Foodstuffs says supermarket prices fair and competition strong

Tuesday, 19 October 2021

Foodstuffs and Consumer NZ have stepped up their lobbying as the Commerce Commission prepares to dig deeper into the performance of the supermarket industry.

Supermarket group Foodstuffs North Island has hit back at claims food prices are too expensive on the eve of a conference that could pave the way for an overhaul of the $22 billion groceries industry.

Foodstuffs NI, which manages New World and Pak ‘n Save franchises, said that out of every dollar spent on groceries at its stores, the cooperative and its store owners earned a combined after-tax profit of 4 cents.

On average, 68c went on payments to suppliers, 15c on wages and other costs, and 13c on GST, it said.

Those figures would suggest Foodstuffs and its stores would make a profit of about $10 from the average family’s weekly shopping bill.

The Commerce Commission is carrying out a market study into the groceries industry and will begin a conference on Thursday to consult on measures it may recommend to increase competition.

* Supermarket study hits a brick wall with New World, Pak 'n Save owners response

* Supermarket duopoly slammed as regulator waves the biggest of sticks

Commerce Commission chairwoman Anna Rawlings presents the commission's draft report into the grocery sector in July.

The watchdog concluded in a draft report in July that supermarkets were making excess profits.

It signalled it could require Countdown and Foodstuffs to sell some of their stores and open up their distribution centres to rivals in order to help a third operator enter the market.

2degrees’ founder Tex Edwards is involved a bid by a group of challengers called Northelia to set up a third supermarket chain if the commission follows through thoroughly on those suggestions.

Foodstuffs NI chief executive Chris Quin said groceries prices in New Zealand were 21st in the OECD – below the middle of the pack – if prices were adjusted for the purchasing power of the New Zealand dollar, versus other currencies.

Competition was strong, prices were fair by international standards, and consumers would not benefit from “significant regulatory interventions”, he said.

“The days of a main weekly shop are gone. Supermarkets don’t just compete with supermarkets; we compete with a full range of retailers for all shopping missions,” he said.

The commission intentionally chose not to use the ‘purchasing power parity’ measure referred to by Foodstuffs and instead favoured a simple currency conversion to compare prices, on the basis that the cost of groceries was largely determined by international factors.

But Foodstuffs disputed that saying that – contrary to the commission’s assumption – most supermarket costs, including labour and land costs, were shaped by local market conditions.

Eric Cramptom: “Minister Clark was wrong in stating that food price increases have outstripped inflation.”

“A high-income country like New Zealand is likely to have higher costs for these products and services than lower-income countries. This will likely bias prices upwards when using a market exchange rate,” it said.

Consumer NZ and the Food and Grocery Council wrote to MPs on Wednesday urging them to back changes, but the two organisations appeared to hedge their bets on the key issue of structural reform.

Consumer NZ said it “hadn’t always seen eye to eye” with the food suppliers’ body but both agreed there needed to be change in the industry.

Spokeswoman Gemma Rasmussen said it was hearing from many New Zealanders that they were having to spend too much of their weekly pay keeping themselves fed.

Consumer NZ said low and middle-income earners were typically spending between 15 and 20 per cent of their income on food shopping.

The open letter Consumer NZ and the Food and Grocery Council has written to MPs calls for “increased wholesale access to a wide range of groceries at competitive prices”.

It also calls for the “full enforced structural separation” of their wholesale and retail arms “and/or” the forced sale of a significant proportion of their stores “if the commission is not satisfied that increasing wholesale access will work either now or in the future”.

Northelia appeared to make clear in a submission to the Commerce Commission that it believed a third supermarket chain would only enter the market if the existing chains were forced to sell stores and supply a rival from their distribution centres on non-discriminatory terms while it got established.

Consumer NZ and the Food and Grocery Council’s open letter also calls for some reforms that already appear to be in the bag, such as a mandatory code of conduct governing supermarkets’ dealings with suppliers and a ban on restrictive land covenants that limit retail competition.