Labour commits to initiating supermarket and building supplies market studies

Business

Labour pledges to direct the Commerce Commission to probe the competitiveness of the supermarket and building supplies sectors

1st Oct 20, 12:01pm by Jenée Tibshraeny

Labour is pledging to direct the Commerce Commission to start a market study into supermarkets this year, followed by a study into building supplies late next year.

Like the retail fuel market study, completed in December 2019, the studies are each expected to take a year to complete.

Labour noted New Zealand has one of the most concentrated grocery retail sectors in the world, saying there’s some evidence to suggest “competition problems do exist”:

Research by the Productivity Hub (2019) showed that supermarkets and grocery stores have indicators of relatively high margins over variable costs and competition that has weakened over time.

The 2019 Household Expenditure Survey showed average weekly household expenditure on food increased by $19.70 (9.2 percent in three years to 30 June 2019.

There is unequal buying power which may cause supermarkets to push prices up. This was highlighted via the MBIE’s Price Watch mechanism that received over 3,700 complaints between 31 March 2020 and 2 July 2020.

There has been concern around strategic land acquisitions to block competitors from the market.

As for building supplies, Labour said they make up 16% to 19% of the cost of a new residential dwelling in Auckland, making them a key factor in the overall cost of a build.

“We think that a market study into building material would be in the public interest to ensure the cost of materials for housing is fair and reasonable for consumers,” it said.

“There is some evidence of existing competition barriers":

Supply of some building materials is highly concentrated – two companies control 85 percent of the supply of concrete, three companies control 85 percent of the supply of glass wool insulation, one company controls 94 percent of the supply of plasterboard, and there are only five major building materials retailers.

There is a high level of integration in the supply chain – one company owns manufacturing businesses as well as being a building product retailer. Another company is a key participant in the sawmilling industry and also owns a building product retailer.

Rebates and loyalty schemes shaping the market – a Residential Construction Market Study conducted by MBIE in 2014 highlighted the potential negative effects of rebates and loyalty schemes on the relationship between suppliers and merchants and merchants and builders.

Difficulty to enter the market – we have heard that new entrants to the market can find it difficult to get new building products or materials certified in New Zealand.

The retail fuel market study has led to the creation of a terminal gate pricing regime, aimed at making the wholesale fuel market more transparent. The Fuel Industry Bill received royal ascent in August.

Here's a facts sheet on Labour's policy, and here's a document addressing frequently asked questions.

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50 Comments

by Pragmatist | 1st Oct 20, 12:06pm 1601507213

Hmmm, another study/working group. But will they do anything (effective) with the output of the study?

by Ngrrk | 1st Oct 20, 12:13pm 1601507606

Long overdue though! As you say, they just need to act on it

by GV 27 | 1st Oct 20, 1:02pm 1601510545

Petrol prices sure have come down a lot after that investigation. Definitely wasn't used to stem a headwind of bad news and lack of delivery for the government at the time at all. Nope nope nope.

by Advisor | 1st Oct 20, 1:20pm 1601511620

Precisely. It took 3 months after the release for the energy minister to draft up a bill and in another 5 months, consultation had been completed and the bill passed its final reading.

by my2c | 1st Oct 20, 5:41pm 1601527309

Your joking right.....the investigation showed the increase in prices was directly proportional to the increase in tax govt had made.
Prices have come down ummmh because of the oil price drop.

by Let me be Frank | 1st Oct 20, 12:27pm 1601508465

Have they lost the many previous studies?....predatory delay springs to mind

by MortgageBelt | 1st Oct 20, 12:32pm 1601508726

Shane Jones was investigating this industry while in opposition Labour. So National gave him a job in the Islands to shutdown any attention to this Duopoly with powerful buying leverage over suppliers.

by WestieAJ | 1st Oct 20, 12:36pm 1601509017

Why not just get Jacinda or Grant to make a personal call to the CEO of ALDI in Australia. Give a personal assurance that all government agencies will be instructed/available to smooth their path to market entry in New Zealand. Problem solved. Its called the ALDI effect in Australia.

by Advisor | 1st Oct 20, 1:08pm 1601510917

A market study is precisely the first step to promote more market competition. Comcom performs a detailed study and identifies exactly what roadblocks need to be eliminated for smooth entry of new players into a market.

For example, the major issue curtailing competition in our fuel market was a vertical integration of wholesale and retail markets by larger players. These players with vast resources were within their rights to exclusively supply wholesale fuel to its own downstream distributors and deny supply to smaller players.

