Foodstuffs says food prices not high, concedes on covenants in reply to market study

Tuesday, 14 September 2021

Commerce Commission commissioner John Small said in July last year that the regulator was not playing a game with supermarkets.

Foodstuffs North Island believes food prices are no higher here than overseas, and says its profits are not large by international standards.

Chief executive Chris Quin said the company has also made a promise on land covenants, which prevent competitors setting up at certain locations, as part of its submission in response to a Commerce Commission market study, which highlighted anti-competitive behaviour and excess profitability in the grocery industry.

“The commitment is to release the restrictive covenants on anything we’ve sold, anything where we are the landlord.

“Essentially we’re saying we get that the availability of sites is part of the dynamic of a good, competitive market.”

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Chris Quin, chief executive of Foodstuffs North Island, says food prices are not higher here than overseas.

The submission argued “New Zealand grocery prices are not high by international standards”, although it also argued a straight comparison of international prices did not accurately reflect the level of competition in the market.

Quin said the organisation was also willing to support a “consumer focused” code of conduct for the grocery industry, after heavy criticism over the way the organisation treats suppliers.

However, he would not be drawn on which international code of conduct model it would be in favour of.

Food and Grocery Council chief executive Katherine Rich previously accused Foodstuffs North Island of trying to “break people” with its “extreme demands” of suppliers.

The council has previously argued the squeezing of suppliers unfairly stifled innovation, reduced the number of competitors in the market, and did not lead to lower prices for consumers, only to better profit margins for supermarkets.

Quin acknowledged Foodstuffs North Island had been a big target of critics on the issue, something he put down to a two-and-a-half year customer-driven transformation project which meant buying decisions were centralised, and a narrower range of brands were on on shelves.

Foodstuffs is a co-operative of the New World and Pak N Save grocery chains.

“There has been lots of commentary and, you know, stories about issues that are claimed to be in place in terms of the relationship between us and suppliers,” Quinn said.

“I have had the occasional issue raised that we’ve dealt with…I’d say overall, I see a pretty positive, pretty productive relationship, and we feel relatively comfortable about that.

“But the purpose of having the code is to say ‘look, let’s get this all out in the open’. Let it clear, and let’s get on the table how we are going to respect each other, how we’re going to work with each other, but also how we’re going to make sure customers get the benefit of a good, competitive commercial market.”

The full submission is not yet available, but it has released an executive summary in advance of a full copy appearing on the Commerce Commission’s website.

Movement on land covenants is the biggest change Foodstuffs has signalled in their submission. It said 50 properties are protected by covenants, which prevent people building or operating a supermarket on these sites. There were also 18 lease covenants protecting existing Foodstuffs supermarkets from competition.

The submission has not focused on issues in wholesaling and retailing, including the potential splitting up of these operations.

Quin argued splitting wholesale and retail operations would not do much for competition because any future competitor would likely establish its own wholesale operation and supply chain.

Foodstuffs North Island also argued the Commerce Commission had overestimated its profitability by underestimating its asset base.

The Commerce Commission estimated its return on investment was close to 24 per cent, however the co-operative has put this figure it at 9 per cent. It said that was below the international average of just over 11 per cent.

'It’s understanding that the assets employed to earn our returns include all of our supply chain technology and all of our retail store network, which is substantial,” Quin said.