Commerce Commission to supermarkets: if competition is increasing, explain your market share

Thursday, 21 October 2021

Could forcing supermarkets to charge a fixed profit margin on all goods create fairness for shoppers and suppliers alike?

Claims from Countdown and Foodstuffs that supermarkets are facing significantly growing competition from niche rivals have been called into question by the Commerce Commission.

Josh Gluckman, strategy director of Countdown-owner Woolworths NZ, told the commission on the first day of its market-study conference into the $22 billion groceries industry that supermarkets were facing new challenges from the likes of CostCo, the Chemist Warehouse and meal kit providers.

“Importantly, in our view, the entry of Aldi is also still considered to be imminent,” he said.

But ComCom commissioner John Small said the watchdog was having trouble reconciling submissions that competition was increasing with its own research indicating that Countdown and Foodstuffs had a “reasonably stable” share of the overall groceries market, with a market share above 80 per cent.

2degrees founder Tex Edwards – speaking on behalf of would-be third supermarket player Northelia and lobby group Monopoly Watch NZ – said internet-based food suppliers were not going to challenge the supermarket duopoly without access to the types of distribution centres that the supermarkets had.

* 2degrees founder Tex Edwards says why we need another supermarket chain

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Foodstuffs South Island boss says ComCom’s market study into the industry has had a “corrosive” influence on relationship with suppliers.

Matthew Lane, general manager of Night ‘n Day, which operates 51 convenience stores, said independent retailers could not compete with supermarkets on price “simply because they don’t have access to cost-effective purchasing”.

“For me that comes down to the fact there is no independent wholesaler in New Zealand,” he said.

Countdown and Foodstuffs were rapidly expanding into the smaller store market while leveraging their overall buying power, putting further pressure on independent stores, he said.

Foodstuffs South Island chief executive Steve Anderson said the commission’s market study had had an “incredibly corrosive” influence on the relationship between supermarkets and their suppliers.

However, he backed a mandatory code of conduct that the commission is expected to recommend in order to protect suppliers from supermarkets’ market power.

“In my view, a large number of relationships have been significantly damaged between all parties. I'm very sad about that,” Anderson said.

“Suppliers … tend to believe that all their products are winners, yet most of the products provided to us ultimately fail. Why is that? Because customers don't want to buy them,” he said.

Woolworths NZ corporate affairs director Kiri Hannifin said some of the options put forward by the commission – which include forced sales of supermarkets to a new entrant – could have “serious consequences”.

These were “not least, the risk of increased food prices, but also a less resilient and less efficient food supply chain in New Zealand”, she said.