Gull agrees that in the new Fuel Industry Bill, new regulation around setting up Terminal Gate Pricing will rectify this issue as fuel importers can no longer legally refuse to supply fuel to a company such as Gull entering a new Geographic area

by OreoContrarian | 1st Oct 20, 2:53pm 1601517231

ComCom are useless. They don't take into account the public good. They allowed Woolworths to buy Progressive (Countdown) and the Z to buy Caltex. Two of the worst decisions for competition in NZ. The ComCom said there would be no increase in the fuel price from there "Study" of Z getting over 50% of the market. Immediately post sale Caltex truck stops boosted diesel fuel price to the public 25% to 30%. No post mortem of these decisions or staff fired.
ComCom / MBIE are also the protectors of the NZ duopoly in building supplies putting dumping tariffs on imported materials when ever the local cartels prices are threatened/

by Hook | 1st Oct 20, 4:22pm 1601522561

It's a bit rich for Gull to be moaning about provision of fuel when it imports all it's fuel itself. Gull was never refused supply - it was refused supply at the heavily discounted price it wanted to pay for it - big difference

by WestieAJ | 1st Oct 20, 4:54pm 1601524470

Gull has to land their fuel in tankers at Tauranga and then truck 250 km to Auckland in tankers. They can still compete head to head on price with the other petrol companies that use a common pool of fuel that lands at Marsden point refinery and is sent down a pipeline all the way to South Auckland and stored on-site at a terminal 30km max away from the majority of Auckland petrol stations. All 3 of those assets refinery, pipeline and Auckland terminal were practically gifted to those oil companies by the 4th Labour government.

by OreoContrarian | 1st Oct 20, 3:47pm 1601520477

Costco has had a bigger impact. Coming to Auckland but needed in our main centres.
Achieving A$200 million across 8 stores in 2016 and even bigger now.
Forced Woolworths and Coles to change and try and compete. Nobody thought they could do it.
Costco forced fuel price way down in Australia where they are open as they sell it at cost. Same with tyres.
Auckland Pack in Save owners are going to be in for a shock

by Nzdan | 1st Oct 20, 12:43pm 1601509425

Always found it funny how the Commerce Commission had a lot of teeth when it came to Telecom and unbundling the local telecommunications loop, but ever since they've run out of steam when it comes to things more important than telephone calls and internet bandwidth.

by Advisor | 1st Oct 20, 1:16pm 1601511372

A ComCom draft decision is expected to cause a 2.5% reduction in Wellington Electricity's allowable revenue. Many of these things to happen in the background; 'business news' other than housing and political promises don't feature on our headlines anymore.

https://www.scoop.co.nz/stories/BU2009/S00464/draft-decision-to-reduce-…

by GV 27 | 1st Oct 20, 1:10pm 1601511016

Q: If it mattered, why not three years ago?

A: It didn't actually matter. It doesn't actually matter now.

by hemihua | 1st Oct 20, 1:17pm 1601511477

Given we are a relatively isolated and small market, I think we have 2 choices - little competition and lower margins, or lots of smaller companies and higher margins. We just don't have the scale to do both.

by redcows1 | 1st Oct 20, 2:21pm 1601515278

But currently we have little competition and higher margins. The most obvious place to check those is in the ag and hort lines, things we produce cheap locally but are bloody expensive by the time they hit the shelves.

by GV 27 | 1st Oct 20, 2:40pm 1601516444

They're bloody expensive because the world can buy all of our supply without breaking a sweat. We're bidding for the 'not good enough to go overseas' bits but paying a premium to do so. This is not something that is easily fixed, but talking about maybe possibly thinking about what you could do is good electoral fodder when you're running down the clock before polling day.

by Carlos67 | 1st Oct 20, 1:44pm 1601513082

Oh please don't make me laugh, they said that about the Petrol prices in New Zealand and that was supposed to be sorted out by March 2020 and its long gone. Do you remember that we were all apparently "Getting Fleeced" at the pumps. Its just electioneering at its best. The Labour party are useless, they got rid of the power prompt payment discount and we then had to jump through hoops to get that same discount back which included fixing a 12 month plan, no more bills in the mail and setting up a bank AP.

by Vapewalla | 1st Oct 20, 1:56pm 1601513762

GST, duty and clearance fee from the Importer, GST wholesaler, GST supermarket........do they really want cheaper prices? Maybe it will be like the fuel, try to squeeze the supplier a little then whack on a new surcharge for the Govt to make us a little worse off than we were before.

by Advisor | 1st Oct 20, 2:16pm 1601515005

There's a big flaw in your argument!
GST is effectively a value-added tax meaning while every buyer in theory pays GST to IRD, the next one along the line pays 15% to IRD on their output price while claiming back the GST they pay on all input prices.
So, in effect, IRD only gets 15% of the final price of a good or service even though they clip the ticket at every exchange.

All credibility to argue on consumer pricing lost when one can't understand the basics of GST.

by redcows1 | 1st Oct 20, 2:41pm 1601516467

Big flaw, lol. To be fair various finance persons from political parties have recently made statements inferring businesses pay GST.

by Advisor | 1st Oct 20, 2:54pm 1601517284

Pollies can't be excused from such a blunder.
So much for all the "retraining the workforce" they've been campaigning on but can't be bothered learning the basics of their allotted portfolio.

