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The Commerce Commission has recommended a series of tweaks to the supermarket sector but stopped short of some of the tough measures it contemplated

Business / news
The Commerce Commission has recommended a series of tweaks to the supermarket sector but stopped short of some of the tough measures it contemplated
supermarket-toby
Image: Toby Allen

The Commerce Commission has recommended a series of tweaks to the operation of the supermarket sector, but in the final report of its inquiry into the sector has stopped well short of some of the tough measures it earlier contemplated.

Some of the tough measures that had been mooted included making market participants structurally separate their wholesale and retail businesses, or even being forced to divest some of their brands.

Instead, in the final report, much emphasis has been placed on things such as easy availability of land for development of new supermarkets.

The commission is recommending that both a grocery sector regulator and a dispute resolution scheme be established.

"A sector-specific regulator could have responsibility for general oversight of the retail grocery sector. This could include monitoring and reporting on its performance, both publicly and to government," the commission says.

The commission is proposing another review after three years:

"If competition is still not working as well as it could after three years, the review could consider whether other initiatives are required."

On improving the prospect of competition through new players in the market, the commission says this:

"We consider that the best way to improve competition in the retail grocery sector is through measures that are likely to improve the conditions for entry and expansion. Improving the conditions for entry and expansion is likely to be particularly beneficial for consumers where this enables a greater range of grocery retailers to offer a convenient one-stop shopping option.

"We consider that the New Zealand market could sustainably accommodate at least one more large‑scale rival, and that reducing current constraints on entry and expansion would help to facilitate this.

"In the long term, actual entry or expansion is likely to be the greatest driver of competition. There are two main areas where we consider changes would be desirable to help facilitate an increase in the number of grocery retailers that compete effectively with the major grocery retailers:

→ freeing up sites for retail grocery stores; and

→ improving access to groceries for resale."

The commission said it considered other options such as a regulated wholesale access regime and vertical separation of the major grocery retailers (which would require their wholesale businesses to be run separately from their retail businesses).

"However, we do not recommend these options because:

→ introducing a regulated wholesale access regime for groceries would be very complex due to the wide range of products and dynamic nature of the sector; and

→ there are significant efficiencies associated with integrated retail and wholesale grocery operations, and there would be a range of practical challenges and transaction costs associated with separation."

Therefore it was recommending that the major grocery retailers "be given the opportunity" to negotiate commercial wholesale supply arrangements with other retailers, with regulatory oversight.

"The major grocery retailers have publicly stated that they are open to, or are exploring, the possibility of negotiating commercial wholesale supply in certain circumstances."

The executive summary of the final report is here.

The full report (warning, it's 609 pages!) is here.

This is the media release from the commission:

The Commerce Commission’s final report from its study into the retail grocery sector has recommended a suite of changes to increase competition and help improve the price, quality and range of groceries and services available to New Zealanders. 

In November 2020, the Government asked the Commission to take an independent look at the factors affecting competition in the $22 billion a year industry. 

Commission Chair Anna Rawlings says the final report has concluded that competition in the grocery sector is not working well for New Zealand consumers. 

“We have found that the intensity of competition between the major grocery retailers who dominate the market, Woolworths NZ and Foodstuffs, is muted and competitors wanting to enter or expand face significant challenges,” says Ms Rawlings. 

“While there is an increasingly diverse fringe of other competitors in the sector, they are unable to compete effectively with Woolworths NZ and Foodstuffs on price, product range, and store location to offer the convenience of one-stop shopping for the many different kinds of shopping missions that consumers undertake.”

The Commission has also identified that the nature of retail pricing and promotional strategies, and the major grocery retailers’ relationships with suppliers, indicate that competition is not working as well as it could. In addition, it has highlighted that New Zealand’s retail grocery prices appear comparatively high by international standards, the profitability of major retailers also appears high, and while consumers benefit from a range of innovations, there is scope for more.

The Commission has recommended a suite of changes and new regulatory measures to help improve the conditions for competition in the sector.

It has also proposed a dispute resolution scheme and an industry regulator responsible for monitoring and oversight to help ensure those changes have the desired effect.

“The best way to improve competition in the retail grocery sector is through measures that will make it easier for independent grocery retailers to set up and expand,” says Ms Rawlings.

