Sydney’s supermarket stress: symptoms of deeper problems

Jason Anderson, Chief Economist – MacroPlan writes: Sydney’s supermarket stress: symptoms of deeper problems

If you live in the inner west of Sydney, as I do, then you probably hate supermarket shopping. The congestion in parking, aisles and registers are major problems in most suburbs. It feels worse than any city that I have ever lived in.

In fact, the available data backs up this viewpoint. Certainly the level of supermarket floorspace provision across Sydney is low by comparison with other capital cities. The national average supermarket floorspace is approximately 330m2 per 1000 persons, but in Sydney the average is 248m2. Sydney’s floorspace is not a little lower than the average – the city is 25% short by national standards.

Within Sydney, there is a great divide across this city of cities. By our numbers, the northern suburbs (grouped by LGAs) have an average of 291m2  – but the central western LGAs allow only 195m2. The Marrickville, Canterbury and Bankstown LGAs have a combined population on par with Canberra, but with only 31 supermarkets.

Distribution of supermarket floorspace across Sydney CaptureSource: MacroPlan, ABS

Across the rest of Sydney, the squeeze is not as bad, but the provision is low at an average of 259m2.

Clearly there are some substantial regional variations across Sydney – but why? To address this question, consider two principles identified in ‘Draft Centres Policy Planning for Retail and Commercial Development’ (NSW Department of Planning, April 2009):

Principle 1 – Retail and commercial activity should be located in centres to ensure the most efficient use of transport and other infrastructure, proximity to labour markets, and to improve the amenity and liveability of those centres.

Principle 3 – The market is best placed to determine the need for retail and commercial development. The role of the planning system is to regulate the location and scale of development to accommodate market demand.

Based on our experience, these principles are infused through the planning process, and tend to prioritise location rather than scale of supermarket provision. Put simply, if a proposed project is not in the right place, then it tends to be discouraged or ruled out altogether.

One curious aspect of the divide between north and west Sydney is the relative magnitude of rail service provision: there are two rail lines stretching through western Sydney, but only one line through the northern suburbs. On the surface, we might expect that railway stations provide the anchor to a retail centre, and thereby enhance the prospects for supermarket provision. Yet the data shows that central western Sydney has an extremely low rate of floorspace provision.

One implication of the current planning process is that where centres tend to be most viable, there will tend to be more supermarket provision. However, it does not make allowances for variations in the viability of centres. Where it is difficult to achieve scale economies in a shopping centre near a railway station, the centres policy will result in relatively low supermarket provision.

If there are physical constraints on site development (ironically, particularly associated with car parking), then this problem becomes much more pronounced. Looking into the future, there are deeper issues associated with the fragmentation of retail spending by internet shopping, to the extent that returns on ancillary retail floorspace are reduced.

Land constraints tend to be worse for inner ring suburbs – yet there is also a separate policy aim to increase the level of infill housing and greater density in projects. It will be very difficult to achieve transport centrality of both retail services and housing, because there are few suitable sites for either format. This environment has led to greater occupation of the existing housing stock, and the congestion has extended into supermarkets.

Consequently, infill housing is gravitating to former industrial sites that are located away from railway stations. It is (finally) blossoming in areas that are distant from existing centres, because land affordability makes the residential project viable.

By extension, most residents will be travelling by car for work and family requirements. This observation takes us to Principle 1 identified above: that supermarkets should be in centres to ensure the most efficient use of transport and other infrastructure, and proximity to labour markets.

However, this argument is founded on the basis that trains are the dominant mode of access to work; but this clearly forms a minority of daily movement. For most households, ‘other infrastructure’ in the form of the road network is the primary mode of movement.

Moreover, the arterial road network tends to run parallel with the rail network, as this enhances travel efficiency – but creates congestion around centres. For weekday vehicle movements, a centre is unlikely to be an efficient way to access supermarket services, to the extent that it requires an additional movement away from the road network and thereby creates congestion. This environment pushes supermarket visits into late evenings or weekends, and thereby spreads the transport congestion beyond the working week.

In Europe and the United States, supermarkets tend to be located as free standing grocery supply facilities. It is also the case that the traditional centres and towns continue to provide a completely different range of services and needs. There is a difference between the actual building and locational needs of a supermarket and that of a shopping centre or traditional town centre.

It is time to uncouple supermarket approvals from the notion of centre only locations and standalone shopping centres. Victoria’s recent decisions to allow supermarkets in a variety of zones are a step in the right direction detaching away from the shopping centre on locations.

In summary, a centres policy approach to planning for supermarket services has been failing badly in sustaining supply to meet population growth across Sydney. The fact that this gap is most pronounced in suburbs that are well serviced by the railway system underlines the level of dysfunction. These problems are likely to become worse rather than better, as there is a fundamental disconnect between greater development of infill housing and the reliance on centres for supermarket services.

If you would like more information about this article please contact Jason Anderson, Chief Economist on 02 9221 5211 or