Speak out and be 'deleted': Suppliers fear supermarket retribution

Some supermarkets are threatening to "delete" suppliers' products from shelves if they speak out about tactics like 45% margins and billing for thefts, a supplier industry group says.

The accusations come as the government orders its promised year-long Commerce Commission market study into supermarkets to see if New Zealanders are paying fair prices for groceries.

The study, like the one on fuel the commission completed in December last year, will review whether there is sufficient competition in the market, which is dominated by two main supermarket chains.

The Food and Grocery Council, which represents suppliers, says it welcomes the study but also wants a mandatory industry code of conduct to curb what it calls the "egregious behaviour" of rogues.

Suppliers face major costs, including being billed for instore thefts, council chief executive Katherine Rich told Checkpoint.

"In order to get your product on the shelf today you have to offer supermarkets a gross margin of anywhere between 30% and 45%, just to get on the shelf," she said.

"Then there will be additional costs to promote, shelf costs, merchandising costs. There'll be additional claims, rebates, any opportunity to get more income out of you, the list is endless.

"I believe that most [suppliers] have little or no negotiation power… They're forced to be in a position of being a price taker, it's like, 'take this on board or don't supply us, or have your product deleted'."

The Food and Grocery Council's proposed code would protect suppliers from threats of products being pulled from shelves, Rich said.

"[Under the code] you have to have commercial grounds, rather than saying, 'I don't like that you're complaining to me, I'm going to delete your product' or 'if you don't pay this, I'm going to delete your product'. Deletion is usually the default tactic.

"That is very, very serious because in a market structure where there are two main supermarket teams, if you get kicked off the shelf you can lose anywhere between 45% and 55% of your sales.

Katherine Rich, chief executive of the New Zealand food and grocery council. Photo: Supplied
Katherine Rich, chief executive of the New Zealand food and grocery council. Photo: Supplied
"For some New Zealand companies, that is the difference between surviving or shutting down their factories, and that is why I think we've seen so much manufacturing move offshore, and we're more reliant on imports," Rich said.

Most supermarket and supplier relationships have a healthy culture, she said, but at the store level there is evidence of bullying from supermarket owners.

"Of course no one can complain for fear of being deleted. And that's why if you ever try and get a grocery supplier to … discuss things you won't find anybody who's prepared to speak, because the fear of retribution is very genuine.

"The Commerce Commission is very aware that it is a market environment where most suppliers do not feel at liberty to speak, or are fearful of retribution."

Rich said the Food and Grocery Council will be providing anonymised scenarios based on behaviour it has seen.

"I'm very confident that the wholesale prices from New Zealand food and grocery manufacturers are fair and reasonable, because the fat's been trimmed from companies years ago through these negotiations.

"But margins do remain high in New Zealand. In fact, some industry commentators will say that New Zealand and Australia have the most profitable supermarkets in the developed world, and that's because they have very high margins - the difference between revenue and the cost of goods.

"Some will say there's competition. Actually, no there's not, if you think about where you get your laundry powder and other grocery items.

"So when you have that privileged position of a market duopoly, you have to have additional accountabilities and responsibilities. That's what a study will look at, and that's what we think a code will deliver.

"We have many food and grocery manufacturers who have either gone out of business or had to shut down or move their move their product offshore for development because you just can't make a normal profit."

Rich said supermarkets in New Zealand have the most highly concentrated market in the world. That said, I can't say it's absolutely just the supermarkets, because there are some factors in the New Zealand market that are important.

"We are one of the few countries in the world that puts GST on food and groceries, unlike most countries. We are at the bottom of the world and it's expensive to freight down here, we have the geography size of Japan and a very small market the size of Sydney. So, it is complex, but it's all these things that a market study will look at."

Australia has a code of conduct for the relationship between suppliers and supermarkets, but it is only voluntary.

Rich said she would like to see a similar code mandated here and overseen by the Commerce Commission.

"It won't solve all the problems. Supplying the grocery market is never for the faint-hearted…  but it will make a difference. Overnight it did rule out some of the more egregious behaviour that was seen in both Australia and the UK.

"Things like forcing suppliers to pay for theft instore - which is completely a retail cost, making arbitrary deductions from payments just because you can. It will bring a level of professionalism back to those stores who are the problem - the minority of stores."

