Watchdog raised raft of concerns with Foodstuffs North Island over supplier contracts

Sunday, 21 April 2024

The Commerce Commission has revealed it wrote to Foodstuffs North Island in February voicing a raft of concerns over its contracts with suppliers.

They included concerns that the co-operative might not have acted in good faith with its suppliers.

The Grocery Industry Competition Act which came into effect last September set out a mandatory code of conduct for supermarket groups.

It was designed to address concerns that suppliers suffered from an imbalance in power when negotiating supply agreements with Foodstuffs and Woolworths.

The code addresses issues such as payments that supermarkets often demand for spoilt products and for promotions, as well as the ways that price-change requests and the de-listing of products should be handled.

There was a “grace period” of until March 28 for the supermarkets to comply with the details of the supplier code.

However, the requirement to act in good faith applied from September 28.

The letter from the Commerce Commission’s head of grocery Alice Hume said the watchdog was concerned “grocery service agreements” provided by Foodstuffs North Island to suppliers might be in breach of the legislation if they weren’t changed.

Hume also wrote to Woolworths NZ and Foodstuffs South Island to raise “minor concerns” about their agreements with suppliers, but in their cases did not reference any concerns about those companies not acting in good faith.

She said in her letter to Foodstuffs North Island that the commission’s “overarching concern” was that its grocery service agreements were complex and difficult for a supplier to navigate, citing what she described as a lack of transparency.

Its agreements were out of step with those offered by the two other supermarket groups, she also told the co-operative.

Among her complaints were that the co-operative’s agreements could be interpreted as asking suppliers to pay for stock that had expired in their stores and wasn’t clear about the process for suppliers and the co-operative to agree on the funding of promotions.

On the issue of good faith, she said there were “multiple provisions” in the agreements that effectively required suppliers to have a detailed knowledge of what was permissible under the code to determine exactly what was and what wasn’t allowed.

A “lack of visibility” around potential unilateral changes to contract terms was inconsistent with Foodstuffs NI’s good faith obligations, she also advised the company.

Hume reminded all three supermarket groups that they could be fined up to $10 million or up to 10% of their turnover, whichever was greater, if they were found to be in breach of the Act.

Foodstuffs North Island declined to tell The Post whether it was confident it had addressed all of the concerns the commission raised, or if it disputed the need for it to take any of the actions the commission had advised it to take.

But a spokesperson pointed to a response it sent the commission on March 13.

That said the co-operative believed its agreements were fully compliant with the code and were drafted in good faith, but said it had made “extensive amendments” to them because of the commission’s concerns.

Foodstuffs North Island’s agreements were now in “plain language” and very similar to those drafted by Foodstuffs South Island, its top lawyer Julian Benefield told the commission.

Grocery commissioner Pierre van Heerden said the commission would be monitoring supermarkets' compliance with the code closely, including looking at and evaluating “the current agreements provided to suppliers” and whether the supermarkets have acted and are continuing to act in good faith.

CORRECTION: An earlier version of this story incorrectly stated that the Grocery Industry Competition Act came into effect on August 28, instead of on September 28. (Amended 12.24pm, April 22, 2024)