It does worry me how little voters understand about civics, money and basic economics as well.

by DaveB1978 | 2nd Oct 20, 6:43pm 1601617401

They do pay GST. It can have a big impact on your working capital requirements if you don’t collect GST on sales. I used to work for an exporter. We paid the growers weekly and got paid after 60 days. We could claim the GST back but did need to pay it out first. The monthly gst returns now go some way to help now.

by DaveB1978 | 2nd Oct 20, 6:57pm 1601618263

by CJ099 | 1st Oct 20, 2:05pm 1601514322

Agreed we really need to have fairer prices for products in NZ. It still astounds me how they can get away with charging double for everything here especially when it comes to DIY and building materials.

by Believer1980 | 1st Oct 20, 3:10pm 1601518210

why it astound you? NZ market characteristics (very small but dispersed market, far from any other major markets) do not encourage competition. On top of that nz regulatory and compliance requirements are very high meaning that entry into many fields require a very high initial investment. On top of that you have high business inputs (third highest minimum wage in the world, high rents not justified by margins etc). Who can compete with established businesses? no one really.

by Advisor | 1st Oct 20, 3:22pm 1601518928

Who can compete with established businesses? no one really.

That's not true. Multinationals aren't exactly short on cash for expanding into NZ; money from central banks is practically free for a lot of big international players.

The OIO approved Costco's $23m land purchase for its plan to develop a large warehouse plus a 3-level megastore on it.

Entering NZ isn't as much a problem for big players as smoothly expanding around the country. If land banking and wholesale market issues restrict further expansion, the government could regulate the market for reducing barriers.

by OreoContrarian | 1st Oct 20, 3:52pm 1601520767

Agreed Costco have achieved $200 million of sales per store in Australia and growing. Where they are located its having a big impact on fuel prices and tyres. Coles and Woolworths have had to change to compete.
Started going to Costco in 1992 in the US and have been a big fan ever since. Also an amazingly well run company.
Its now the second biggest retailer in the world.
If Cindy and Labour were serious screw the "studies" and help Costco set up in Wellington, Hamilton and Christchurch. Also court others to come...

by Hook | 1st Oct 20, 4:28pm 1601522912

Be interested to hear what their workforce looks like OC. Are Costco stores all self help, self pack, contactless payment types?

by OreoContrarian | 1st Oct 20, 5:42pm 1601527320

Stores are about 6 times a pack and save. Shopping cart more a larger trolley. You do bigger shops as quantities are big and they dont have say 250ml little bottles of various items its like a litre plus. Wide isles. Still have a checkout. Link is for one in Canada but the ones in the USA I use to go to are similar and same in Melbourne. You pay like $50 a year for membership but then you get the dirt cheap fuel.
https://www.youtube.com/watch?v=FCB2EqRMLo0
All suppliers have to provide products in cardboard stands that dont need packing of shelves. You leave with your goods in your trolley.
They sell everything as well. More than a supermarket. Occasionally things like 250k diamond rings going cheap in the USA. You never know what you might find.

by fender bender | 1st Oct 20, 4:32pm 1601523173

And 30 years down the track, New Zealand has two banks, one chemist brand, one general goods brand, one clothing store brand, maybe 2 supermarket brands, two car brands and probably one house builder. New Zealanders don’t own any of them. We are all employees of the handful of consolidators that vanquished SMEs. Corporate tax revenue is too hard to control now so GST is 40% and paye is the other main stay for tax revenue. Anyone with entrepreneurial aspirations has had to escape to larger more competitive environments with actual competition. We are left with a nation of time card punchers. Inspiring….

by middleman1 | 1st Oct 20, 5:07pm 1601525228

Fender. Understand your sentiments and you are right about the exclusionary power of incumbents but there are still plenty having a go at the old boys brigade. We successfully carve substantial chunks out of large corporate competitors and have great fun doing so. If you stay nimble, have a model the lumbering duopolies can’t replicate and are willing to direct import some lines, you can still do very well. I welcome comcom examining the monopoly power of the giant suppliers in the construction trade. I can see why trade rebates have got them excited but it’s a bit of a red herring as they are really just margin earned in a non conventional format and will revert if legislated against.

by fender bender | 1st Oct 20, 5:23pm 1601526218

Thanks mm good stuff

by MLSmith1 | 1st Oct 20, 7:30pm 1601533823

Good call 1980...
NZ is a hard sell for big business to warrant investment as the size and density of market is too small. Unless there are genuine barriers to entry, markets should be efficient and pricing set to a level that the market will bear.

by Squishy | 1st Oct 20, 2:07pm 1601514456

Given the governments track record is so poor, ehy bother? They will only humiliate themselves with inaction.

