Ardern says supermarket move will 'unlock stockroom doors' for rivals
Wednesday, 24 August 2022
Government will force Countdown and Foodstuffs to sell groceries to rival retailers at prices set by regulation if they fail to voluntarily supply rivals 'adequately'
The rule change was not recommended by the Commerce Commission after it conducted its review of the $22b groceries industry
Countdown and Foodstuffs would be required to negotiate wholesale offers to competitors on commercial terms
The Commerce Commission estimated Countdown and Foodstuffs were making excess profits of about $430m a year - a finding that the supermarket companies contested
Ka tono te Kāwanatanga i a Countdown me Foodstuffs kia hoko atu i ngā rawa kai ki ngā hoariri hokohoko, i te rahinga pūtea e ai ki ngā ture mēnā e kore e “rawaka” tā rātou toha tūao ki te hoariri
Kīhai te panonitanga ture i marohitia e te Komihana Tauhokohoko i muri i tāna arotake i te ahumahi rawa kai $22 piriona
E matea nei tā Countdown me Foodstuffs whiriwhiri i ngā whakaherenga kaihoko waenga ki ngā kaiwhakataetae, e ai ki ngā herenga tauhoko
I whakapae tata te Komihana Tauhokohoko, kua āhua $430m te hua pūtea tuwhene a Countdown me Foodstuffs - he whakapaenga e tohea nei e ngā pakihi hokomaha
The Government will “unlock the stockroom doors” of Countdown and Foodstuffs by requiring they sell groceries to rival retailers at prices set by regulation, if they don’t strike their own supply deals in good faith, Prime Minister Jacinda Ardern says.
Commerce Minister David Clark said the decision would ensure greater competition and “a wider range and cheaper products”, but National Party commerce spokesperson Andrew Bayly said the announcement was “incredibly light on detail”.
The Commerce Commission decided against recommending a mandatory wholesale regime after it conducted its review of the $22 billion groceries industry.
It concluded in March that such regulation could reduce rather than improve price competition, might make the industry less efficient by introducing “significant additional costs” and could potentially entrench Countdown and Foodstuffs’ market shares.
**READ MORE:
* Public could get say on break-up of Countdown and Foodstuffs early next year
* Tom Pullar-Strecker: Supermarket code has one major shortcoming
* $430 million a year in excess profits but no supermarket split
**
But Clark said the move had been carefully considered.
“Ultimately we have decided to take stronger action than the Commerce Commission suggested,” he said.
“They said any wholesale regime should be voluntary. We’re not confident that will deliver the results consumers deserve.”
“Supermarkets would be well advised to lock in good faith wholesale arrangements on their own terms, since otherwise the Government will have no problem with stepping in to do it for them,” he said.
Ardern said there had been a narrowing of offerings in the market.
“It's not just about making sure that the corner store and dairy is able to access products through a wholesaler that's offering fair pricing, rather than just going to the supermarket themselves which is what many do.
“We also want more, larger operators in the market as well, because of what that will likely provide. That won't happen unless there is access to products to stock their shelves.”
Clark said Countdown and Foodstuffs would be required to negotiate wholesale offers to rival retailers on commercial terms.
“However, if those prices are not what we would expect in a competitive wholesale market the new Grocery Commissioner will be able to impose additional regulation to force fairer prices,” he said.
“Ultimately, if these interventions don’t deliver a fair deal, new regulations can be utilised to require the major retailers to provide wholesale supply at certain terms, including price and range.”
Bayly said National was quite supportive of trying to reduce prices “and the intent sounds great, but we have got no idea of how it is going to work”.
“We see it as a bit of sideshow because the real issue is inflation hitting the economy. The cost of a lot of goods has gone up substantially,” he said.
Spencer Sonn, the managing director of Countdown-owner Woolworths NZ, said it was working to open up a wholesale channel and had “nearly signed up” its first multi-store wholesale customer, which it hoped to confirm soon.
“A backstop should be there to use if the industry doesn’t take active steps to make wholesale happen. It’s our view that we are best to get on and do it, and that’s what we’re doing,” he said.
New World and Pak n’ Save owner Foodstuffs announced in June that it had invited expressions of interest from rival retailers that might want supplies, so it could gauge demand.
The “regulatory backstop” would be one of a series of government interventions designed to improve competition in the industry and get a better deal for supermarket suppliers.
The Commerce Commission estimated Countdown and Foodstuffs were making excess profits of about $430 million a year, a finding that the supermarket companies contested.
Other measures previously announced by the Government include banning the use of restrictive land covenants and leases, consulting on a mandatory code of conduct to govern how suppliers are treated, and approving the appointment of a grocery commissioner to oversee the sector.
Clark described wholesale regulation as “a centrepiece” of its reforms.
But he said that did not rule out the Government later ordering Countdown and Foodstuffs to sell some of their stores or chains.
The Government said in a Cabinet paper in June that the public could be consulted on a break-up of Countdown and Foodstuffs, if the Government chose to go down that track.
Clark told ministers then that he would report back in October with the results of “a detailed cost-benefit analysis” on the various options for “retail divestment” and to seek a decision on whether to proceed with further steps.
But he said on Wednesday that “the Commerce Commission highlighted that you need to work through very carefully across the benefits of going down that route”.