North and South Island Foodstuffs merger decision postponed until October

Friday, 21 June 2024

The Commerce Commission has postponed a decision on whether to allow the Foodstuffs North and South Island supermarket co-operatives to merge until October 1.

A decision on the controversial proposal was due on Friday, but the commission said it had decided to issue a “statement of unresolved issues” on the two co-operatives’ application seeking clearance to merge.

The Foodstuffs co-operatives operate the New World, Pak’nSave and Four Square brands.

The statement of unresolved issues would be published on the commission’s case registers “in due course”, and would outline the commission’s provisional competition issues with the proposed merger, which indicates the commission is worried the merger plan would damage competition in the grocery market.

The statement of unresolved issues would invite Foodstuffs North Island, Foodstuffs South Island and other interested parties to provide the commission with information and their perspectives.

Foodstuffs North Island reacted to the commission’s decision with a statement that read: “This merger is the right thing – not the easy thing – to do. There are clear reasons for the merger and its benefits for New Zealanders.”

The commission said issuing the statement would not represent a final decision and did not mean it intended to decline or clear the merger.

The application from the two supermarket co-operatives to merge came after a market study by the commission into the supermarket industry, which was called after rising public anger over the price households pay for food.

Foodstuffs North Island and Foodstuffs South Island currently operate as separate co-operatives that focus on serving the island in which they are located.

However, the co-ops already work closely with one another.

They argue formally combining would save customers money by further eliminating duplication and lowering costs, while critics argue the merger could increase their power over suppliers and lead to less choice on the shelves.

When they originally asked for clearance to merge in December, the co-ops noted they didn’t own any physical assets in each other’s territories, traded under the same brands “and present as a single national offering”.

They made it clear that not only did they not compete at the retail level, but in their view there was “no potential” for them to do so in future.

But there is opposition from supermarket suppliers to the merger.

The Food & Grocery Council describes the merger proposal as “uniquely straightforward with no upside and considerable downside”.

“There are clear risks to competition and consumers, yet no indication that this is necessary to compete or evidence that consumers would benefit,” it said.

Foodstuffs North Island said on Friday that the merger would allow it to drive down costs and become more efficient allowing it to deliver “great” prices at the checkout.

It would not substantially lessen competition, it said.

In order to allow the merger to go ahead, the commission must conclude it will not damage competition in the grocery market.

The commission said: “We will give clearance to a proposed merger if we are satisfied that the merger would not be likely to have the effect of substantially lessening competition in a market.”