Crackdown on $15b supermarket giants' opaque pricing ‘doesn't go far enough'

Newsroom

a day ago

Analysis: A Government attempt to break open supermarkets' chokehold on grocery wholesale 'hasn't worked as intended', the Commerce Commission admits.
That may be an understatement. According to the general manager of the family-owned Night 'n Day grocery chain, it's failed dismally. Foodstuffs and Woolworths sold only $7 million of groceries to smaller retailers through the regulated 'fair price' wholesale scheme last year, Matthew Lane says.
Night 'n Day wants to offer competitive grocery prices. It's grown from one corner store in Dunedin to a nationwide chain of 52 grocery and convenience stores. Lane says it's the third-biggest grocery chain in New Zealand, after the two big players – but it's not even close to being able to break the duopoly's market control.
One of the biggest challenges for smaller retailers is accessing grocery supplies at a good price. Many dairy owners are forced to queue at the checkouts of the big supermarkets to buy their supplies at retail prices, then mark up those prices further to turn a dollar.
To help address that, the previous government applied some arm-twisting, to get the big chains to open up their wholesale operations to smaller competitors.
Finance Minister Nicola Willis now says she's turning her attention to the supermarket sector, and all options are on the table, including breaking up the big companies – either forcing them to divest some of their stores, or separating their wholesale and retail businesses.
In a dramatic development on Thursday morning, Grocery Commissioner Pierre van Heerden has given the two big chains just 12 months to clean shop – or face regulation.
Lane welcomes the preliminary findings from the commission's wholesale supply inquiry, recommending the major supermarkets expand their wholesale product range and pass on promotional funding to allow other retailers to access lower prices.
Last year, as an example, Foodstuffs had sold just $1.3m worth of goods through the scheme. It approved only 41 wholesale customers to purchase from its wholesale service – and Night 'n Day was not one of them.
So Lane's also cautiously supportive of Government attempts to woo one of the big foreign supermarket brands like German-owned discount grocer Aldi to these shores – but he says ministers should be looking closer to home.
'They shouldn't put all their eggs in one basket,' he says. 'If we can develop grocery competition locally, well, I think that's actually a better result for all parties – especially opening the door to someone that's already established in the market.
'We can control our destiny. We're here in the market, and we're wanting to grow.'
The grocery commissioner says the current grocery market is not serving Kiwi consumers well.
'The status quo lets a few major players set the rules for the rest of the industry which is negatively impacting consumers, new and expanding competitors, and small suppliers.'
Van Heerden criticises Foodstuffs, Woolworths, and some of the large national and multinational suppliers, whose significant market share allows them to influence the settings of the market.
His draft report proposes to change the Grocery Supply Code to stop the supermarkets imposing a confusing array of charges on suppliers – they're typically forced to pick up the tab for supermarket costs like stocking shelves, setting up displays, and promoting their products.
Van Heerden also wants to eradicate the $5b in rebates, discounts and promotional payments paid by the big suppliers to the supermarkets, to put their products 'on special'. 'Competing retailers can't negotiate similar levels of support due to their weaker buying power.
'Consumers lose out because prices jump around more. This can mean the average price is more expensive and it's harder for consumers to assess the value of products.'
New Zealand cooperative Foodstuffs is the country's biggest player, with more than 500 Pak'nSave, New World, Four Square and Liquorland stores, as well as wholesalers Gilmours and Trents.
It's at war with the Commerce Commission, taking court action to challenge millions of dollars of fines for anti-competitive land covenants, and to overturn the commission's ban on it merging its North Island and South Island businesses.
Spokesperson Stefan Herrick says a well-functioning market must support efficient, productive outcomes – and that includes ensuring retailers can negotiate fairly to deliver value at the checkout.
The co-op takes its obligations under the new Grocery Supply Code seriously, he says. Any supplier who has an issue should complain through the appropriate channel.
'In our view, the current code has already effectively set the 'rules of engagement' with suppliers. We regularly survey our suppliers to ensure we are working as partners, listening, and constantly improving.'
Australian-owned Woolworths NZ, which has more than 185 stores and also franchises 70 SuperValue and FreshChoice stores, has mostly taken a more conciliatory approach.
Interim managing director Pieter de Wet says wholesale is a new and fast-evolving area for the company. 'In just three years we've developed a business which provides grocery products to more than 100 retail sites and we have over 60 customers using our service to provide more choices for shoppers,' he says. 'We're working closely with suppliers and wholesale customers.'
Both chains say they'll take time to read the draft documents issued by the Commerce Commission in detail, and promise to work constructively with the commission through the submission process.