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Millions of bar codes will pass through store scanners before we may see any change in New Zealand’s supermarket set-up.
Last week the Commerce Commission (CC), releasing its 517- page draft report after perusing competition in the retail grocery sector, made the unsurprising announcement competition is not working well for consumers in a market dominated by two major players, Woolworths NZ and Foodstuffs.
That draft’s preliminary findings are now out for consultation. It will be late November when we hear what the recommendations are and later still before we know what the Government response to them will be.
Those struggling to put food on the table would have been disheartened by the revelation in the report that in 2017 New Zealand had the sixth-most expensive grocery market in the Organisation for Co-operation and Development (OECD) countries. As well as that, we had at least the sixth-highest spend per person on grocery products.
It is big business, with more than $22 billion spent on grocery products last year. The consistently large profits of the major players (a 22 to 24% return on capital) are questioned by the CC. It suggests these would be lower with true competition. We wonder how well any of that profit translates into decent pay and conditions for front-line staff.
As the CC sees it, the core problem is the structure of the market, with its faux competition between the two main companies, each having targeted different sections of the shopping population. It considers the best way to improve competition would be to increase the number of retailers directly competing against Foodstuffs and Woolworths NZ for households’ weekly shop.
How this might best be achieved is still under consideration. Separating the wholesale and retail divisions of the two big players or requiring them to sell some of their stores are possibilities.
It would be easier for new competitors to enter the fray if they had better wholesale access to a wide range of products at competitive prices. Making more land available through changing planning laws and restricting the use of covenants being used to keep out competitors are also possibilities raised in the report. If these options did not work out, another possibility floated by the CC is to directly stimulate competition by creating a new major grocery retailer, with some form of initial government funding. This idea seems likely to be controversial.
Questions are already being raised about whether an extra big player or two would necessarily make the improvement sought without some sort of control of the margins on grocery items. Another issue to be addressed is that of the treatment of suppliers who are at the mercy of the big players, threatened with delisting their products from supermarket shelves if the suppliers do not agree with the big retailer on contract terms, margins or pricing.
Food and Grocery Council chief executive Katherine Rich is hopeful the compulsory code of conduct she has been seeking, which would increase suppliers’ bargaining power and allow suppliers to bargain collectively may be a step closer, as it is among the options in the draft report.
Commerce and Consumer Affairs Minister David Clark has been careful not to jump the gun before the recommendations are finalised, by indicating favoured options. However, he said last week ‘‘we will do whatever it takes to make sure New Zealanders get a fair deal at the checkout’’.
When he ordered the study last year he said if issues affecting competition were identified, the Government would consider the necessary changes to bring about better outcomes for consumers and if industry practices were stopping competitors coming in, the Government could act. The Commerce Commission has established the existence of both of those situations. At the end of the consultation process, consumers, suppliers, and potential new retailers will be expecting the Government to do something more than tinker.