Watchdog probes the dark art of the supermarket 'special'

Friday, 22 October 2021

Countdown and Foodstuffs have signalled a shift in emphasis away from promotions and towards ‘everyday low prices’.

Supermarkets are using ‘specials’ to mislead consumers, boost profit margins and exert control over their suppliers, critics of the supermarket chains have told the Commerce Commission.

The commission was told some shoppers had become so used to frequent price promotions that they had become accustomed to simply not buying the products they wanted when they were not on discount.

Consumer NZ chief executive Jon Duffy led the assault on the supermarket’s practices on the second day of a Commerce Commission conference on the industry, saying they were intentionally confusing consumers with “savings” that customers couldn’t be sure weren’t genuine.

Supermarket loyalty schemes were a form of “price discrimination”, he said.

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“In a highly concentrated market, we think linking access to discounts to the mandatory collection of personal information is unfair and penalises consumers unwilling to trade their privacy to increase industry profits,” he said.

Sue Kedgley of the National Council of Women said that because there was “no monitoring, no scrutiny and no transparency” of supermarkets, no-one could know what underpinned specials or how genuine they were.

The doors open to the new Countdown supermarket at Richmond, which is on track to be the first New Zealand supermarket to be Green Star accredited.

Representatives from Countdown and Foodstuffs said they were making changes to their pricing and promotional practices and switching their marketing towards “everyday low pricing”.

Countdown strategy director John Gluckman said that was a trend for retailers around the world as they sought to improve trust.

Countdown now offered about 4000 products each week “at a low price, every day” through its ‘great price’ programme, he said.

“Our focus on ‘everyday low pricing’ means that whereas once the percentage of sales sold on promotion was in excess of 60 per cent, that is now well under 40 per cent.”

But he said specials still had a role.

“Kiwis love a bargain and they're highly engaged with pricing and promotions, so it's only natural that we would meet that demand for some ‘surprises and delight and some excitement’ during the shopping experience,” he said.

Gluckman said Countdown was also rolling out electronic shelf labels to “improve price integrity, improve efficiency and reduce tickets falling off our shelves”.

The company said two of its stores, Countdown Pukekohe South and Countdown Richmond, had electronic price labels and it planned to roll them out to another 15 stores by the middle of next year.

Foodstuffs North Island merchandise manager David Stewart said it was making a similar shift with regard to pricing and was working hard to provide “a stable price on key important, essential lines for the consumer”.

But Giles Barker, a director of confectionery company Bloomsberry, said “the two dominant supermarkets” used promotional pricing to control the behaviour of suppliers.

“I’ve worked with supermarkets in the United States, the UK and in Australia extensively over 20 years and New Zealand is a tough place, with a veneer of ‘classic New Zealand collegiality and goodwill”, but underlying it is a very aggressive position,” he said.

“If you're not on promotion, you don't sell, and people are turned off promotions to control their behaviour and send very strong messages to suppliers by the two supermarkets,” he said.

Barker said he had been reluctant to be involved in the commission’s market study, saying he believed it was dangerous for businesses to speak up.

Food and Grocery Council chief executive Katherine Rich endorsed Barkers’ comments.

Supermarkets sometimes asked suppliers to offer promotional prices without passing the full benefit on to shoppers, she said.

“Quite often, blocking suppliers from promoting is used as a way of getting leverage over suppliers.”

Monopoly Watch NZ spokesman Tex Edwards said current the use of specials would change if there were more competitors in the market.

Edwards reiterated that a consortium he is involved in, Northelia, could access $1 billion of capital to establish a third supermarket group if the commission re-regulated the industry.

In the current two-player market, supermarkets used promotions to increase profit margins and “flush stock”, he said.

But if there were four or six supermarket chains, they would be used more as they should be, to try and attract new customers and “get churn into the store”, he said.