Warehouse Group boss calls for grocery price controls

Monday, 1 April 2024

The Warehouse Group chief executive Nick Grayston says the Government needs to step in urgently to help control the price of groceries in the hyper-inflated market.

The boss of the listed retail group, which operates chains The Warehouse, Warehouse Stationery and Noel Leeming, would like to see regulation introduced to vet how much each grocery item can be sold for at wholesale supply level.

Grayston believes consumers and business looking to break into the $25 billion grocery sector would benefit significantly from a mandatory setting of consistent cost prices.

“There’s a lot of smoke and mirrors that goes on between the duopoly and the big suppliers around all sorts of rebates; promotional rebates, volume rebates, and an unwillingness to pass those on in the wholesale regime,” Grayston told The Post.

“We need visibility, equality and the government needs to challenge that unfair duopoly.”

The Government’s drive to introduce more competition and bring down the price of groceries for New Zealanders, including the five-year appointment of grocery commissioner Pierre Van Heerden, has failed to deliver any real change to the market dominated by the two major players Woolworths and Foodstuffs.

“Part of the problem is the margins that the duopoly is able to take because there is no competition, and so we need a quality of cost prices,” said Grayston.

The Warehouse has been boosting its efforts in food and grocery in recent years following growing demand and sales.

It first launched its brand of grocery staples Market Kitchen at the end of 2021, offering five or six products. That has grown to more than 9000 today sold in its 88 stores, and it now sells chilled goods such as butter and milk, along with fresh fruit and vegetables, and frozen food in some stores.

Grayston said the group wanted to grow its food offering as it believed it could make essentials at least 25% cheaper than what was available elsewhere in the market.

But, even despite its size and history in the retail sector, Grayston said The Warehouse has continued to find it difficult to access to gain access to wholesale supply at fair prices.

“When we took the price of butter down to $4 - which made it massively competitive against the competition - we got more than a third of market share. We can do it wherever we have the opportunity.”

Grayston did not go as far as to say he had lost faith in the grocery commissioner’s ability to level the playing field, but said no efforts by him or the government following its market study in 2022 had so far been able to shift the dial.

“There’s lots of good intent but frankly we haven’t seen any action yet.

“We’ve been involved with the grocery commissioner and have had a lot of conversations around the voluntary wholesale regime, we’ve spoken to both parties of the duopoly and that has not yield anything,” he said.

“We really need the government to step in on controlling cost prices because it is not an even playing field.”

The Commerce Commission said the grocery commissioner would in August make a 12-month assessment on how effective the wholesale regime was and whether any or potential improvements could be implemented.

It said the Grocery Industry Competition Act gives the commissioner wide-ranging powers to monitor and regulate the sector, including the ability to implement price-quality regulation.

“Under the Act, regulated grocery retailers (RGRs) are required to set up systems to facilitate wholesale supply to other retailers, intended to make it easier for businesses to enter the retail market and support the growth of existing and new retailers.

“The Act does allow for the implementation of a requirement on RGRs to supply wholesale customers with a range of products at regulated prices, by either requiring supply on non-discriminatory terms or putting in place price-quality regulation,” a spokesperson for the commission said.

“If it is considered that further changes, such as these, would improve the regime’s effectiveness, and create greater competition in the sector, the Commission may then make a recommendation to its policy agency MBIE and the minister of commerce and consumer affairs to consider implementing. The final decision on whether that recommendation is accepted sits with the minister.”

The Warehouse’s grocery efforts

According to Grayston, sales of pantry staples at The Warehouse are up 12%, and grocery sales now made up 20% of sales at the red sheds.

The group had streamlined the distribution and handling of product and the category was starting to become “more profitable”, but was “still not where we need it to be, and that’s where we need some help in terms of regulating the duopoly from the government,” Grayston said.

The Warehouse first dipped its toes into the grocery sector between 2006 and 2009, where it tried and failed to become a supermarket through the opening of dedicated grocery Warehouse Extra stores.

It was before Grayston’s time, but the group ran into similar supply issues from what he calls the “cosy” grouping of the supermarket duopoly and major suppliers, he said.

It entered the category again three years ago, and has gone on to introduce grocery staples such as $5 eggs and $4 blocks of butter, which have proven hugely popular.

The Warehouse has expanded its offering, including fresh fruit and vegetables available in 22 stores, and frozen goods in others.

Expanding its range of groceries remains a focus for the group, although Grayston said it would not go down the route of trying to open grocery-only stores again.

“The more we can replace price-y branded alternatives with our own products that are at least 25% cheaper [the better] - people need that.”

The Warehouse sources produce from small local growers where possible and sources the likes of rice direct from manufacturers in India.

“Being able to help challenged and badly nourished people being able to afford fresh fruit and veg is very motivating.”