Supermarket groups accused of 'lying' over desire for competition by 2degrees founder

Tuesday, 31 January 2023

A debate over the Grocery Industry Competition Bill is taking place with the threat of forced divestment still hanging over Countdown and Foodstuffs.

Countdown and Foodstuffs have been accused of “lying” over their desire for more competition by the founder of 2degrees.

Competition advocate Tex Edwards said Countdown owner Woolworths and Foodstuffs were lying over their desire for more competition, and only a break-up of the two supermarket groups would entice a third “like for like” challenger that could bring down grocery prices.

Countdown boss Spencer Sonn has meanwhile said multinationals are charging about 10% more than they charge Australian supermarkets for imported groceries, saying that helped explain why prices here were higher.

In a submission to Parliament’s Economic Development, Science and Innovation select committee, Edwards said there was “a level of fantasy” in the public policy debate about what would be required to address what he described as the supermarket monopoly problem.

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The select committee is currently considering the Grocery Industry Competition Bill, which former prime minister Jacinda Ardern said in August would “unlock the stockroom doors” of Countdown and Foodstuffs’ Pak ‘n Save and New World supermarkets by forcing them to wholesale groceries on terms that could potentially be set by regulation.

But Edwards said in a submission by the Monopoly Watch lobby group that only “structural separation, and a forced retail divestment” of the existing chains would give a new competitor the distribution power they needed to “commence proper price and innovation competition”.

Edwards founded telco 2degrees and has since restyled himself as a competition advocate in a range of industries, and in November was appointed by Building Minister Megan Woods to her 10-person Critical Materials Taskforce, established to trouble shoot shortages in the building materials industry.

Woolworths said in its submission to the select committee it “supported the policy intent of improving competition and efficiency in the grocery sector”.

Edwards indicated it was veracity of that statement that he was calling out.

“They should all be fired from the board if they want competition. The private sector wants monopolies. It is for the Government to create competition,” he said.

A spokesperson for Woolworths NZ said it refuted Edwards’ accusation.

“We have said throughout the entire market study and subsequent processes that we welcome competition into the sector and we stand by that,” she said. Foodstuffs has also been approached for comment.

The Government is currently considering whether to consult the public on whether it should require Countdown and Foodstuffs to sell some of their stores or chains.

But in the interim, the Grocery Industry Competition Bill is the centrepiece of the reforms it is hoping will improve competition in the industry.

Competition advocate Tex Edwards says there is an element of “fantasy” in the debate around supermarket industry reform.

Countdown and Foodstuffs have reconciled themselves to many of the reforms in the bill, including a new mandatory code of conduct that would govern their dealings with suppliers and a requirement for them to wholesale products to rivals.

But they are pushing back against a “regulatory backstop” that was included in the legislation against the original advice of the Commerce Commission.

The backstop could be used to force them to sell groceries to rival retailers at prices set by regulation or to separate their distribution and store networks into divisions that had to be run at arms’ length from one another, if their voluntary offers to wholesale groceries to rivals were deemed inadequate.

Countdown boss Spencer Sonn told the select committee on Tuesday that it had very significant concerns about the backstop, which he said could increase rather than reduce prices and which he said had “no precedent internationally”.

“The backstop is not workable. In supermarkets it is integration and ‘scale’ that help us keep prices low,” he said.

Sonn rejected an assertion by Commerce Minister David Clark on Monday that the two supermarket groups were together “conservatively” making at least $1 million a day in excess profits.

The figure was based on the findings of the Commerce Commission’s market study into the industry.

But Sonn said he “did not agree with that characterisation”.

“Our profit margins are extremely thin,” he said.

Quizzed by MPs on why grocery prices here were higher than in Australia, Sonn said “we know for a fact that for the same goods from multinational suppliers, New Zealanders pay 10% more … as goods land in New Zealand”.

“So you are already at a price premium before we have even started and then obviously there are differences in terms of GST application and so on. We are a significantly more costly market to do business with and given our relative size it is incredibly challenging for New Zealand relative to Australia.”

Consumer NZ chief executive Jon Duffy backed the Government’s bill, saying it had had concerns about competition in the industry for many years.

Its polling indicated that 32% of consumers did not trust supermarkets and that, since 2021, supermarket firms had experienced the steepest decline in trust among the 15 types of businesses that it tracked, he said.

“Without the reset this bill represents, the supermarkets will happily continue as they have for the last 20 years to the detriment of consumers and suppliers alike,” he said.

Eric Crampton, chief economist of the New Zealand Initiative think tank, said the proposed wholesale backstop could backfire by dissuading overseas supermarket groups from entering the market and bringing more competition.

That was because they could be subject to the same backstop regime five years after setting up shop here, or potentially sooner if they entered the market through acquisitions, he said.

But Commerce Commission chairperson John Small appeared to downplay that concern, saying that regulated access to wholesale supplies could help overseas entrants get established in their early days and suggesting also that the five-year grace period in the legislation appeared reasonable.