Supermarket sector in for major shake-up 'at pace' with Government introducing new regulations

Monday, 30 May 2022

The Government says it will 'urgently pursue' options to generate more competition in the supermarket sector – and the big operators will need to open up their wholesale arms to competitors, or face regulation.

It has released its response to the Commerce Commission's review of the sector, which found that the supermarket giants could be making $430 million a year in excess profits.

Minister of Commerce and Consumer Affairs David Clark said on Monday the Government was putting supermarkets on notice, and they needed to change 'at pace'.

It will introduce an industry regulator, a mandatory code of conduct, compulsory unit pricing and more transparent loyalty schemes.

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“The Government and New Zealanders have been very clear that the supermarket industry doesn’t work. It’s not competitive and shoppers aren’t getting a fair deal. The duopoly needs to change, and we are preparing the necessary legislation to do that,” Clark said.

The Government accepted 12 of the commission's 14 recommendations, and would take stronger action on the other two, he said.

“The two recommendations not accepted relate to implementing a voluntary wholesale access regime and to a review of competition in three years. These issues can’t be kicked down the road. We need to address the underlying drivers of the lack of competition now,” Clark said.

The Government said the Commission's recommendation to 'consider requests for wholesale supply in good faith' was insufficient.

It will develop a mandatory wholesale grocery access regime as a backstop to the voluntary scheme proposed by the commission.

Consumer NZ chief executive Jon Duffy said this was a good move.

“We need to create an even playing field for new and emerging grocery retailers,” Duffy said.

“The voluntary regime recommended by the commission would have left competitors at the mercy of the very companies they’d be competing with. Putting a regulatory regime in place will ensure that new and emerging retailers must be treated fairly.”

Spencer Sonn, managing director of Woolworths New Zealand, which operates Countdown, said the company did not yet have the capability to offer large-scale wholesale supply but was planning how it could achieve this.

He said the chain accepted that change was needed. “We’re committed to working with the Government to meet their expectations and with our supply partners who will play an important part in this.”

David Clark says some of the issues need to be addressed more urgently than the Commerce Commission suggested.

Clark said the supermarket operators knew what was expected.

“Given the pressure New Zealanders are under due to global inflation and cost of living increases, we can't afford to wait three years.'

He said consumers had seen 'posturing' from supermarkets offering price rollbacks in recent weeks but the supermarkets had recognised the findings of the commission had been “so clear'.

“It doesn’t fix the systemic problem at large – which is a lack of genuine competition in the sector.

“Alongside the retail stores, supermarkets have wholesale arms. We are calling on the duopoly to open these up to would-be competitors, at a fair price. Do this knowing the Government is determined to get a regulatory backstop finalised by the end of the year.

“If supermarkets do not strike good-faith wholesale deals with their competitors – our regulatory measures will make it happen for them. We are not afraid to unlock the stockroom door to ensure a competitive market.

“We are taking these actions because if competitors don’t have proper access to wholesale goods, there’s no real incentive to enter the market. You can’t run supermarkets with empty shelves. And the New Zealand market clearly needs more competition.'

He said the commission would take on responsibility for the sector while the industry regulator was set up.

'Once established the ‘watchdog’ will help keep pressure on the grocery sector, by providing annual state-of-competition reviews to keep supermarkets honest, as opposed to the check-in after three years recommended by the commission. It will also facilitate a resolution scheme to mediate disputes between suppliers and retailers.

“This work will sit alongside my Budget night legislation to ban supermarkets from using restrictive covenants on land, and leases to block competition from setting up shop in certain suburbs and shopping centres. This bill is currently with select committee.'

Clark said it was clear that having a competitive market had “changed the landscape” in Australia. “What New Zealanders can know is that the government’s taking this seriously. We want them to have fairer grocery prices, the route to that is better competition.”

MBIE was also undertaking further work around requiring major grocery retailers to divest some of their stores or retail banners. This was a longer-term piece of work due to its complexity, Clark said.