Gib rebates lampooned at Commerce Commission conference

Wednesday, 28 September 2022

Gib was often centre stage at a Commerce Commission probe into building supplies market on Wednesday.

A junior rival to Fletcher Building in the plasterboard market has ridiculed the idea that Fletcher Building offers rebates to distributors to reward them individually for expanding its market.

Instead, competition in the building supplies market was being undermined by volume-based discounts that could fall sharply in value if merchants bought much product from smaller suppliers, Elephant Plasterboard director Kevin van Hest told a conference hosted by the Commerce Commission.

The Commerce Commission is currently hearing evidence in Wellington on its market study into the buildings materials industry, which it aims to wrap up by December 6.

The study was ordered by Commerce Minister David Clark last year after he voiced concern that a lack of competition in building supplies was pushing up the cost of new housing.

* GIB and the competitive problems of plasterboard

* House-building costs are more than three times what they could be, ComCom told

Former Commerce Commission chairperson Anna Rawlings discusses its draft study into building supplies (video first published in August).

Much of the debate about competition in the industry has gravitated around Fletcher subsidiary Winstone Wallboards, which is believed to account for about 95% of plasterboard sales.

“Plasterboard sales are directly proportional to the activity in the building industry,” van Hest told the commission.

In that sense the plasterboard market differed from the market for televisions, where manufacturers might offer incentives in the hope people might install additional TVs in more rooms in their home, he said.

“You can’t sell any more board than the market actually needs; you are not going to use it to line your yacht.”

Merchants were all selling the “exact same actual ‘can of coke’” and the rebates were “not about volume; ‘please sell more of our board’,” he said.

“For every extra sale a Carters store is getting, obviously it is less sales at a Bunnings or a Mitre10.

“It is about the share. If you sell too much ‘not-Gib’, that is when you are going to feel it, and that is probably what is really going on.”

Despite years of publicity and action by the Commerce Commission, extended warranties are still being pushed by retailers.

Van Hest also questioned Fletcher Building’s sponsorship of an organisation representing building inspectors.

Elephant Board could get “a hell of time” from building inspectors and processors when its own plasterboard was specified in building plans, he said.

Fletcher Building’s Gib plasterboard business was a “gold partner” of the Building Officials Institute of New Zealand (Boinz), which represents 1200 people involved in building compliance in both the public and private sectors, he noted.

Van Hest said Fletcher’s sponsorship of the institute was one of a “whole web” of partnerships that Fletchers had built up, but the one about which he had the most concern.

“When you go to conferences, you get wined and dined, you get looked after by sponsors, and it’s human nature to have a feeling of loyalty towards those brands,” he said.

Boinz chief executive Nick Hill responded that it did not endorse products.

“We are not a buyer, nor are we an influencer.”

The opportunity to become a sponsor was open to anybody, Hill said.

He believed Fletcher Building sponsored the institute to support professionalism.

One reason they did so was to ensure products and systems were fully understood, he said.

Fletcher Building group general counsel Andrew Clarke responded to van Hest’s concerns over its sponsorship of Boinz by saying it had “provided all that information” to the commission.

Monopoly Watch spokesperson Tex Edwards is disappointed that no other non-profits that could have represented the interests of consumers are giving evidence at a conference hosted by the Commerce Commission.

“One competitor in one product has got an awful lot of airtime,” he told the assembled commissioners.

“I am quite frustrated.”

The commission has hinted that it may only consider taking enforcement action in relation to volume-based rebates in the industry after an amendment to the Commerce Act takes effect in April.

That will remove the need for it to prove anticompetitive intent when prosecuting anticompetitive conduct.

Even then it is understood that the watchdog believes it would need to see any anticompetitive conduct continue for a period of time after the law change before it could take action under the revised terms of the legislation.

So far it has focused instead on drafting recommendations that could make it easier for new suppliers to get new products into the market and certified.

Fletcher’s building products chief executive Hamish McBeath confirmed at the conference that the company also provided rebates direct to some builders.

The company defended its use of rebates in an earlier submission to the commission, saying it did not believe they would fall foul of the Commerce Act even following its amendment next year.

Such rebates had not driven Gib’s high market share, it said.

Instead, Gib’s competitive position and success was the result of Winstone Wallboards’ provision of “a great product which it supplements with excellent technical and other customer support”, it said.

Commerce Commission chairperson Anna Rawlings said in August when she released the commission’s draft report into the industry that businesses that misrepresented the true cost of building supplies in their invoices to customers to disguise the impact of discounts could be breaching the Fair Trading Act.

“We would expect if customers were being told the price paid for a product, that should be the price,” she said.

The commission’s draft report did not address the extent to which that was common practice.

Competition advocate Tex Edwards has expressed concern that Fletcher Building and fellow building materials giant Cart Holt Harvey could use their ownership of PlaceMakers and Carters to advantage their own manufacturing businesses if the commission clamped down on rebates to other merchants.

Commerce Commission commissioner John Small said on Wednesday that the commission had been “forward-looking” in its draft report.

But fellow commissioner Derek Johnston appeared to make clear at its conference on Wednesday that the commission was not currently minded to reconsider the decision in its draft report not to force Fletchers or Carter Holt Harvey to sell PlaceMakers or Carters.

“There has been a lot of noise about vertical integration but from where we are sitting we are still struggling in terms of much evidence of customer foreclosure or supplier foreclosure,” he told the conference.

“If people have concerns, now is the time to give us some evidence,” he said, adding that so far the commission did not have that.

CORRECTION: An earlier version of this story reported that the Commerce Commission was due to conclude its market study in November, instead of on December 6. (Amended 9.30am 29 September 2022.)