Supermarket merger: Foodstuffs decides to have its day in court

Tuesday, 19 November 2024

Foodstuffs North Island and Foodstuffs South Island will go to court to attempt to overturn the Commerce Commission’s refusal to clear their merger.

The two businesses said in a statement that the boards of both businesses had decided to go to the High Court to appeal the competition watchdog’s refusal to grant clearance for their merger.

The commission's decision was “wrong” and clearance should have been granted as the merger would not substantially lessen competition in any market, they said.

The competition watchdog declined to clear the merger in October after more than nine months of deliberations.

Chairperson John Small noted then that the merger would have reduced the number of major buyers of grocery products in New Zealand from three to two.

“This would result in the merged entity having greater buyer-power than Foodstuffs North Island and Foodstuffs South Island each do individually, which would harm the competitive process,” he said at the time.

The commission also voiced concerns the merger could make collusion between Foodstuffs and Woolworths easier and might make it harder for rivals to break into the supermarket industry or to expand.

But Foodstuffs North Island chief executive Chris Quin said the merger was “essential to delivering even more competitive prices for customers”.

“By merging our resources, we can make our buying and operations more efficient, which ultimately translates into better prices for New Zealanders,” he said.

“There’s been plenty of talk around grocery prices and competition, but it’s smart, efficient business practices – not headlines and red tape – that will make our operations leaner and truly deliver better prices at the checkout.”

“Sitting still” wasn’t an option, Quin said.

Giving some insight into Foodstuffs’ likely grounds for an appeal, the Foodstuffs businesses said the commission was concerned a merger would lead to reduced profit margins for suppliers.

“But the Commerce Act's purpose is to promote competition for the long-term benefit of consumers – the co-ops believe the merger would not harm suppliers or competition, and would be beneficial for consumers,” they said.

Only two of the rulings the commission has made under the current merger regime have ultimately been successfully appealed, and none in the past 20 years.

Most recently, in 2003, the High Court reversed the commission’s block on Brambles NZ acquiring plastic crate supplier GE Capital Returnable Packaging Systems.

Otago University associate professor in law Edward Willis said one of the reasons for the commission’s track record was that it was very careful in its decision-making.

But another was that courts often didn’t like to second-guess the commission, he said.

The High Court “and especially the Court of Appeal” – if disputes progressed to that further stage – didn’t like to overturn the commission, Willis said.

“Higher courts will look askance at a High Court Judge that wants to assess every piece of evidence for themselves.

“Issues of economic policy are very difficult to get right. Deference to the commission is the obvious, safe course unless an error is manifest.”

Mergers were difficult to unwind, he noted.

“That means a precautionary approach dictates that the merger should not go ahead if there is any doubt and often High Court judges are left in a lot of doubt at the end of legal argument.

“This of course goes to the nature of an unsuccessful applicant lodging the appeal – the deck is implicitly stacked against them.”

The commission is widely assumed to have been anticipating a legal challenge from Foodstuffs, with its final written ruling explaining its refusal to provide clearance weighing in at a hefty 223 pages.

The commission said in a footnote to its clearance ruling that it had assumed that the existing cooperation between Foodstuffs North Island and Foodstuffs South Island did not breach the Commerce Act.

But it went on to say that was “not an issue upon which we express any conclusive view”.

How they compare

Foodstuffs North Island:

108 New World, 45 Pak’n Save and 172 Four Square stores.

$10.8 billion combined store revenues.

More than 25,000 full and part-time employees, including franchise employees.

Foodstuffs South Island:

43 New World, 12 Pak’n Save, 60 Four Square, 72 On The Spot and five Raeward Fresh stores

$3.6 billion combined store revenues.

More than 14,000 full and part-time employees, including franchise employees.