by fender bender | 1st Oct 20, 3:35pm 1601519720

IAG & Suncorp have 85-90% of the insurance market. How is that healthy? Anyone care?

by middleman1 | 1st Oct 20, 4:26pm 1601522801

Exceedingly difficult for new insurers to enter the nz Market. Youi is just another who found it just too tough. Some overseas underwriters cherry pick by taking a ppn of selected commercial risks, often by parasitically ‘following’ established underwriters who carry out on the ground risk assessments and set terms but are generally bit players. The unattractiveness of our high catastrophe risk market and tiny scale means it is unlikely most of us will Be able to escape the rapacious clutches of the Aussie duopoly any time soon.

by Hook | 1st Oct 20, 4:35pm 1601523335

Very easy way to escape the clutches mm - don't use their products. I've not had dwelling/contents insurance for over 30yrs and have saved enough on the premiums to easily repair any damage on my house. Insurance is an out and out rort unless you can't control the risk (i.e. Vehicle Insurance - which I do have)

by middleman1 | 1st Oct 20, 4:52pm 1601524326

Easy for people like you and me Hook with the resources to underwrite our own risk. 90% remain captive through mortgage commitments, low levels of wealth etc. Pleased you carry vehicle insurance; I’ve been involved in some enormous MV claims. I remember a fuel tanker one that also spread to a building, all from a simple car crash. The harbour bridge impact will be a very costly one. The incidence probability is very low but consequences high; eg writing off some tragic knobs Bentley through momentary inattention.

by fender bender | 1st Oct 20, 4:58pm 1601524690

The other side to the duopoly dilemma is the suppression of the suppliers to the duopoly. Now most of you will be thinking “stiff cheese” to the suppliers whom have to supply these duopolies as long as I’m purchasing the duopolies products at an acceptable price.
See the problem is, the end consumer is often not gaining the benefit of the NZ suppliers being screwed, the duopoly gains the benefits and absorbs it in head office fees etc and profits. OK so the duopolies pay tax, that’s fine. My argument is if the suppliers to the duopolies weren’t exploited and were able to charge more practical rates and earn more, the generated commerce filtering through the economy is far greater than the current model where monopolies and duopolies are creaming it.
Why are so many NZ industries momma & poppa stores? Do you think if their earning capacity were greater and the companies they supplied were more numerous they may grow beyond this? I do…

by a.t. | 1st Oct 20, 6:58pm 1601531929

Quite agree as a supplier to both chains of the duopoly for the past 35 years i can tell you just how hard they screw down supplier pricing particularly on produce lines where they make you pay for the percieved wastage rate. They then double the price they they pay the supplier for a 100% markup and at times more.
Some businesses may giveup particularly after the ludicrous decisions during covid to give the supermarket carte blanche while shutting down all of the small suppliers. Shear lunacy

by OreoContrarian | 12th Oct 20, 1:53pm 1602464030

by middleman1 | 1st Oct 20, 4:45pm 1601523945

‘new entrants to the market can find it difficult to get new building products or materials certified’ - getting certification is only one part of the battle; simply getting supply can be a struggle as incumbents use their buying muscle in technically legal ways to prevent smaller competitors from sourcing competitive pricing. It’s a brutal process that requires sharp wits, a steely constitution, skilful manoeuvring and the resources for a protracted struggle.

by OreoContrarian | 2nd Oct 20, 7:58am 1601578688

Certification and dumping tariffs are the problem. A good example Winstone controls the gib market. Gib in NZ is 250% higher than some other countries. British Plaster board comes into the NZ market and had to pay the tariffs. Others who could not go through the Branz testing have to say the gib is decorative and you get no bracing values when you use it in a house.
Why the NZ Govt and Councils require testing on gib and wont accept UK, Euro or US standards is a joke. Its what the incumbents have set up as a barrier to entry,
See Knauf's view on the NZ market:
https://www.nbr.co.nz/article/knauf-takes-fletcher-plasterboard-market-…

by KH | 1st Oct 20, 5:16pm 1601525805

Nothing much will happen.
But one big problem is the supermarkets limiting suppliers to the very big companies. Innovation is stifled, to the disadvantage of New Zealanders and New Zealand both.
As a small new efficient innovative food producer you would find those attributes don't matter. You are unlikely not to get into the big supermarkets.
It would benefit our economy in many ways if we increased the number of chains from the current big two, to at least twelve.

by Uncle Bulgaria | 1st Oct 20, 9:29pm 1601540980

Good. About time.

by Rosenstein | 1st Oct 20, 9:43pm 1601541832

Government announces intention to do something sometime for some reason, but reminds people that it's only a maybe.

by Davo3636 | 3rd Oct 20, 12:32pm 1601681549

And you know, their coalition partners might not agree...