New Zealand’s supermarket sector is currently under government review, with preliminary findings by the Commerce Commission having concluded that the current state of competition is not working well for consumers’, that the supermarkets are making ‘persistently high’ profits and describing the sector as a duopoly dominated by Foodstuffs and Woolworths NZ (Countdown).
The commission’s report called for the entry of more new retailers into the market to improve competition, as well as the establishment of a New Zealand Grocery Code of Conduct to ensure appropriate market conduct and fairness.
The Code of Conduct debate has already been brought to the parliamentary debate stage by food and grocery industry association New Zealand Food and Grocery Council (NZFGC), and the council’s Chief Executive Katherine Rich is leading the call for this to be formally approved.
“[New Zealand has] the most highly concentrated supermarket ownership in the world with over 95% controlled by two retailers, [and with] that level of dominance [there needs to be] a clear baseline for acceptable business conduct, [which] a code would provide a clear framework for,” Rich told FoodNavigator-Asia.
“Australia and the UK have their own codes which have proven successful for the retail sector, [and] it is a sound policy idea for New Zealand as well.
“I am optimistic [about this] as change can happen when good, solid arguments and sound policy ideas, like the Code of Conduct, are put forward – Politics is always the art of the possible.”
Together with local consumer association Consumer NZ, NZFGC has upped the ante by increasing the pressure on local MPs and politicians to back changes, including the Code’s formal establishment, towards abolishing the supermarket duopoly.
“Supermarkets are crucial [intermediaries] bringing groceries (provided by NZFGC members) into the hands of consumers (represented by Consumer NZ), [but] these intermediaries are ripping consumers off, [a situation that needs to be stopped],” stated both organisations via an open letter, which FoodNavigator-Asia has viewed courtesy of Rich.
“Choice is being dramatically reduced. Prices are being misrepresented and manipulated. Suppliers, even very large ones, are being bullied.
“The Commerce Commission’s [report] has been widely acclaimed [but] is only the start – Parliament’s actions will be crucial, [so] we are asking every MP to unite in supporting a strong move to intervene in the grocery market.”
The letter drew direct parallels between New Zealand’s infamous telecommunications monopoly by Telecom back in the 1990s to 2000s, highlighting how the removal of that monopoly had improved conditions for consumers and industry.
“[The situation] has a remarkable similarity to the Commission’s finding about our telecommunications infrastructure in the 2000s,” they said
“[After that], when Telecom was regulated and separated, broadband suddenly flourished and the prices consumers were paying for landlines and mobile phone services dropped significantly [which is something that] could happen in the supermarket sector too [with government support].
“Opening a failed market delivers huge benefits to consumers and to entrepreneurs who can operate in the market on a level playing field – All we need is the political consensus and will.”
Unsurprisingly, the supermarkets have not been overly pleased with the Commerce Commission’s report and calls to cut their profits, with Foodstuffs in particular saying that although it agreed with ‘a number of the recommendations’, there were others that it considered ‘incomplete’.
“[Our] returns are less than half of what the Commission’s draft report states and are below the average returns of supermarkets overseas – [Our] profit after tax for every dollar spent by consumers is NZ$0.04 (US$0.029), whereas NZ$0.68 (US$0.49) goes to our suppliers,” Foodstuffs North Island Chief Executive Chris Quin insisted.
“[In addition], strong competition does exist – the recent arrival of Costco and Circle K in the New Zealand market shows that competition in the retail grocery sector is working.
“New Zealand grocery prices are also in line with comparable countries [and] fair by international standards – we rank 21st in the OECD (Organisation for Economic Co-operation and Development) using Purchasing Power Parity (PPP) comparison.
“As such, significant regulatory interventions are not supported by this and won’t give New Zealand consumers a better outcome. ”
One of the Commerce Commission’s findings was also that innovation in New Zealand’s retail grocery sector is at a low rate, but Quin denied this, stressing that thousands of new products are still being added to shelves yearly.
“Last year we added approximately 9,000 new innovations and products onto store shelves – innovation to benefit our consumers is critical for us. We’re investing NZ$50mn+ (US$35.9mn+) this year alone into innovation to deliver that,” he said.
“[We] are committed to delivering better value for customers, improving outcomes for suppliers and removing competition barriers within our control.”
However, the industry so far appears unimpressed by these remarks, likely because no concrete actions to improve the ‘supplier bullying’ situation were mentioned, though brands are continuing to get the short end of the stick when it comes to negotiating terms as part of Foodstuffs’ new business model which was announced last year.
“[For example, in terms of supermarket displays], Foodstuffs North Island extracts a new ‘display fee’ as a percentage of all sales, regardless of whether a supplier gets lots of displays or none. Some NZFGC members have been paying this display fee all year and have yet to receive a single display in return for the fee,” Rich said.
“Some big companies negotiated a certain number of displays and accountability, but only a few small to medium-sized ones could do so.
“There’s also been the rollout of a new ‘merchandising term’ [which is] 3% to 7% of a product’s retail sales value – merchandising is about putting products on shelves and arranging displays [so this is essentially] charging suppliers and brands for the privilege of store staff placing the product on the shelf, a task many people consider a true retailer cost.
“It’s an indication of just how much power grocery retailers wield that many stores believe putting the stock on the shelves is not a retail function or a cost they should bear, [yet] many smaller suppliers have had no choice but to accept this [as] Foodstuffs North Island is telling some suppliers acceptance of their products is conditional on paying this new merchandising term.”