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Gareth Morgan says bad supermarket practices are the reason farmers markets are booming. Wants new tax on 'bad foods'

Posted in Opinion

By Gareth Morgan*

Last week we saw Shane Jones bagging Countdown for their treatment of suppliers.

But don't for a moment think the New World/ Pak’nSave crowd are any better.

Jones is picking on the Aussies because they are picking on us over there.

The truth is that both sides of our cosy supermarket duopoly are as bad as each other.

It is ridiculous to hear people saying the grocery business is very competitive, it’s quite the opposite.

We have in place a duopoly, so a more accurate description of the sector is that this concentration of market power is a good prospect for seeing suppliers being screwed to oblivion.

And none get screwed over more than the local growers of fresh produce.

Make no mistake, supermarkets hate fresh produce. It is so inconvenient the way it goes off; supermarkets prefer the stuff that stays on their shelves for months, which is why they reserve a larger markup for the fresh stuff.

The only reason they put it at the front of the store is to lull you into a false sense of security that the food in their store has some vague link to nature. This is why prices are lower at fruit and vege markets. (Note 1)

Supermarkets have huge power over fruit and vege growers for a couple of key reasons. Firstly they can bring in cheap food from overseas, without needing to recognise that the stuff has lost most of its nutrients and been dipped in chemicals to take care of any foreign critters.

Secondly, fruit and veg growers are over a barrel as soon as their crop matures.

Everyone’s crop matures at the same time, and they need to sell it, straight away. So they are really at the mercy of the supermarkets to shift produce, which means they are ripe for the picking, so to speak.

No wonder fruit and vege prices in supermarkets have gone up, but returns to growers have fallen. (Note 2) Now the greedy supermarket intermediaries have forced all the corner stores out of business they can push their market dominance to the point that consumers finally resort to turning up at Sunday markets to stock up for the week.

Fresh food suppliers also have to compete with an infinite supply of fake food of minimal nutritional value. The supermarkets can dish this stuff up to ignorant consumers who are driven by price alone, because the promotional materials are totally misleading. So the reality for a local fruit and veg producer is they must match that price otherwise they’re off the shelves.

This is the flawed thinking Nick Leggett displayed when he called for more competitive supermarkets as an answer to the obesity problem.

If supermarkets get more competitive, their focus will still be on competing over fake foods, rather than the nutritious stuff.

There’s a beautiful solution here.

We could lift the nutritional content of all food by taxing the garbage and using the proceeds to subsidise the gems.

Then let’s see if consumers will rush to fake food once its price advantage is neutralised.

In our view these subsidies would be best distributed as a voucher system for fruit and veg, targeted at kids.

This would stop the supermarkets soaking up all of the subsidy themselves, as could happen if we took GST off the price of these items.

Why have our governments stood by and allowed obesity, our greatest health problem – to become a weapon for the supermarket duopoly who by being free to peddle fake food, can drive suppliers of nutritional food to the wall?

Nutritional, whole foods of course are almost by necessity, locally produced.

Our quest for cheap fake food has both stuffed our diet, crushed our producers of the good stuff, and enabled market concentration in food retailing to such an extent that odious business practices are being uncovered. Sounds like a case for trust-busters to combine with nutritionists and health professionals to help the politicians stop the rot.

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1.  Nanayakkara, A., et al. (2013). Wikileeks: Digging up Secrets of Fruit and Vegetable Prices at Markets and Supermarkets in Wellington and Christchurch.

2. Guthrie, J., Guthrie, A., Lawson, R., & Cameron, A. (2006). Farmers’ markets: the small business counter-revolution in food production and retailing. British Food Journal, 108(7), 560-573.

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Gareth Morgan is a businessman, economist, investment manager, motor cycle adventurer, public commentator and philanthropist. This opinion piece was first published on his blog garethsworld.com and is reprinted here with permission.

