Tex Edwards' proposed supermarket venture secured meeting with ComCom

Friday, 1 October 2021

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

The Commerce Commission has met with Northelia, a group of entrepreneurs who hope to set up a third supermarket chain, to discuss its submission to the market study the commission is conducting into the groceries sector.

2degrees founder and former banker Tex Edwards is the driving force behind Northelia, which said in its submission that it could leverage $1 billion of capital if the commission committed to a major structural reform of the supermarket industry.

There is speculation the venture may be intending to draw on the managerial experience of some of the significant number of businesspeople trained to be Foodstuffs supermarket owner-operators who have so far been unable to secure a franchise.

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2degrees founder Tex Edwards is driving the bid to create a third supermarket group, but has not spoken publicly about the venture which depends on significant regulatory interventions.

The commission last week secured approval from the Government to delay its final report into the groceries sector from November until March.

Although the delay appears partly down to Covid restrictions, some supermarket-industry insiders with existing interests are understood to be concerned the watchdog could now have the time to plan a more detailed intervention into the sector.

The commission canvassed the idea of requiring Countdown and Foodstuffs to separate their wholesale and distribution arms from their retail store networks and requiring the companies to sell some of their stores to help make way for one or more additional competitors, in its draft report in July.

That was after finding that food prices in New Zealand were the sixth highest in the Organisation for Economic Cooperation and Development in 2017, and that the chains’ profits were “persistently high”.

But the commission’s appetite to follow through by coming out clearly in favour of major structural reforms in its final recommendations to the Government remains subject to conjecture.

Northelia said a third chain would require a “satisfactory intervention” from the Commerce Commission including a network of at least 125 supermarkets it could buy at non-monopolistic prices.

The submission also indicates the group would need access to an existing chains’ distribution centres while it became established.

Former Telecommunications Users Association chief executive Ernie Newman is confident Edwards’ connections could help him secure the capital required to take on Countdown and Foodstuffs.

Countdown and Foodstuffs declined to comment on Northelia’s requests.

Both chains have queried the commission’s findings on food prices and their own profitability.

Former Telecommunications Users Association chief executive Ernie Newman said he trusted Edwards could secure the funds to enter the market, with the right regulatory interventions.

Edwards was “exactly the right guy for this”, Newman said, describing him as a “monopoly-buster”.

A third supermarket chain could draw management expertise from would-be owner-operators who have been in the queue to secure their own franchised stores.

“I worked alongside him from the very first days when 2degrees, then known as Econet, was being conceived until, against all the odds, he finally got it operating almost a decade later.

“He is extremely well-connected in financial circles. If he says he can unlock the money needed, I believe him,” he said.

Edwards himself is not believed to have the capital to be a major financier.

The commission had planned to hold a conference in Wellington last week to help develop its final recommendations, but that was shelved because of the Covid restrictions.

A spokesman said it was replacing the conference with a series of confidential and public online meetings that would take place “over an extended period of time”.

“The shift to a virtual setting will require more time to achieve the same level of meaningful discussion, and will take place in the second half of October,” he said.

“We’ll be inviting post-conference submissions by mid-November.”

The commission’s next market study – its third, after petrol and groceries – will be into the building supplies industry.

The Government harbours concerns that a lack of competition in the building supplies sector may be contributing to the housing crisis by pushing up the cost of new housing.

The commission spokesman said it was generally only able to conduct one market study at a time.

But “given the stage we are at with the current market study, and the extension of the timeframe for its completion, we are in a position to accommodate some overlap in time frames if the government wishes to commence a further market study before the conclusion of the study into groceries,” he said.