In one example, Rich told Checkpoint one store did a stocktake and charged a supplier to pay the difference between the shop's sales and what was on the shelf.

"I would say retail theft and a whole bunch of other costs that are genuine retail costs should sit with the retailer. It is unfair to keep shifting the cost back to suppliers to pay as some kind of arbitrary cost.

"It's certainly a business culture that has to change. And some store owners do a very good job, but there are some out there who really have not got the memo and are getting away with it.

"I always think sunlight is the best disinfectant, that's why I've been talking openly about the type of behaviour. Because certainly when it comes to the treatment of merchandisers, the mostly women who go into those stores at ungodly hours to stack shelves, they deserve to be treated better, and to work within a better grocery culture.

"That's what we're hoping for as a result of this market study, and with hopefully it leading to a grocery code of conduct.

"In some cases I think they are store owners who actually behave as if this kind of culture should be seen as a badge of honour. Part of it wasn't even acceptable last century and it's certainly not acceptable in 2020."

Rich said in many cases those operators can be described as bullies.

"There are some stores in the Auckland area where our members will not send a rep, and not send a merchandiser because they think the environment is harmful to their mental health. Now what does that tell you?"

Foodstuffs and Countdown were approached for comment on these accusations but both declined to be interviewed.

In a statement to RNZ, Foodstuffs' head of corporate affairs Antoinette Laird said: "Our focus for some eighteen months has been on a customer focused business transformation programme which puts shoppers first, enabling us to anticipate their future needs as we listen and respond to the wealth of insights they provide in today's market.

"This positions us to make sure our locally owned stores and on-line offer are in good shape to deliver what New Zealanders need for the future.

"We also work to our 'Supplier Relationship Charter' which is our commitment to operate reasonably, ethically and with sound commercial guidelines. The Foodstuffs Cooperative’s value strong and positive supplier relationships and consider all suppliers to be important business partners.

"We are committed to working with the Commerce Commission to ensure the study is effective for the benefit of all New Zealanders."

A Countdown spokesperson also offered a written statement: "We work hard every day to make food as affordable as we can for our customers. The New Zealand grocery market is intensely competitive and this can be seen by the huge array of choice that is available for customers - including supermarkets, specialty stores, fruit and vege shops, butchers, meal subscription services and more.

"We welcome the opportunity to demonstrate this in an open and transparent way, and will cooperate fully with the Commerce Commission."

Comments

I'll be the first to admit that my knowledge of the grocery industry, it's inner working, is limited to my own anecdotal experience of how it impacts my household budget with strange and unusual price increases. Oh, and the experiences of a few friends of friends who have been involved in top levels of supermarket management. However if the stories outlined above are even 10% true then I think there is enough evidence to warrant a full blown Commission of Inquiry into business corruption in this industry. People need to be subpoenaed, put on own and compelled to give sworn evidence. An investigation by a Govt Dept is not enough.

"Foodstuffs and Countdown were approached for comment on these accusations but both declined to be interviewed" yet suddenly "A Countdown spokesperson also offered a written statement:" trying to save face it seems. The biggest thing the govt can do is drop the gst of food but they won't, got to pay back the billions borrowed somehow.

Dropping GST will do nothing to stop the underlying pricing corruption in this industry, a problem that you seem to accept is an issue worthy of investigation.
Besides, the NZ system of GST, one rate for all goods and services (which was introduced during the Rogernomics era and has remained unchanged ever since by all successive Governments), is far superior to the graduated scales and exemptions operated by various countries around the world. For instance, you need to be an accountant to understand the sales tax rules applicable to food in the USA.
And what any of this issue has to do with lowering the national debt is hard to figure out, seems to be just unworthy and cheap political point scoring by you for some obscure reason.

Supermarkets get bigger and bigger. At the same time the range of choice gets smaller. They only stock goods by certain manufacturers. My friends and I have often found a product we really liked only to find next time we look for it, it is not on the shelves. It turns out "we don't stock that now" - no explanation, no "it is not being produced now" or "it is not being imported". This is particularly annoying when it is a NZ made product. Perhaps the producer is too small and does not have the power or resources to bribe their way onto the shelves. As customers we lose out.

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