Hopes not met in supermarket report

There is a huge gap between a Dunedin businessman’s hopes for an investigation into supermarket competition and the "status quo" final report.

Night ’n Day general manager Matthew Lane had previously expressed hope a shake-up of the supermarket sector would allow it to take on the two big supermarket chains, but said yesterday’s Commerce Commission report did not address the "severity of the problems" in the industry.

Mr Lane previously said if there was a freer market, the business could compete against smaller chains such as SuperValue and then potentially take on larger retailers. But, yesterday’s finding only maintained the "status quo".

Night ’n Day, New Zealand’s third-largest groceries operator, had long struggled to compete because wholesalers — owned by the two big chains — sold them products for 40% more than what consumers could buy them for at supermarkets, Mr Lane said.

He had hoped the commission would recommend splitting the wholesale and retail arms of Foodstuffs and Woolworths New Zealand.

Instead, it recommended the two big chains offer wholesale supply to other grocery retailers on a voluntary basis, subject to some limited regulatory measures.

This was not a big enough step to increase competition.

"The feeling I got was to truly solve them was quite a complex exercise and so they put more simplistic measures in place to shore up around the fringes," Mr Lane said.

However, he was hopeful more detail would be released as the Government looked further at the sector.

The commission released its final report into the $22 billion sector yesterday.

It found the intensity of competition between the major grocery retailers who dominated the market, Woolworths New Zealand — which owns Countdown, Fresh Choice and SuperValue — and Foodstuffs — which owns New World, Pak’nSave and Four Square — was "muted" and competitors wanting to enter or expand in the market faced "significant challenges".

The commission made multiple recommendations, which included addressing imbalances in bargaining power between the major grocery retailers and suppliers by introducing a mandatory grocery code of conduct.

One Otago supermarket supplier, who spoke on the condition of anonymity, said while the recommendations for a code of conduct and a grocery regulator were welcome, there was "nothing hugely significant" in the recommendations.

"There's some good tools coming into play, but there's nothing really radical to say ‘this is a moment in history'."

The commission was limited in what they could do to break up the existing duopoly, they said.

"If the Commerce Commission hadn't allowed this duopoly to set up in '03, we wouldn't be in this situation. We can't unpick it now."

Several other suppliers spoken to by the Otago Daily Times yesterday declined to comment on the report's release, even under the condition of anonymity.

New Zealand Food and Grocery Council chief executive Katherine Rich said the reticence was a reflection of the power held by the supermarket duopoly over suppliers.

"The fear remains genuine and real, because retailers in the past have been very good at identifying language and anecdotes and confronting individual suppliers about speaking to the media."

She said her organisation was delighted with the outcome of the investigation and it was a victory for suppliers in terms of fairness, competition, and common sense.

The recommendations to bring in a mandatory code of conduct and a grocery regulator were key wins for suppliers, and they would help keep the issue of supermarket competition in the public eye.

While some suppliers might have been disappointed that there was not a more strong recommendation to break up the duopoly, there would have had to be a situation where there were no other credible options on the table for that to happen.

"Our ambition was to move the dial for suppliers to improve the situation for them, and we've done that."

Woolworths NZ and Foodstuffs have both said they supported the commission’s findings and were committed to working with the Government.

 Plan of action

Commerce Commission’s recommendations
, Making more land available for new grocery stores.
, Improving access to the wholesale supply of a wide range of groceries at competitive prices.
, Monitoring strategic conduct by the major grocery retailers.
Recommendations on suppliers to major retailers
, Introducing a mandatory code of conduct for grocery supply relationships to improve transparency and ban unfair conduct.
, Strengthening the existing law prohibiting the use of unfair terms in standard form contracts.
, Considering whether to allow collective bargaining by some suppliers.
Consumer information and stimulating competition
, Requiring major grocery retailers to ensure promotional and pricing practices, and the terms and conditions of loyalty programmes, are easy for consumers to understand.
, Requiring grocery retailers to display unit pricing in a consistent format.