ComCom proposes ban on billions charged secretly to supermarket suppliers

Thursday, 5 June 2025

Commerce Commission wants to end the “high low” pricing tactics of supermarkets to deliver “more stable and lower everyday prices”.

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The Commerce Commission is proposing to ban major supermarket chains from charging grocery suppliers “rebates, discounts, and promotional payments” that add up to $5 billion a year.

The majority of these fees the supermarket chains charge their suppliers are paid in exchange for the supermarkets putting products “on special” to tempt shoppers, the commission says.

That was feeding a confusing cycle of “high low” pricing that was not so prevalent in supermarkets overseas, and which the commission believes could be leading to higher average prices for shoppers.

The commission has released a draft report on its review of the Grocery Supply Code, and its initial views on its inquiry into the grocery wholesale market.

Grocery Commissioner Pierre van Heerden hoped the proposed changes to the code could reduce the power imbalance between supermarkets and smaller suppliers, and also lead to more consistent and lower everyday prices for groceries.

“Consumers lose out because prices jump around more. This can mean the average price is more expensive, and it’s harder for consumers to assess the value of products,” van Heerden said.

New Zealand’s supermarket sector is dominated by two major players: Woolworths, which owns the Woolworths, Countdown, FreshChoice and SuperValue brands, and the two related Foodstuffs co-operatives, which own the New World, Pak‘nSave and Four Square brands.

Commerce Commission chairwoman Anna Rawlings and commissioner John Small insist proposed supermarket industry reforms will make a difference, even though they are making no promises they will lead to a third entrant.

It has been under the spotlight since 2020, when the commission began a market study after concerns mounted households were paying too much for groceries.

Finance Minister Nicola Willis took aim at supermarket prices earlier this year, saying shoppers felt ripped off, but supermarkets have claimed households are getting a good deal compared to shoppers in Britain and Australia, once sales taxes are taken into account.

They have also promoted the idea that suppliers are the main drivers of price rises. But suppliers have often revealed the ticket price they are said to sell their products to supermarkets are not the final price, after things like marketing, promotional and shelf placement fees and other discounts are taken into account.

“The changes we’re suggesting would prevent the supermarkets from charging suppliers for ordinary retailing activities such as stocking shelves and setting up displays,” van Heerden said.

“With less promotional funding we’d expect suppliers to factor that saving into the price they charge retailers, which retailers would then pass onto consumers in the form of more stable and lower everyday prices,” he said.

He said the best option would be for large suppliers and the major supermarkets to “voluntarily” change their behaviour.

Grocery commissioner Pierre van Heerden.

But, he said: “If they don’t, we’ll have to consider our other alternatives.”

He said the status quo let a few major players set the rules, which negatively affected consumers, new and expanding competitors, and small suppliers.

“Their significant market share allows them to influence the settings of the market. This limits the ability for competing retailers to enter and grow in the market and often results in smaller suppliers getting an unfair deal.”

Shoppers are often faced with a blizzard of pricing messages in supermarkets.

“We’re proposing to simplify the Grocery Supply Code to reduce the range of payments supermarkets can charge their suppliers,” van Heerden said.

He said with combined purchases of more $15 billion and 82% of the grocery market, the major supermarkets are the largest customers for most suppliers.

“My concern is that the power imbalance between the major supermarkets and small suppliers creates a reluctance among suppliers to push back on supermarket demands or behaviour for fear of damaging relationships or losing access to supermarket shelves.

There are multiple supermarket brands, but just two supermarket operators; the related Foodstuffs’ cooperatives, and Australian-owned Woolworths.

“This leads to smaller suppliers taking on costs and risks that are best managed by the retailer,” he said.

Under the planned changes, supermarkets would also have to keep records of certain activities charged to suppliers, including promotion.

A clause would also be added to the code to ban supermarkets from retaliating, if a supplier insists on their rights under the Grocery Supply Code.