Supermarkets get terse tongue-lashing for ‘ripping off’ Kiwis

Thursday, 5 September 2024

ANALYSIS: Supermarket chains got a tongue-lashing yesterday, hard on the heels of the banks getting a stern telling off from Finance Minister Nicola Willis for putting profits over the interests of “everyday Kiwis”.

This time it was Commerce Commission grocery commissioner Pierre van Heerden, rather than ministers, dishing out the harsh words, accusing Foodstuffs North Island, Foodstuffs South Island and Woolworths NZ of increasing their profit margins and “ripping off” Kiwis with incorrect pricing.

But Commerce Minister Andrew Bayly didn’t defend supermarkets from the broadside, describing the commission’s findings as “disappointing” and questioning whether they might be breaking the Commerce Act by sitting on land that could be built on by rivals.

Words are one thing, results are another, however.

There are doubts measures being considered by the Government to accelerate open-banking and a beefed-up Kiwibank will dent the dominance of the big four Australian-owned banks in the near term and it may be the same story for the supermarkets.

The major development on Wednesday was that the commission will consider activating a power that would force the supermarkets to wholesale goods to rival retailers on the same terms that they supply their own stores.

Bayly told The Post he would not stop the commission from doing that.

“There were two options; either you give up on the wholesale arrangements, or you try and improve them,” he said.

But neither Bayly nor the commission have had much faith in the past that more active wholesaling will lead to better outcomes for consumers.

The Commerce Commission concluded in its market study report into the grocery industry in 2022 that a mandatory wholesale regime had “little support” and could reduce price competition and make the industry less efficient.

Bayly also opposed mandatory wholesaling last year, warning it could backfire on competition by entrenching the market power of the two supermarket giants.

In fact, few — other than the former Labour government — appeared to have much faith in wholesaling regulations as a means to bring about much more competition.

Competition advocate Tex Edwards forecast in 2022 that it would lead to only “pyrrhic competition”.

Grocery Action Group (GAG) chairperson Sue Chetwin said on Wednesday that the commission’s apparent change of heart amounted to “tinkering in a market that has structurally failed”.

If the supermarkets do need to supply rival retailers on the same terms and prices as their own stores, one question will be what might stop them making those prices high and shifting their profits from their retail to their wholesaling arms.

Chetwin argued that what was needed was more players in the market, a conclusion the commission appeared to also reach on page 119 of its monitoring report.

“We have asked ourselves what success looks like in this industry and concluded that it requires a third major network of supermarkets, offering a full range of groceries nationwide,” the commission said.

Anyone expecting the commission’s investigation into alleged “land-banking” by the major supermarket chains to help much in that regard may need to be braced for disappointments.

Van Heerden said supermarkets had been sitting on more than 100 properties — some for more than 20 years — some of which could be used for the expansion of supermarkets.

But neither improved wholesaling arrangements nor freeing up more sites for new supermarkets may be enough to attract that elusive third national operator.

That is if Edwards is right that Foodstuffs and Woolworths have already saturated the market with as many stores per capita as the country can efficiently support.

Chetwin appears to have concluded a break-up is the best option, saying the grocery lobby group will keep pushing for “more powers for the commission to force the duopoly to sell some of its stores to rival operators”.

There may be one somewhat more subtle alternative.

Van Heerden agreed competition could be improved if Foodstuffs’ franchise owners, such as Four Square owners, were free to operate with more independence.

Specifically, the question he responded to was whether they should be able to source groceries direct from suppliers and rival wholesalers, including Woolworths NZ, set their own prices and expand their stores without risking breaching their co-op agreements.

And whether they should be free to leave Foodstuffs altogether and change banner, if they chose.

Van Heerden seemed to believe that in that situation, where Foodstuffs’ co-ops were having to fight for their own stores’ business, wholesaling could come into its own.

“If we can get the wholesale market working effectively, they can then say, ‘here's something we can buy better through this one or that one’.”

What would appear to be being suggested here is a form of Telecom-style structural separation, for one part of the supermarket industry at least.

Bayly appeared to be open-minded.

“It's obviously a new idea. In concept, I’m open to it. But I've got to rely on the commission to come up with a view on that,” he says.

In the interim, it might be a case of ‘’on to the next tongue-lashing’’.