'A slap in the face': Consumer NZ calls for end to excess supermarket profits

Monday, 9 May 2022

Excess supermarket profits are “a slap in the face” for struggling households and more must be done to ensure New Zealanders pay a fair price at the checkout, Consumer NZ says.

On Tuesday, the watchdog launched a petition calling for the Government to put consumers first and go beyond the Commerce Commission’s grocery market study recommendations.

Consumer NZ chief executive Jon Duffy​ said supermarkets took more than $1 million in excess profits every day.

“These profits are twice what they should be. We need more competition to drive down prices and give New Zealanders a fairer price at the checkout.

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“No one is going to start up a competing supermarket without reliable access to wholesale groceries, but currently the duopoly dominates access to wholesale supply.”

Although the Commerce Commission had recommended the supermarkets consider supplying other retailers, Duffy said that was an unrealistic expectation from “an entrenched duopoly used to calling the shots”.

To create an even playing field for new and existing grocery retailers, the Government should look at regulating access to wholesale supply or setting up a state-owned wholesaler, he said.

The details of Consumer NZ's request have been outlined in an open letter to Commerce and Consumer Affairs Minister David Clark​.

“We recognise that food prices are going up for a variety of reasons, from the pandemic, to inflation, to the impact of the war in Ukraine on wheat prices,” Duffy said.

“We’re not disputing this, but excess profits on top of already high food prices are a slap in the face for households struggling to put food on the table.”

According to Consumer NZ’s Sentiment Tracker, New Zealanders were increasingly worried about the cost of living.

Last year, 63% of respondents picked food and grocery costs as their biggest cost-of-living concern. In a recent poll, 98% of respondents said they were worried about the price of groceries.

In its final report into the $22b groceries industry, the Commerce Commission stopped short of recommending Countdown and Foodstuffs be forced to sell parts of their businesses despite estimating they were making about $430 million a year in excess profits.

Chairwoman Anna Rawlings​ said measures to break up the businesses would be “highly complex to develop and would be unprecedented in our view.”

The commission instead recommended smaller changes that it said would improve competition, including encouraging but not forcing Countdown and Foodstuffs to wholesale groceries to rivals.

The commission estimated Countdown and Foodstuffs’ combined profit would fall by $430m a year if they earned a 5.5% return on their capital, instead of the 12.9% annual return it said they enjoyed between 2015 and 2019.

Commissioner John Small​ described that figure as excess profit but would not put an estimate on how much the measures recommended by the commission might bring down the companies’ profits, or the weekly shopping bill.