The big two supermarket chains Foodstuffs and Woolworths face multi-million dollar fines for treating suppliers unfairly, the Government has announced.
Commerce and Consumer Affairs Minister Duncan Webb said the big supermarket chains have been taking advantage of their dominance and imposing unreasonable terms and conditions on suppliers.
“We are calling time on their poor behaviour,” Webb said.
The sector will now be bound by a Grocery Code of Conduct, which comes into force on September 28.
Under the code, abuses of power by Foodstuffs and Woolworths could see them face stiff fines of up to $3 million or 3% of turnover, whichever is the greater. Individuals face fines up to $200,000.
The Grocery Commissioner, Pierre van Heerden, will oversee the code.
Webb said the new code required large corporates to do things like pay on time, have plain-English supply contracts and deal with small companies in good faith.
“It’s entirely reasonable and hardly too much to ask. Local suppliers have been stretched for a long time, and that’s stifled innovation and the development of our food supply chain.”
Webb said at a press conference in Christchurch that retaliatory “combat” had been seen when suppliers had asked for price increases, with products then removed from supermarket shelves.
He said there had been other unfair terms imposed on suppliers, such as suppliers being forced to pay for product breakages in the supermarket when those breakages “had nothing to do with the supplier”.
Supermarkets had been demanding “pretty extraordinary terms” including payment of suppliers of 90 or more days.
He said that was the kind of behaviour the Government wanted to crack down on.
NZ Food and Grocery Council Chief Executive Raewyn Bleakley said the code was a long-awaited step that would go a long way to creating the environment needed for a better and fairer grocery sector, that will give suppliers more confidence and help deliver consumers better options.
She said the council would examine the code in detail in the coming days, and would work on training options for its members so they know what the code allows for and what it prohibits, and the avenues available for suppliers to raise concerns.
The market study
The Government ordered the Commerce Commission undertake a market study into the sector in 2020.
The Commission found the market wasn't working well for consumers and recommended a grocery sector regulator and a dispute resolution scheme be established.
Under new legislation, the Grocery Industry Competition Act, newly-appointed Grocery Commissioner van Heerden gets new powers including the ability to levy fines.
The Act also requires the big two to open up their wholesale networks to competitors.
The Grocery Industry Competition Act also makes Foodstuffs North Island, Foodstuffs South Island, and Woolworths New Zealand regulated grocery retailers (RGRs).
This means they must negotiate to offer wholesale supply for potential competitors in good faith and must follow the new code of conduct.
It also includes a "regulatory backstop", or threat that the regulator could set the terms for access to the duopoly supply chains.
Former head of the NZ Food and Grocery Council, Katherine Rich, said in 2020 that supermarket suppliers were forced to be a price taker from Foodstuffs and Woolworths against a threat their products would be booted from shelves if they don’t accept the price.
She said some supermarket owners were “bullies”.
Suppliers told the Commission there was very limited competition in the NZ grocery market.
25 Comments
The best way to remove temptation is to remove opportunity. Let’s face it, it has been both an opportune and tempting market for the supermarket duopoly here, their status entrenched as such. Tackling that will need more than words and very difficult to prosecute successfully. Food prices at retail arrive from a series of vagaries and variants which easily become explainable. A cheap price one week, can be explained as a loss-leader and an expensive one by say a stock shortage and/or miscalculation. Getting in discovering, extracting and defining of that, and proving resultant deliberate rorting, far from easy.
$10 item charge $9 to supermarket with a 25% rebate clause in the contract. Who said the rebates need to be paid back into the supermarket's operating account? The supermarket makes "bugger all" margin, while the true profit is backdoored to the owner.
It's happening, because there were concerns raised around Supermarkets "setting off" their rebates against an invoice where the rebate wasn't already deducted.