“We found that the biggest challenges facing competitors are a lack of suitable sites for store development and difficulties in obtaining competitively priced wholesale supply of a wide range of groceries.”

To address these challenges, the Commission has recommended: 

  • Making more land available for new grocery stores, by changing planning laws to free up sites, banning the use of restrictive land covenants and exclusivity clauses in leases that prevent retail grocery stores from being developed, and monitoring land banking by the major grocery retailers
  • Improving access to the wholesale supply of a wide range of groceries at competitive prices, by regulating to require the major grocery retailers to fairly consider any requests they receive to supply competitors, and requiring the criteria for obtaining supply and terms and conditions of supply to be transparent
  • Monitoring strategic conduct by the major grocery retailers, such as the use of ‘best price’ clauses and exclusive supply agreements.

The Commission has also identified that competition is not working well for many of the businesses that supply groceries to the major grocery retailers.

“Many grocery suppliers fear having their products removed from store shelves if they do not agree to accept some costs, risks, and contractual uncertainty. This can reduce the ability and incentive for suppliers to invest and innovate, reducing choice for consumers,” says Ms Rawlings.

The Commission has recommended:

  • Introducing a mandatory code of conduct for grocery supply relationships to improve transparency and ban unfair conduct 
  • Strengthening the existing law prohibiting the use of unfair terms in standard form contracts
  • Considering whether to allow collective bargaining by some suppliers.

Recommendations to help consumers make more informed purchasing decisions, and stimulate competition between retailers, include:

  • Requiring major grocery retailers to ensure promotional and pricing practices, and the terms and conditions of loyalty programmes, are easy for consumers to understand 
  • Requiring grocery retailers to display unit pricing in a consistent format.

“The market study has brought an increased focus on the sector and the major grocery retailers have publicly committed to address some of the practices covered by our recommendations. 

“Nevertheless, the Commission has recommended formal regulatory requirements, monitoring and oversight by a grocery regulator, and a dispute resolution scheme to resolve wholesale and supplier disputes. These regulatory measures will help deliver the changes to competition that we have identified are needed,” says Ms Rawlings.

“In addition, we have recommended a review of competition three years following the implementation of any changes to evaluate their effectiveness.”

The final report and recommendations are now with the Government to review and consider. 

An executive summary, the full draft report and infographics on the findings and recommendations are available on the Commission’s website.

Commerce and Consumer Affairs Minister David Clark issued this statement:

New Zealanders will soon benefit from a much more competitive grocery sector as a result of market study findings unveiled by the Commerce Commission today.

“The report is clear: competition in the retail grocery sector is not working. Consumers could get better prices, range and quality if action is taken,” Commerce and Consumer Affairs Minister David Clark said.

“We made a manifesto commitment in 2020 to address the rising cost of groceries and to make sure shoppers are paying a fair price at the checkout. It’s especially important as the economy recovers from the impact of COVID-19.

“This is the second of three market studies commissioned, to help Government continue to deliver on our promise to ensure hard-working kiwis are getting a fair deal for the things they buy and consume.

“I know there is a desire to see us act swiftly on this too, and I want New Zealanders to know this will be the case. From today, we will immediately progress work to address the Commission’s recommendations.

“This includes exploring how a Code of Conduct between major retailers and suppliers could be developed and looking at the role a dedicated regulator for the grocery sector could play.

“The Commission’s findings indicate that restrictive covenants over land are a major barrier to supermarkets accessing new sites, so I want to ban these covenants being used to stop competition.

“The report sets out a clear justification for change in the grocery market. The status quo will not deliver fairer prices for consumers and a better deal for producers and wholesalers, and I hope the sector will constructively engage in the changes that need to be made.

“Given the importance of achieving healthy levels of competition in our retail grocery sector I have not ruled out some of the other options that the Commerce Commission tabled while developing its report, if consumer benefit is not achieved from the changes recommended in the report.

“When New Zealand supermarkets are making more than double what the Commerce Commission considers to be a normal rate of return on capital for grocery retailing, it’s clear there is a problem with competition that needs to be fixed.

“New Zealanders are paying more at the checkout than most. Out of 38 OECD countries we’re the fifth highest in terms of grocery prices. This report makes a serious case for change when it comes to competition in the sector, so kiwis don’t have to pay so much for the basics,” David Clark said.

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57 Comments

What a sad joke. Completely useless.