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29 Comments

This guy speaks a lot of

This guy speaks a lot of sense. But it is unlikely taxing bad food will happen anytime soon. Same applies to country of origin labeling. Supermarkets don't want it. We really need more competition in the super market area, as there isn't really much at the moment. Supermarkets can largely charge what they want, and pay suppliers what they want.

Why are a lot of the products

Why are a lot of the products at Farmers Markets so expensive afterall there is no middleman to pay so in theory they should be on a par with supermarkets or cheaper.

Which products are you

Which products are you referring to mr gold, do you mean the veges or something else?

Veges I assume... Ive noticed

Veges I assume...
Ive noticed that as well...there is now little advantage in wasting petrol to get to a farmers market for straight veg.
regards

Simple answer. Often the

Simple answer. Often the stuff is grown by smaller producers so the cost per item is going ot be higher. The big producers sell to supermarkets so they have a guaranteed income. Farmers market sellers are selling stuff once a week, and there is their fuel on top of that, plus there is probably more wastage. Many are also selling organic or spray free stuff, while the supermarkets stuff is often not. Also a far smaller number of cusomters to sell to. I can tell you that people selling at the farmers markets don't make much.
 
You may be able to get cheaper stuff from a super market, but it is often not that fresh and a lot is stored and older. Farmers market stuff is usally very fresh, which is better for you. 

Pack 'N' Save Timaru have

Pack 'N' Save Timaru have their own brand new service station just by their store. It is completely self serve and have one person to assist if needed.
No doubt that staff member will go shortly and it will be a service station with no staff. Then, to compete, all the other service stations will lay off their staff and become self serve.
Also other service stations will get a run for their money as Pack 'N' Save give everyone 10c a litre off. You enter your bank card, enter details then scan your shopping docket to get your 10c off. You can then throw you shopping docket away.
 
On youtube there is a TV program called "Food that made billions"
The first episode was Kellog and how they grew. Breakfast cereal's became so processed that they became just raw garbage.
After complaints they added vitamins (note the vitamins are not in the food but added - like taking a vitamin pill with your breakfast and saying you have a healthy breakfast full of vitamins).
Later, to increase profit they added wood pulp and said it was celulose. They defended the use of wood pulp on the grouds that it was high in fibre and so good for you. Opponents say it is because it is cheaper than real food.
This is what you buy in the supermarkets and why rubbish food is so cheap.
 
Some time ago, 6 years or so, a small buisinessman, i believe he was from Nelson area, was on the news. He employed about six people a sold some food in a glass jar.
The supermarkets had put a large cost on shelf space which he could not afford so layed off his staff and closed down. This was the first i had heard of supermarkets charging for shelf space.
 
Well done Gareth
 

Mike B Rotorua Pak n Save

Mike B Rotorua Pak n Save have had fuel pumps for many years.  They need a staff member to be available in case of issues at the pump, so that job in Timaru will be there so long as they have pumps.
 
What is the difference between the AA card fuel discounts, Other supermarket discount vouchers and Pak n Save vouchers - none.  They all run 'discounted discount' rates at some time.

Self-serve have been around

Self-serve have been around for a while. Caltex has one near me and there is no one to help. 
However if you look around the pumps of pak-n-save you will see an intercom, press that and someone should come.   Simple really if you want service you will be paying more, that is your choice, I take the 40cents a litre saving.
Strikes me the supermarket was offering shelf space to a local and hence punters passing by could have bought the goods.  He stopped dong that and I assume with no where else affordable to sell, closed down, I assume its supply and demand.
regards

The shelf space and

The shelf space and promotions costs and bulk discount steps have been around at least twenty years.

If you think yourself as business savvy or financially literate, and you are not aware of the basic mechanisms employed by the bulk merchants of the most common of everyday products and services, then (1) start writing to your mentors and training institutions demanding them to fix their training, (2) hang your head in shame and ignorance, (3)  go learn the basics before you take on your expert mantle.

