ComCom Moves To Disrupt Power Structures In Groceries

Scoop

3 days ago

The Commerce Commission is today spotlighting two commercial behaviours it believes are reinforcing the powerful positions of the major supermarkets and big grocery suppliers, and what's needed to address them and improve competition.
'We know 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,' Grocery Commissioner Pierre van Heerden says.
'These major players are the three main supermarkets and large national and multi-national suppliers. Their significant market share allows them to influence the settings of the market. This limits the ability for competing retailers to enter and grow in the market and often results in smaller suppliers getting an unfair deal.
'The Commission has today released our draft report on our review of the Grocery Supply Code and Initial Views on our Inquiry into the Wholesale Market. These focus on two issues we believe need to be addressed to improve outcomes for consumers.
Suppliers covering retailer costs
'We're proposing to simplify the Grocery Supply Code to reduce the range of payments supermarkets can charge their suppliers,' Mr van Heerden says.
'With combined purchases of over $15 billion and 82% of the New Zealand grocery market, the major supermarkets are the largest customers for most grocery suppliers.
'My concern is that the power imbalance between the major supermarkets and small suppliers creates a reluctance among suppliers to push back on supermarket demands or behaviour for fear of damaging relationships or losing access to supermarket shelves.
'This leads to smaller suppliers taking on costs and risks that are best managed by the retailer.
'The changes we're suggesting would prevent the supermarkets from charging suppliers for ordinary retailing activities such as stocking shelves and setting up displays. It would also require the supermarkets to keep records of certain activities charged to suppliers, including promotions.
'We believe that setting these rules in place will help mitigate the power imbalance and allow suppliers to be more confident market participants so they can innovate and invest in better products and more choice for consumers.
Promotional payments in the wholesale market
'A significant issue new and expanding supermarket competitors face is securing access to cost-effective groceries from large suppliers.
'The prices the major supermarkets pay suppliers are subsidised by around $5 billion in rebates, discounts, and promotional payments. Competing retailers can't negotiate similar levels of support due to their weaker buying power.
'The majority of these payments go to supermarkets in exchange for products being 'on special'.
'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.
'The major supermarkets use high low pricing much more than supermarkets in other countries. Large suppliers and the major supermarkets need to reduce their reliance on promotions and specials so that prices can be lower and more stable. This would benefit consumers because pricing would be more straight-forward, and new competitors would put competitive pressure on existing supermarkets to deliver on price without the high-low price distraction.
'With less promotional funding we'd expect suppliers to factor that saving into the price they charge retailers, which retailers would then pass onto consumers in the form of more stable and lower everyday prices.
'The best option is for large suppliers and the major supermarkets to voluntarily change their behaviour. If they don't, we'll have to consider our other alternatives,' Mr van Heerden says.
Background
The Commission has responsibilities to monitor and regulate the grocery sector under the Grocery Industry Competition Act 2023 (GICA).
Our work focuses on the following areas to improve competition and efficiency in the grocery sector:
Creating pricing and promotional transparency for consumers
Setting rules around supplier treatment
Enabling wholesale access for new and expanding competitors
Ongoing monitoring of the state of competition in the grocery sector and whether it is delivering benefits for New Zealanders over time
Taking action to address non-compliance under GICA, the Fair Trading Act, and the Commerce Act where necessary
Grocery Supply Code
The Commission is seeking submissions on the draft Grocery Supply Code and will consider those before we issue our final report before the end of September 2025.
The mandatory Grocery Supply Code was introduced under the Grocery Industry Competition Act to ensure negotiations between major supermarkets and their suppliers are fair and transparent.
The Commission started a review of the Supply Code to make sure it was operating as intended and suppliers had confidence to innovate and invest in more choice for consumers.
The Commission's draft is informed by submissions on the Request for Views published in August 2024, the results of the Grocery Supplier Survey, and information from the Commission's Anonymous Reporting Tool.
The Commission is proposing the following changes to the code
Restricting the range of situations where retailers can charge suppliers. Retailers would no longer be able to charge suppliers for stocking the shelves or for groceries that become unfit for sale while in the retailer's effective control.
Requiring regulated grocery retailers to keep records about how they are complying with the Code when undertaking certain activities. These activities include negotiating promotions with suppliers and making deductions to payments without written consent.
Adding a requirement that if a retailer has bought groceries at a promotional price for a sale period and then sells that product at a higher price after that sales period, they pay the difference to the supplier.
Prohibiting retaliation against suppliers that exercise their rights under the Code.
The review has also identified some priority areas to develop guidance to support fair conduct and other areas to consider over the longer term.
Wholesale Supply Inquiry
The Commission has released preliminary findings in relation to the current Wholesale Supply Inquiry.
The wholesale access regime was introduced under the Grocery Industry Competition Act (GICA) to address a key barrier to entry and expansion in the retail grocery market in New Zealand.
The Commission started an inquiry into the Wholesale Supply of groceries after the first Annual Grocery Report found the wholesale access regime was not working as intended and is unlikely to substantially improve competition or benefit New Zealand consumers in its current form.
The Commission has recommended the following changes:
The major supermarkets expand their wholesale product range and implement systems to pass promotional funding through to their wholesale customers so other retailers can access lower prices
Suppliers reduce their reliance on promotional funding or allocate the funding across more retailers.
At this time the Commission believes these changes are best achieved through voluntary action from large suppliers and major supermarkets as they are well placed to do so efficiently.
If the Commission doesn't see meaningful progress in 12 months, it will decide if regulations should be changed.
The Commission will consider submissions on the preliminary findings and will gather further information to make decisions on whether changes are needed. A final report on the wholesale supply inquiry will likely be completed in 2026.