Auckland's volcanoes among reasons not to mess with supermarkets, says Countdown

Thursday, 6 January 2022

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

The risk of earthquakes and volcanic eruptions interfering with food supplies should make the Commerce Commission think twice about splitting up the country’s major supermarket chains, Countdown says.

The competition watchdog will decide by early March whether to recommend the Government helps make way for a third supermarket group by requiring Countdown and Foodstuffs to sell some of their stores and split their distribution and retail operations.

In its final submission on the commission’s market study into the $22 billion groceries industry, made public just before Christmas, Countdown said it was “deeply concerned” about what it described as some of the more interventionist options canvassed by the regulator.

Countdown said it was “deeply concerned” about what it described as some of the more interventionist options canvassed by the regulator.

The Australian-owned company said the existing structure of the industry reduced the risk of food supplies being put at risk by pandemics, earthquakes, floods and volcanoes, noting in its submission that the latter could result in the displacement of 320,000 Aucklanders.

* Supermarket critics smell blood as Commerce Commission probes separation options

* Arm wrestle for share of $22b groceries market intensifies

* Foodstuffs says supermarket prices fair and competition strong

Countdown said its current structure had helped it respond to the challenges of Covid, for example by allowing it to move staff between stores to cover gaps while more than 1000 of its workers were self-isolating, and to “pull levers in an all-of-system way”.

“We have significant concerns regarding how a vertically-separated supply chain, or one dominated by contracted or regulated wholesale supply models, would hold up in the face of a crisis,” it told the commission.

Both Countdown and Foodstuffs – owner of the New World and Pak 'n Save franchised chains – have contested the commission’s findings in a draft report in July that there is not enough competition in the industry and that grocery prices are high when compared to overseas.

Countdown described a government-ordered break-up as “internationally unprecedented” and said the watchdog needed to consider the legal implications of any recommendations as well as “risks to investment in New Zealand more generally as a result of policy uncertainty and sovereign risk”.

Nga Ngaru Rautahi o Aotearoa chairman Matthew Tukaki told the commission Māori would like to have a lead role in third supermarket entity.

Northelia, a business group backed by iwi and 2degrees founder Tex Edwards which has expressed interest in buying Countdown and Foodstuffs stores in the event of forced sales, appeared to anticipate the latter objection in its final submission to the commission.

It quoted economist Cameron Bagrie dismissing the idea that a break-up of the supermarket groups could affect the country’s credit ratings.

One option for the Commerce Commission might be to suggest Countdown and Foodstuffs are forced to sell their Fresh Choice and Four Square chains, one industry source believes.

“Divestment of assets or separation are not unusual outcomes when it comes to enforcing competition or approving takeovers,” Bagrie said.

“The goal is greater competition, which should be ‘rating positive’ not negative.”

Most of the arguments for and against major reforms of the supermarket industry had been thrashed out in earlier submissions and during a commission-run conference in November.

But the final round of arguments was notable for the large number of submissions from iwi and Māori interests, including Ngāi Tahu Holdings, Ngāti Kahungunu Iwi, Ngāti Porou Holding Company and Rangitane Tamaki nui-a-Rua Iwi, supporting a third supermarket entrant.

Matthew Tukaki, chairman of the National Māori Authority, Nga Ngaru Rautahi o Aotearoa, told the commission that Māori had little say in how the major supermarkets operated and catered for Māori needs.

“Clearly one Māori aspiration should be a third entity developed and led by Māori business and industry,” he said.

Shayne Walker, chief executive of the Ngati Porou Holding Company, advised the commission to consider “an Aotearoa Māori led grocery retail market channel inclusive of infrastructure, distribution and supply chains to improve supplier resilience and consumer choice”.

“Māori have always acknowledged that what works well for Māori, works well for everyone,” he said.

“At this juncture in the evolution of Aotearoa, we have an opportunity to ensure that consumers and suppliers are treated respectfully and provided with equal opportunity to access affordable groceries and a supply chain that treats suppliers fairly and with respect.”

An industry source speculated that one option the commission could consider – short of a broader break-up – might be to recommend Countdown and Foodstuffs be forced to divest their Fresh Choice and Four Square chains, in the hope they might evolve into a stronger competitor to bigger supermarkets over time.

Edwards indicated he did not believe a change on that scale would be sufficient.

The commission is due to publish its final recommendations by March 8.