 

As a Kiwi I tend to expect

As a Kiwi I tend to expect good fortune, after all I was born into a wonderfully resourced land with relatively few people. It would appear political leadership, along with popular broadcast media are slipping backward in relation to intelligent debate (big cahunas?) and adressing societal needs as articulated within this article, together this limits my good luck being born here.
Gareth, you appear unafraid to articulate an intuition while at odds to some (cats?), to me simply makes sense. Identifying bad practices and articulating a way through, personally i would like your intuition to take flight!
Stand for parliament, perferrably with Peter Dunne so your voice can be heard with a vote, with the two of you together I may just see a United Future!

If you really want to

If you really want to understand the "food industry" (sic) watch this documentary.
http://topdocumentaryfilms.com/fat-head/
No spin just a guy seeking the truth. You will begin to realise that this industry has no interest in our welfare.
Well done Gareth, thanks.

The duopoly needs crushing. 

The duopoly needs crushing.  Look how they beat their minow competitors with alcohol sales.  Somehow it's okay to get booze from the big boys supermarkets, but not at the corner shop - both of which are equally accessible in my neighbourhood. 
Good one Gareth.  It is well time for you to enter parliament.

The warehouse is in the best

The warehouse is in the best position I think to take on the Supermarkets, and they did try. But they ended up pulling out. I wonder why. 

Warehouse has got the general

Warehouse has got the general stuff that supermarkets stock but the prices have not been competitive with the supermarkets. I have found the specials much better and more regular at the supermarkets. By the time time the warehouse discount some of the merchandise looks like they are ready for the rubbish bin.

It is probably becuase they

It is probably becuase they don' have enough buying power as it is only a small part of what they offer. It would be very difficult for a small player to get the same sort of low pricing as one of the big players, as they don't sell the quality. When they have paralell imported supermarket type, goods though they have been able to sell at very good deals.

We need a round of monopoly

We need a round of monopoly busting every few decades. 
These two chains need to be broken down to about 12.  Then there will be a decent balance in the power relationship.   And veges will be better as well.
What happened to the National Party and it's (supposed) interest in promoting markets.  (pun intended) They are missing in action on this one.

Proof of the pudding is in

Proof of the pudding is in the inflation numbers. And inflation is well down on consumables. I do not believe supermarkets price guoge. We get a very good price for excellent product. Sure you have the chinese Marts and the wet markets but I have found the quality of the produce most times better in the Supermarkets. There was a period of a few months where the cherries in the Chinese Market were far superior in size, sweetness and freshness.

 ZZ.  There is the matter

 ZZ.  There is the matter where these monopoly chains destroy business development.  We need a rich business environment, with many niches.  Where NZers can create new startup businesses, have a go, develop new customers in a competitive environment.  Like you do with houses.
How would you go if there there were only two big chains to rent houses to? 

The Taxman cometh.   put

The Taxman cometh.   put proper choice and information out there and let people decide, it's their right.

I've said this elsewhere, but

I've said this elsewhere, but if ComCom manage to foobar this perfectly straighforward piece of trust-busting, we can all look forward to another generation of GUBO (grease up, bend over) from our favourtite duopolies:  food, building materials.....
 
And, having watched the NoKo torture allegations unfold (as all of us RWDB's suspected, for years) - we should ask GM if he's still Quite so keen on their Marvy Milieu......oh, and include Denis Rodman in that, too..another useful idiot.

I fear you are right Waymad. 

I fear you are right Waymad.  Look at for this to be spun so thats it's about some naughty behaviours, or some out of line executive.   Remedy a woofy 'code of practice'
Which will enable them to avoid the basic monopoly issue.

Australian authorities had

Australian authorities had real trouble finding any suppliers willing to go on the record about the supermarkets practices over there, so it may not be so easy here either.
Admitedly, now the ACCC have some complainants, and have said their investigation will continue despite the two major supermarkets have decided on a voluntary code of conduct to have with their suppliers.

