Clear justification for change in grocery sector - Commerce and Consumer Affairs Minister

Tuesday, 8 March 2022

Commerce and Consumer Affairs Minister David Clark says New Zealanders will benefit from a much more competitive grocery sector as a result of market study findings unveiled by the Commerce Commission on Tuesday.

But some commentators say the impact of the changes proposed would be felt most by suppliers to the supermarkets, rather than their customers.

The commission released its final report into the supermarket sector, which stopped shy of recommending some of the more drastic changes that had been mooted at the draft stage, such as forcing the chains to sell shops or to compel them to wholesale groceries to their rivals.

Clark said the report was clear that competition in the retail grocery sector was not working.

“Consumers could get better prices, range and quality if action is taken,” he said.

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Countdown and Foodstuffs say they are reviewing the final report.

He said the Government would immediately progress its work to address the recommendations.

“This includes exploring how a code of conduct between major retailers and suppliers could be developed and looking at the role a dedicated regulator for the grocery sector could play.

“The report sets out a clear justification for change in the grocery market. The status quo will not deliver fairer prices for consumers and a better deal for producers and wholesalers, and I hope the sector will constructively engage in the changes that need to be made.

“Given the importance of achieving healthy levels of competition in our retail grocery sector I have not ruled out some of the other options that the Commerce Commission tabled while developing its report, if consumer benefit is not achieved from the changes recommended in the report.

“When New Zealand supermarkets are making more than double what the Commerce Commission considers to be a normal rate of return on capital for grocery retailing, it’s clear there is a problem with competition that needs to be fixed.

“New Zealanders are paying more at the checkout than most. Out of 38 OECD countries we’re the fifth highest in terms of grocery prices.”

National Party deputy leader Nicola Willis said the party welcomed the report and its 'constructive' recommendations for addressing competition issues within the supermarket sector.

Chair of the Commerce Commission Anna Rawlings says splitting the major supermarkets businesses would be too complex.

The party would be examining the recommendations carefully but, at first glance, she thought measures, such as land availability for new supermarkets, were sensible, she said.

Everybody wanted to see healthy competition in the supermarket sector, she said.

'We want to see groceries as affordable as possible for New Zealanders,' Willis said.

'They are the major cost facing many of us and it's not escaped anyone that groceries here in New Zealand are often much more expensive than they are in Australia or the UK.'

ANZ chief economist Sharon Zollner said, with Russia’s invasion of Ukraine having provided fresh impetus to already steadily rising global food prices, “there are no quick fixes to household budget strains”.

Food and Grocery Council chief executive Katherine Rich welcomed the report but said she did not think it would lead to the arrival of a third player in the supermarket duopoly.

“We still need to create an environment where a new entrant can come into New Zealand. Ideally you need four or five different supermarket owners. In three years’ time I suspect there will be similar conversations because I think what was announced today is unlikely to encourage either an international or a local operator to roll out but we’ll see.”

But she said, in terms of the treatment of suppliers, what had been announced was 'everything we asked for and more”.

“We are very happy with the outcome. Our ambition was to move the dial for suppliers and that’s what has happened. The commission’s report has confirmed what the Food and Grocery Council has been saying for a long time.”

She said the recommendation of a grocery sector regulator would be significant because it would keep the market study process “live”. “There will be ongoing reporting and requirements for transparency, ongoing reports to the public and Parliament. What that will do is affect the supermarket behaviour. You’ll have that regular reporting that shines a spotlight on behaviours and activity.”

She said the ban on oppressive clauses in contracts was also a win because some contracts suppliers were being asked to sign currently would not meet the new expectations.

HortNZ chief executive Nadine Tunley said the changes would “reverse the imbalance of power” between supermarkets and suppliers.

“The improved relationship along with greater transparency should ensure that growers get a better return on their investment, so they will continue to invest in fruit and vegetable growing so New Zealanders can eat healthy, locally produced food.”

She said grower returns had not increased for at least 10 years but retail costs had steadily increased.

Consumer NZ chief executive Jon Duffy said, of the ten things his organisation had wanted to see in the report, seven or eight had been ticked off.

“It’s a complex plan they’ve put in place that has lots of moving parts. Any one of those moving parts could fall down at any time. They’ve said no one is going to enter the market unless they get land so we need to reform local government planning laws and central government planning laws to foster that. In theory that’s very sensible and I understand the rationale but in practice that’s a huge undertaking… it makes economic sense but in terms of consumers getting rorted at the checkout it makes not one dot of difference.”

But he agreed a regulator to “keep the spotlight on” would be a big change. “We know when the spotlight is put on the supermarkets, as it is at the moment, they make concessions and start acting in a more pro-consumer way.”

He said the report might seem like more o fa win for suppliers than consumers but if suppliers could deal with supermarkets on a more equal basis that would boost choice for shoppers.

Woolworths NZ managing director Spencer Sonn, said it was good to have clarity. Woolworths runs Countdown supermarkets.

“Like the Government, we want New Zealanders to be confident that our supermarkets are good places to shop, and that as a business we are good to work with. As we’ve heard through the market study process, we know that some changes are not only required, but expected of us.

“We support the changes the commission has recommended and we’ll continue to engage constructively with the government to make them happen.

“Supplier partnerships are a very important part of our business, which is why we support the introduction of a mandatory grocery code to ensure all retailers are held to the same standards.

“We also support having greater clarity and consistency across retailers around unit pricing and promotions, and we support making changes to land covenants to help free up sites for more supermarkets to be developed. We agree with the commission’s finding that planning law changes could also play an important part in this.

“We hear the concerns raised about improving the wholesale supply to third party retailers, and we are committed to working with the government on what this could look like.

“We’ll now take the time to read the report in detail. We know there’s certainly a lot of work for us to do in the coming months, and again we thank the commission for its work and thorough process.”

Foodstuffs North Island chief executive Chris Quin said he acknowledged competition could work better for New Zealand shoppers.

“As a result, we accept that the sector does need to change and we are committed to our role in doing that.

“We need time to now consider the final report in detail, but from our initial review we are committed to working with the Government in supporting the implementation of the recommendations in the final report.

“We’ve been fully engaged in the market study process from the outset over 15 months ago, we’ve listened, and we’ve committed to an action plan that will meaningfully improve outcomes for customers and address the proven issues raised through the market study.

“We will now work with the Government on implementation of the recommendations set out in the final report today. We’ve accepted the clear challenge to do better for New Zealand customers and meaningful change is happening as a result of this market study.”