ComCom must see through fresh probe into Gib board 'discounts', says Tex Edwards

Monday, 5 December 2022

John Small talks about Winstone Wallboards

The Commerce Commission must see through its investigation of potentially anti-competitive trade “discounts” offered by Fletcher Building on Gib board, even if the company scraps them as promised, a competition advocate says.

The competition watchdog finalised nine recommendations to improve competition in the building supplies market on Tuesday.

Chairperson John Small said they included a “recommendation to ourselves” to promote compliance with the Commerce Act by discouraging the use of “quantity-forcing rebates” that the commission believes make it harder for new suppliers to get a foot in the door in the supply chain.

Critics say the volume-based rebates are structured to make it uneconomic for distributors to properly stock building materials except from dominant suppliers.

That is because doing so could jeopardise discounts on large volumes of products they had already sold.

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Small said the commission had last week opened an investigation into discounts offered by Fletcher Building’s Winstone Wallboards subsidiary.

Winstone’s Gib is the dominant product in the plasterboard market.

Fletcher Building said in a statement that it was surprised by the commission’s investigation, which it said would be the third by the watchdog into the same topic after two earlier investigations concluded “there was no issue”.

Such discounts were “very common, not just across the building supplies industry but in other parts of the economy as well”, it said.

Competition in the building supplies market has long been a concern of the Government.

However, Fletcher said it had decided to discontinue the use of that type of rebate and would move to a “tailored, flat-pricing model based on volume”, given what it described as the commission’s preference.

Small said he “really liked the sound” of the change and did not rule out it being enough to persuade the commission to discontinue its investigation.

”We will have to talk to them about exactly what that means,” he said.

But competition advocate Tex Edwards said the commission should complete its investigation regardless.

He believed it could uncover other issues and suggested Fletcher Building could otherwise replace volume-based discounts with other incentives and freebies for trade customers that might be designed to have a similar effect.

Releasing the commission’s market study into the building supplies industry on Tuesday, Small said it could not ignore the fact changes were needed in the industry.

In line with recommendations in a draft report in August, the commission has recommended establishing a national database to share information about building products, and making the promotion of competition an objective in building industry regulations.

The other measures suggested by the commission are also mostly designed to make it easier to get a wider variety of products on the market and accepted by customers.

Small said there was a “self-reinforcing cycle” in the market that mitigated against competition and that the commission wanted to break.

“Whilst there are some general recommendations, there are also some very specific ones that I think make a difference.”

Commerce Minister David Clark welcomed the commission’s report and said it would respond to the recommendations in March.

Building and Construction Minister Megan Woods said building supplies made up a sizeable chunk of the cost of new residential housing and the Government already had building sector reforms underway, including a review of the building consent system.

“Recommendations in the report align with moves we made to help resolve the national plasterboard shortage. But we know there is still more to be done to ensure consumers get a better deal and builders have the materials they need to do their jobs,” she said.

Winstone’s announcement on the day of the release of commission’s market study regarding its discount change was a sign of how effective those studies could be, she said.

National Party building and construction spokesperson Andrew Bayly said it supported the recommendations made by the commission, including one that would make it easier for iwi to consent houses on iwi land.