We have heard concerns about grocery retailers setting off amounts against supplier invoices without prior consent.1147 Set-off is where a retailer deducts any amounts it is owed by a supplier when paying a supplier’s invoice. This can occur where a retailer takes rebates which are not already deducted from the supplier’s invoice.
https://comcom.govt.nz/__data/assets/pdf_file/0024/278403/Market-Study-…
Concerns have been raised about retailers automatically deducting rebates off their payments to suppliers. The supplier then needs to request a credit note from the retailer to check that the correct deductions have been made, which can take some time. If the supplier disagrees with the deduction the retailer has made, it then needs to try to get its money back.
https://comcom.govt.nz/__data/assets/pdf_file/0024/278403/Market-Study-…
true profit is backdoored to the owner
this. I remember sitting next to my wife at her works annual christmas party about a decade ago - she worked for minimum wage at a supermarket. It was great seeing the owner laud his minimum wage staff (he did appreciate them, I'm not being sarcastic) - however, this was interspersed with pictures and anecdotes from his multi-million-dollar-per-year car racing hobby. It was just like (but preceded) Jeff Bezos thanking his staff for enabling his space flight off the back of their poorly-remunerated labour.
Another NZ cartel the country is over run by them.
That is why we shouldn't let the private sector control the property market in NZ.
They are greedy like all these NZ cartels.
The real sad thing is our regulators don't do anything about it that's why we see inflation where it is.
Seriously? inflation is caused by "cartels"? I think you will find that nearly every economist would say that printing money causes inflation. You know, the money that the Labour Government of NZ printed, in the billions. And now that Government is desperately searching for someone to blame for food prices going up when in fact they caused the increase. Perhaps getting rid of student politicians from Government might see some improvement. Only thing is, it will take a generation to fix what has been done.
The duopoly just needs to be broken up. Anything else is tinkering. The issue isn't supplier arrangements, as better supplier terms benefit consumers. The answer isn't reducing competition but increasing it by having more outlets, and a supply chain separating wholesale (Gilmours) from retail.
“We are calling time on their poor behaviour,”
Meaningless platitudes seem a bizarre solution to a market that isn't functioning. This is actually worse than ex-PM Adern asking banks to "reflect" on record profits, since it will delay any actual meaningful change.
Definitely a case of be seen to be doing something, even if the something is nothing.
There is no real incentive for National to change the status quo on our duopolies (supermarkets) and monopolies (airline). It is a way of transferring wealth to the elite - who back both parties and will simply fudge another endless enquiry resulting in more of the same.. most large industries in NZ work this way.
Good luck changing things. I suspect national will be the party that facilitates more such scenarios not less.
The way out is to vote with feet and simply go to a country with a better system - if you can still find one. or play the system the best way to suit your own needs
There are three more solutions we ought to seriously consider if we want more competition resulting in lower food prices for consumers:
Firstly, I’d love to see more farmers markets available where growers can directly sell to the consumer. I miss this about Europe, there are some promising markets here but we aren’t doing it on nearly the same scale.
Secondly, remove barriers to innovation on smaller producers. We want cheese makers, artisanal meat producers etc to easily come through and challenge the status quo. Currently, they face huge difficulties before they get started.
Thirdly, this nation needs to do all it can to stop land and property prices booming. We’ve got many wasted acres around main centres ideal for producers, close to markets, being squandered due to land banking. Allowing foreigners to buy up property worth 2million or more will make the situation worse.
All these three issues are man-made, and can be resolved through smarter regulations.
I go to one specifically where I go to a supermarket or butcher on the way back. Still one trip, just a wee bit further than normal. When petrol prices are really high, sometimes I just bike to the farmers market with panniers and take my time, cos its quite healthy and a nice enough ride. When this happens, sometimes I don't use the car for months. Friends of mine bike to the market all the time on e-bikes with their kids, they combine family fun (biking along the waterfront) with shopping day. My point is, there are options, if you care to look.
When I need gas, I don't go to the farmers market and combine the cheapest supermarket and petrol stop (that's PaknSave Petone, for those in Wellington). With the supermarket discount for fuel, its a no brainer.
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