Waymad, I have been a

Waymad, I have been a "Farmers Market" stallholder for the last five years; I agree with GM's sentiments (in this case) if not his flamboyant mode of expression.  I can't remember where i heard it but someone in govt has started acknowledging the inefficiencies across the board in the building supply chain so they are starting to wake up to it. I also would like to see CC take a serious look at this. As you say it could be the curtain-raiser for the main event later.
 
In response to a couple of points made in the thread:

  • whether market stall holders offer lower prices will vary greatly across the country. I have never been but suspect that the way the Northland Producers' Market is set up you expect bargains there.
  • I am not cheaper than the supermarket but I can translate my higher share of the value chain into better quality (I use butter not pastry nuggets)
  • a friend from the market told me he was offered one third of the retail price by a supermarket for his produce. 200% gross margin does strike me as a tad high.
  • our cost of sales is not nothing; we pay market fees, have to buy our own stall furniture, possibly marketing costs, driving, and our own time. But it's way, way less than owning a shop.

 
I don't think markets are popular because supermarkets are crap but the nation's various markets do create a dynamic and innovative environment for small startups that the two supermarkets would otherwise kill dead. So good on them.

Kumbel I think from hints in

Kumbel I think from hints in the past you are a baker? Maybe you should tell us more or do you prefer "hiding your talents under a bushel"?

Jack of all trades, master of

Jack of all trades, master of none. Perfect for a commenter at interest.co.nz

Westfarmers, some say

Westfarmers, some say massively overpaid for Coles
Return on equity is essential for value investors for so many reasons and Wesfarmers purchase of Coles was a great case study:
http://rogermontgomery.com/has-wesfarmers-got-it-right/
 
Mr McLeod, who was paid around $50 million during his tenure to rescue Coles, said he was looking forward to his new role.
"When I started at Coles in 2008, I felt that Australians deserved a better retail experience, with better stores, better standards, better prices and better quality. We have worked incredibly hard to deliver improvements in all of these areas and have been rewarded with four million additional customers visiting our stores each week," Mr McLeod said.
Mr Goyder said John Durkan was a natural successor as Coles managing director given his strong track record of business success and his key role in the first phase of the Coles turnaround.

Read more: http://www.smh.com.au/business/retail/coles-boss-ian-mcleod-steps-down-20140218-32y69.html#ixzz2tiVmMKOn

 

 

Good article. 1. The

Good article.
1. The supermarkets, oil companies, power companies and banks practically own the govt. (and therefore us) so no point going there. Good on Shane Jones for making a stand...I'm interested to see how much support he gets from the current govt and even his own party!
2. If folk stopped subdividing 600-800sqm sections for $$ and grew their own fruit and veges in their back yard that would help reduce the amount of garbage you eat.
3. Everything is about convenience in the "rat race" called life. The odour of petrol fumes is marvelous as you load your groceries into the car. Folk need to learn that much of what you buy from yoghurts to soft drinks and cereals are chemical experiments. Full of addictive ingredients that target the "mcthickie" tribe who are none the wiser.
4. Why doesn't Gareth invest his hard earned dollars and open "Kiwimarket" - home grown goods that aren't imported.. yes we may pay a little more but at least it keeps our local produce in direct competition.

"Why have govts stood by &

"Why have govts stood by & allowed obesity to become a weapon for the supermarket duopoly?”

Why have govts stood by & allowed obesity to become a weapon for the supermarket duopoly?”

Gareth Morgan

Why doeds Gareth Morgan think he and others should have the right to step in and tell people how they should run their own lives and what foods they should eat?

10 years ago such philosophies would have backed the Food Pyramid & low-fat brigade....which has turned out to be a farce... you offering refunds (with use-of-money interest) to go with the correction, Dr G?

Prime Minister Garth Morgan

Prime Minister Garth Morgan ???
um.....Maybe Prime Minister Garth Morgan for life ???
or Maybe KIM JUNG MORGAN.....now thats a idea
BAZ