Supermarket 'market study' will determine whether food prices are too high

Monday, 16 November 2020

New Zealand has one of the most concentrated retail grocery markets in the world, Commerce Minister David Clark says.

Supermarkets will be subjected to a year-long “market study” by the Commerce Commission to see if they are offering consumers fair prices and their suppliers a fair deal.

Commerce and Consumer Affairs Minister David Clark announced the study into the $21 billion groceries industry would get under way this week, making good on a promise in Labour’s election manifesto.

New Zealand has only two big supermarket chain owners: Countdown, and Foodstuffs which owns the New World and Pak ’n Save brands.

“Groceries are one of our most regular expenses, so we want to make sure pricing is fair,” Clark said.

Consumer NZ chief executive Jon Duffy says it has long held concerns something is “not quite right” in the supermarket sector.

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The average household spent about 17 per cent of its weekly expenses on food, and that had been increasing year on year, he said.

“New Zealand has one of the most concentrated retail grocery markets in the world and there are indicators that competition in the sector has weakened over time.

“Some of the big supermarket chains have said there is already a healthy degree of competition in the sector, and we want to test whether that is the case,” Clark said.

As well as looking at whether consumers are paying too much for “the weekly shop”, the commission will also examine the procurement practices of the major grocery retailers and the “quality, product range and service offerings for retail customers”.

In May 2021, the Commerce Commission filed proceedings against Hutt and City Taxis Limited after alleging it had agreed with two competing taxi companies, Kiwi Cabs and EkoCabs, to implement a minimum charge of $25 for pick-up trips from the on-demand taxi rank at Wellington Airport. (File photo)

Consumer NZ chief executive Jon Duffy said it had long held concerns there was “something not quite right” in the supermarket sector.

“The behaviour we see and the complaints we receive from consumers suggests that the market may not be functioning as competitively as it should.”

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The consumer advocacy group regularly received complaints about misleading prices and “items remaining on special for so long it is hard to argue it is on special”, he said

Duffy also voiced concerns about supermarkets’ loyalty schemes, saying they should be an area of focus for the commission.

“Both market players now make it a compulsory requirement for consumers to hand over their purchasing history and other personal information through loyalty schemes if they want to access in-store discounts.”

Consumer NZ research director Jessica Wilson has said its major concerns are high margins and pricing practices, and that it would like to see some form of price monitoring for groceries introduced.

Food and Grocery Council spokesman Brent Webling has forecast the market study is likely to result in an industry code similar to Australia’s Food and Grocery Code of Conduct or the UK’s Groceries Supply Code of Practice, to protect suppliers from Countdown and Foodstuffs’ market power.

The council has accused supermarket chains of sometimes “overstepping the line between robust negotiation and bullying” when dealing with suppliers.

One bone of contention is expected to be supermarkets’ strong promotion of their own house brands, which competition lawyer Andrew Matthews said could make up 30 per cent of sales in some categories.

Consumer Affairs minister David Clark says it is disappointing to see sunscreens fail to meet their SPF claims.

Clark talked up the prospects of a code of conduct being introduced to manage chains’ relationship with suppliers, but said it made sense to do the market study before making decisions.

“New Zealand is one of the most concentrated retail grocery sectors in the world and I think that will mean we get specific recommendations here that may be different to elsewhere – but the emphasis will be on making sure consumers get a fair ‘suck of the sav’.”

Foodstuffs and Countdown have both said they will fully co-operate with the market study.

Foodstuffs declined an interview but spokeswoman Antoinette Laird said it recognised “now more than ever” with Covid-19 that it had a critical role to play in “providing New Zealanders access to their everyday grocery needs”.

It had its own “supplier relationship charter” committing it to operate “reasonably, ethically and with sound commercial guidelines”, she said.

The retail grocery landscape was “a busy, competitive market” where supermarkets competed with specialist outlets, discount stores such as Why Knot, online services such as My Food Bag and Hello Fresh, Asian supermarkets, Costco, and restaurant food delivered by Uber Eats and others, she said.

Clark praised the “vital role” supermarkets played supplying customers during the Covid-19 lockdown, even as he announced the study.

“I was impressed with the sector’s measured approach to managing supply issues during the lockdown,” he said.

“While there were some allegations of price-gouging during this time, the study has a focus on longer-term competition issues and isn’t primarily about the conduct of supermarkets in relation to those concerns,” he said.

The Commerce Commission expects to publish the full terms of reference for the study on Thursday and will finalise its recommendations for any new laws and regulations by November 23 next year.

The market study will be the second to be conducted by the commission under new powers granted to it by Parliament in 2018.

The first, into the petrol industry, wrapped up last year and will result in new rules requiring petrol stations to advertise the price of premium fuels on their roadside boards, and some wholesale market reforms that may make it easier for independent petrol companies to buy fuel on better terms.

The Government has signalled its third market study will be into building products, but Clark would not confirm whether the commission would move straight on to that once the supermarket study wrapped up.

That decision was “for another day”, he said.

He defended the decision to look at supermarkets first, despite current concerns over rising house prices, indicating the priorities had been driven by conversations with consumers.

“We have got to prioritise these things. The concern about the weekly shop – the growth and the cost of it – is something that needs immediate examination.”