. Smoking is now pretty much seen as an outlawed activity. Will sugar, fried chicken and caffeine follow suit? Isn’t it really about personal choice?

Two significant properties, two sale strategies

The property market in the past week saw two significant properties up for sale in different cities. In Auckland, the sale of the Vinegar LaneDevelopment in Ponsonby was offered to investors in a selected 50 x $1 million shares, showing an annual return of in excess of seven percent. This development has two significant tenants with long leases. In Wellington the Cuba Dixon Retail Development has been offered for sale as a whole, predominantly secured by one Government tenant on a 21 year lease.

The quality of the two investments is similar, so why is one being syndicated and the other not? It’s the existing respective Vendors personal choice, however, what is apparent is that there are obviously many investors in the market with an individual $1.0 million surplus to invest in Auckland properties.

Are the two Property offers indicative of the market in that Auckland still dominates investment decisions, and investors are more likely to “punt” on the Auckland market rather than Wellington?

The answer is “probably”, although there is no serious research to prove that point. Ironically, Wellington property is being pursued by investors who cannot find yields as good in Auckland, compared to what is offered in Wellington.

Syndicators still seem to prefer the Auckland opportunity rather than Wellington or other cities. Response to the Auckland syndication offer is likely to be sweetened by the sales pitch and the level of return offered. However, is that level sustainable with a tenant who is notoriously sensitive to rent reviews? Food for thought! Incidentally, my relative did not take up smoking.

Paul Keane is a registered property professional and has vast experience in New Zealand’s commercial property industries. He provides retail and property consultancy including development management to many New Zealand property owners, developers and city councils. This post originally appeared on RCG's blog.

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