Foodstuffs plans merger: What would it mean for shoppers?

Tuesday, 7 November 2023

At the moment, Foodstuffs is split into two entities.

The Commerce Commission has been approached by Foodstuffs North Island and Foodstuffs South Island about the proposed merger of the two entities – and one commentator says it could help boost is competitive power against Woolworths.

Commerce Commission general manager of competition, Antonia Horrocks, said Foodstuffs had been told that the potential transaction was best assessed in a public framework under the commission’s merger clearance regime.

“The parties have indicated they will be filing a clearance application in due course. The clearance process includes the opportunity for interested parties – including suppliers – to respond to the proposed merger.

“Preserving the competitiveness of markets in New Zealand is an enduring priority for the commission, and we will carefully scrutinise the implications of the deal for suppliers and consumers. While we await the merger application, we will not be making further comment.”

Commerce Minister Duncan Webb says supermarket split risky but not off the table (video first published in July).

The Commerce Commission assesses whether any merger is likely to substantially lessen competition in the market.

Retail commentator Chris Wilkinson, of First Retail Group, said he did not expect it to make a lot of difference to consumers, but it could make Foodstuffs more competitive against Australian-owned Woolworths.

“What we’ve seen over a period of time is that for businesses to stay competitive they need to minimise their overhead costs. If anything, they will be looking for economies from this merger that one would hope would improve their competitive edge.”

He said it was possible that Foodstuffs brands seen in one island or the other could become available everywhere.

In the South Island, Foodstuffs has Raeward Fresh, selling fruit and vegetables.

“They’d that to be the hybrid Moore Wilson, Farro Fresh sort of thing. With owner-operators those stores are quite experiential. It could be they’ll roll those sorts of things out.”

Nick Grayston chief executive of The Warehouse Group, which has been growing its grocery offering, said it was hard to see how a merged Foodstuffs business would lower the cost of groceries.

“While there may be efficiencies for them, it’s going to be an uphill battle to convince New Zealand customers that they will also benefit with the lower grocery prices that they deserve. The hold Foodstuffs have over wholesale access of supply and price is already significant, so we have concerns about the impact this move might have, and it's likely to make our progress even harder. We need more competition in New Zealand, not less.'

Massey University marketing professor Bodo Lang said it was difficult to assess what the impact on competition might be.

“On one hand, the two businesses do not appear to directly compete with each other in their respective regions. Therefore, it appears that a merger may not decrease competition.

“However, merging the businesses may drive some internal efficiencies and may allow the chain to purchase products at even lower costs. This could have two effects. Firstly, it may result in some savings for shoppers. Although I would imagine those savings to be small because both businesses already enjoy high economies of scale.

“The second effect might be that the grocery watchdog may argue that the combined entities' ability to purchase products at even lower rates from manufacturers will make it more difficult for new entrants to compete with them,' he said.

“One thing is clear: Foodstuffs' direct competitor, Countdown, which is being renamed Woolworths, will follow these developments very closely. This is because Woolworths could lose market share if Foodstuffs is able to pass on meaningful benefits to New Zealand consumers.”