Zuru court case reveals supermarket exclusivity tactics

Tuesday, 12 August 2025

ANALYSIS: The Zuru nappy civil trial has provided insights into one of the Commerce Commission’s concerns about supermarket chains’ dealings with suppliers: exclusive supply arrangements.

These are deals under which a supplier of particular items, like the Rascals and Treasures nappies at the heart of the case of the Zuru case, can only supply those items to one supermarket chain, preventing their rivals from doing so.

Rascals, a Zuru nappy brand, had a deal with Foodstuffs (Pak‘nSave, New World and Four Square) under which Rascals-branded nappies could not be supplied to Woolworths (Countdown, Fresh Choice and SuperValue) supermarkets.

In its Annual Grocery Report for 2025, released last week, the commission flagged its concerns over exclusivity arrangements, which it said: “do not appear to benefit competition and ultimately consumers in the long term.”

Together, the commission reported, the duopoly of Foodstuffs and Woolworths had more than 150 exclusive supply deals.

The commission concluded they were only used with larger suppliers, and the effect on competition was “likely limited”, but it continued to monitor them because of the risk they could be used “strategically” to limit other retailers.

Not everyone agrees with the commission’s conclusions. During its 2022 Market Study, one retailer reported exclusive supply clauses had a significant impact on its ability to stock a full range of products.

And exclusive supply contracts sit uncomfortably beside the 2023 Grocery Supply Code, clause 22 of which says: “The retailer must not engage in any conduct that has the purpose, effect, or likely effect of unduly hindering or obstructing a supplier from supplying groceries to any other party.”

The commission concluded that exclusive supply agreements could have a “mutual benefit” for retailer and supplier. The retailer got a brand its rivals did not have, and a powerful negotiating position on price, while the supplier entered into a special relationship with the retailer and, given the deals were between large suppliers and large retailers, exclusivity deals could include clauses preventing the retailer from stocking similar products from other suppliers.

Supermarket exclusivity deals were front and centre at the Zuru civil trial at the High Court in Auckland, which started last week.

The trial centres on a multimillion-dollar nappy dispute between Zuru billionaire Nick Mowbray’s Rascals nappy company, and the company which swooped in to buy the Treasures nappy brand from “under Rascals’ nose”.

Zuru, and Zuru-owned Rascals International, are suing Auckland-based JJK, and related company Taonga IP, for damages.

Zuru and Rascals claim JJK conspired with a Rascals’ director, and used confidential information from Rascals supplied by that director, to buy and develop the Treasures brand, setting back Rascals’ expansion into Woolworths’ supermarkets.

And part of the reason for the setback was that Zuru’s Rascals’ branded nappies could only be sold through Foodstuffs supermarkets because of an exclusivity deal.

In order to break into the other half of the supermarket duopoly, the court heard, Zuru and Rascals wanted to buy the struggling Treasures brand, which was already stocked in Woolworths supermarkets.

Zuru co-founder Mowbray, and Zuru’s barrister Campbell Walker KC, revealed that the Foodstuffs’ exclusivity deal with Rascals went further than just Rascals-branded products.

It gave Foodstuffs 120-day right of first refusal on new products developed by Rascals.

This was cited by Walker as being part of the reason why it wasn’t until early 2025 that Rascals had launched its home-developed Millie Moon branded nappies into Woolworths.

Finding itself paired in an exclusive deal with a nappy company run on Zuru’s high-efficiency, high-margin, well-marketed model was a positive for Foodstuffs as it found itself the recipient of higher margins in a product line that had until then been low margin.

Just how low those margins were was illustrated by the state of many nappy brands in 2017 when Zuru invested in Rascals. The court heard Rascals was struggling, Treasures was struggling, and other brands like Noopii and Tooshies were being shopped around for sale.

The High Court in Auckland heard how the Rascals’ nappy business worked, though suppression orders were imposed by Justice Dani Lee Gardiner to prevent commercially sensitive details, such as exact margins, being reported to the public.

The Zuru and Rascals’ advertising model is to develop lower-cost, high-desire fast moving consumer products, and to effectively market them on social media.

It’s a model that Zuru has used to disrupt major brands, including the Huggies and Pampers incumbent nappy brands.

Zuru does not take out expensive TV and radio adverts, but uses finely-targeted social media marketing to target consumers.

In the nappy world, it “geotargets” new mums through social media content creation. New mums, the court heard, were the most engaged social media users of all.

By creating clever nappy content for them, and monitoring content effectiveness carefully, Rascals was able to turn a few hundred dollars of spend into tens of thousands of views, the court heard.

The geotargeting meant it could drive sales in individual Foodstuffs stores by geotargeting the new mums in the areas around them.

It has replicated this model around the world with its nappy brands, and the court heard that had seen Zuru go from having no nappy revenue in 2017 to around $1 billion of annual revenue today helping increase the wealth of co-founders Nick and Mat Mowbray to around $20b.

The court heard that combining social media marketing expertise with improving nappy design, fashion appeal, manufacturing in high-tech factories in China, and keeping zero inventory, Rascals was able to offer “a greater than industry standard margin” to Foodstuffs.

While it appears new parents did benefit from better-functioning nappies, and nappies with nicer aesthetics, the court didn’t hear whether new parents benefited from any reduction in shelf prices.

The legal tussle between JJK and Zuru also included claims on an aspect of supermarket and larger supplier dealings that is seldom aired publicly: direct conversations that may not be so readily available to smaller suppliers.

JJK is counter-suing Zuru for damages, saying a call and direct messaging from Nick Mowbray made to Woolworths in February 2021 cost it more than $1m.

Barrister Sam Lowry, acting for JJK, told the court the statements Mowbray made in the call were false or misleading.

Lowry told the court: “It is absolutely plain what Mr Mowbray is trying to achieve, which is to persuade Countdown, or Woolworths as it’s now known, not to stock Treasures. That was his design and he achieved it on an interim basis.”

He said purchase orders made on a Friday by Woolworths were cancelled the following Monday.

Woolworths also renegotiated the terms of trade it had with JJK costing it more than $1m, Lowry said.

Mowbray confirmed the call and contacts with Woolworths happened, but stood by everything he said in them.

The case continues, and is set down for four weeks in total.