Supermarket code could mean more variety without higher prices, says minister

Wednesday, 6 July 2022

The Government is creating the role of grocery commissioner in an attempt to better regulate supermarket rivals Countdown and Foodstuffs. (Video first published on July 7, 2022)

A new supermarket code benefiting suppliers could mean more shoppers have a wider range of food products to choose from and need not mean higher prices, Commerce Minister David Clark says.

Clark released a discussion paper setting out options for a code that supermarket groups Countdown and Foodstuffs would need to abide by, and announced he would appoint a grocery commissioner, based within the Commerce Commission, to hold the industry to account.

Clark said the mandatory code, which is now out for public consultation, would address an imbalance in the bargaining power major grocery retailers had over their suppliers and “ensure suppliers get a fair deal”.

“This is especially important for the small, artisan brands and the emerging startups that want to get their products on shelves,” he said.

* Public could get say on break-up of Countdown and Foodstuffs early next year

* Supermarkets agree to submit to supplier code but defend home brands

Consumer NZ chief executive Jon Duffy has warned shoppers not to expect a sudden drop in prices as a result of the latest government action on supermarkets.

“We want them to feel empowered and we also want consumers to have the added variety when they go to the supermarket.”

The Ministry of Business, Innovation and Employment admitted there was a risk the code could “limit the ability of the major grocery retailers to negotiate fairly and firmly with suppliers”.

“This could contribute to higher costs for the major grocery retailers, which would make it harder for them to provide consumers with the range of products at competitive prices,” it said.

But the ministry pointed to Commerce Commission advice that those risks were “relatively limited” and could be managed if the code focused on “how the businesses in the market for the acquisition of grocery products ‘behave’ – rather than substantial matters”.

Clark suggested supermarkets could pay for any higher costs out of their “excess” profits, estimated by the Commerce Commission at about $430 million per year, while still leaving room for benefits to be passed on to consumers.

“We think there is room for consumers to save and for what the proceeds are currently to be shared fairly,” he said, while adding that he would be monitoring what happened to suppliers’ margins.

Countdown managing director Spencer Sonn declined an interview and said it was continuing to engage positively with the Government.

Like Countdown, Foodstuffs NZ managing director Chris Quin also said it supported a commissioner and a code.

The grocery commissioner would have the ability to issue warnings and “the ability to put fines in place”, which could be set as a proportion of supermarkets’ turnover, Clark said.

Consumer NZ chief executive Jon Duffy said the announcements on Wednesday were an important step but he cautioned people not to expect “immediate changes in prices in the stores”.

The biggest downward pressure on prices was coming from the fact that the supermarket groups realised they had “lost their social licence”, rather than specific reforms, he said.

It was important the grocery commissioner was adequately resourced, he said.

“Finding the right people will be a challenge. It is a tight labour market for people with this expertise.”

The deadline for submissions on the supermarket code is August 10.

Clark said “global factors” were driving up the cost of living, including the price of groceries, but the underlying problem in the supermarket sector was a lack of competition.

The Government has previously legislated to ban restrictive land covenants and lease agreements imposed by supermarkets, and Clark’s announcements on Wednesday won’t end its push to reform the supermarket industry.

It expects to finalise the shape of new wholesale regulation rules in October.

These will require Countdown and Foodstuffs to supply rival retailers, probably either on “non-discriminatory” terms equivalent to those under which they supply their own retail stores, or on a “regulated cost of supply basis”.

Clark also expects to report back to Cabinet in October on options for forcing Countdown and Foodstuffs to sell some of their stores or chains to make way for a third supermarket operator, although the Government has not yet decided whether to take that much more dramatic step.