Woolworths (Countdown and Big Fresh) and Foodstuffs (New World, Pak’nSave and Four Square) appear not to have been directly involved in Sanitarium’s decision to halt supplies of Weet-Bix to The Warehouse.
But the shadow cast by the grocery giants looms large.
The Warehouse revealed eight days ago that Sanitarium was cutting its delivery of Weet-Bix.
Sanitarium had cited "supply issues", but The Warehouse Group said the claim did not stack up.
Why would not Sanitarium ration supplies across all stores rather than singling out The Warehouse?
The Warehouse, selling an estimated 2% of New Zealand’s Weet-Bix, has been pricing its 1.2kg boxes at $6. This is cheaper, and in some cases much cheaper, than from Woolworths and Foodstuffs outlets.
A suspicion is that Sanitarium wanted to keep in sweet with the duopoly. Such is its power over suppliers — even a giant like Sanitarium — that it is possible the maker of Weet-Bix could have been anticipating Woolworths and Foodstuffs concerns about their prices being undercut.
Self-censorship works in a similar way. What is desired or expected does not have to be spelt out.
Sanitarium was initially slow to respond to the outcry and has suffered reputational damage. Its ownership through the Seventh Day Adventist Church and its charity status have been highlighted.
It has since reinstated supply to The Warehouse, saying it was reducing deliveries to Asia and the Pacific instead. In a statement, it said it apologised "for any concern created for our loyal consumers".
Too right, customers were concerned. People felt Sanitarium and the supermarkets were ripping them off. That word "any" in apologies is hard to stomach.
"We have tried in that time to prioritise allocation of Weet-Bix to service all our customers, including New Zealand’s grocery, non-grocery, hospitality and export markets."
Sanitarium, which had $212 million in sales last year, has been issued with a Commerce Commission please explain order after receiving a complaint from The Warehouse. Grocery Commissioner Pierre van Heerden is investigating, in what will be an early test of the effectiveness of him and his role.
After the commission’s inquiry into supermarkets concluded last year, the Government went on to appoint the commissioner, ban restrictive land agreements, make unit pricing compulsory, establish a code of conduct for suppliers and institute policies to try to open up Woolworths’ and Foodstuffs’ wholesaling to other operators.
Understandably, there is scepticism about how fair wholesaling controlled by the duopoly can be. Is a requirement to consider requests for wholesale supply in good faith going to be sufficient?
The Weet-Bix case accentuates these doubts on whether the playing field can be level. Even a company as large as The Warehouse Group ran into difficulties.
This incident — and The Warehouse’s earlier failed attempt to expand into groceries — illustrates but one of the challenges.
Labour this week said it would support companies wanting to enter the New Zealand grocery sector with loans and regulatory changes, such as ensuring land was available.
Even if the Government should be making loans to businesses, setting up another supermarket chain in New Zealand would be enormously expensive.
As Night ’n Day’s chief executive Matthew Lane noted, Woolworths’ estimated rebranding of its Countdown stores alone would cost $400 million.
Costco in Auckland has introduced a small corner of competition, and maybe one day the likes of German-based Aldi, which has added rivalry in the Australian metropolitan grocery market, might expand to New Zealand.
The Commerce Commission certainly has its work cut out endeavouring to make the grocery industry fairer.