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32

To be fair I think they have addressed the 2 biggest issues. Best to try the simple approach first than the complete overhaul approach don't you think?

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1

Just like the RBNZ, ComCom seem to work for the very industries they're supposed to regulate.

I wonder how long it'll be before we see a Woolworth's executive land a nice cushy job on the board there, just like Westpac's golden girl Karen Silk did at the Reserve Bank recently.

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4

Groceries should actually be MORE expensive and I expect this will be the case going forward.

Supermarkets are a poor scapegoat for bad economic management. 

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3

Consider, consider, monitor, review. 

This just sounds like a workstream for themselves, not the first step in wide-ranging reforms that the investigations keep being heralded as when they are first announced. 

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21

I agree, This review is an insult to the average hard working Kiwi. Utterly pathetic.

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8

File this report away next to the one on Petrol pricing. What is next guy's? How about an investigation into land pricing.

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7

One can’t help but think that the recommendations in the report were predetermined.

This investigation was a waste of public money and resources.

TTP

Up
8

In the immortal words of Scarlett O’Hara. “Fiddle Dee Dee.” For more emphasis add “Tweak.”

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4

I think I can now comfortably predict the outcome of the building supplies investigation. 

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34

The old boys club having a few glasses of whisky in some upmarket bar and a good laugh?    

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11

More along the lines of monitor, review, code of conduct for contractor supply, something something. Two years, a few hundred grand in the bank, five weeks of annual leave and all the WFH you can eat. 

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5

You remind me of Ian Botham’s remark about the then English cricket selectors, something like - hard to get anything right when you are looking through the bottom of a glass of gin, the lemon slice tends to get in the way.

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8

Old boys club?   It's International Woman's Day for heavens sake. 

This one is more Prosecco with the BFFs, but still in some upmarket bar. 

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0

You mean you could not until now ??

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0

No surprise. This government is all talk. No action. 

Put in a commission, take months and spend millions to come out with a report which will keep the status quo with just a new cover on top.

This is pathetic, if we don't change, we do not make progress. 

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23

Much like this government, I suspect ComCom lacks the expertise within its ranks to even understand the complexities of supply chains, discounting regimes and pricing models.

Edit: as per the scope of this study in the report, it wasn't designed to look into those operations of supermarkets, just plain profitability analysis across geographic locations and broad product ranges from a competition economics perspective.

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5

It is odd that over the last decades we have had both a Commerce Commission and the growth of duopoly conditions in building, supermarkets, and insurance. Surely we should have one or the other.

We've two major parties that will continue to talk the talk on duopolies, productivity, economic policy etc. but continue to do nothing of consequence.

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0

So identical to the petrol inquiry the commerce commission has pulled out its feather and is whipping the industry back into line.

Cant wait to see the inquiry into the building industry. 

How much is this costing us all - would it be better spent on something useful. Is the government capable of delivering anything meaningful.

 

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18

Don't worry though, National will fix it! They will definitely stop their friends, who happen to be the owners of the petrol companies/supermarkets/hardware suppliers from screwing us more with exorbitant prices.

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9

At this rate I'll take an off-handed 'Look would you stop taking the piss' on the back nine of the Remuera Golf Course with some party donors over wasting money on make-work schemes for Wellington paper-pushers. We know for sure that one doesn't work. Who knows, the other one might? 

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4

Have you ever considered buying a bridge? I might know of one going for a good price.

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0

Will just accelerate the exodus to Oz and something meaningful will only happen once we reach breaking point. In the meantime Labour will actively push through its other changes under the radar. This was just a cover and a sop. 

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3

"While consumers benefit from a range of innovations there is scope for more" what the hell does that mean?

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8

The exports of Libya are numerous in amount. One thing they export is corn, or as the Indians call it, "maize". Another famous Indian was "Crazy Horse". In conclusion, Libya is a land of contrast. Thank you.

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5

That's disappointing, a lost opportunity to make food retail more competitive at a time when households are really feeling the pinch of runaway inflation.

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5

There is foul play in the sector but quite a bit of the profiteering is to do with poor consumer awareness in NZ.

Countless reports from Consumer NZ and think-tanks have found that not enough Kiwis shop around enough for better deals on groceries, utilities, etc.

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8

But that means work. We shop monthly, get our veggies weekly from a co-op and buy our meat by the quarter beast quarterly. Works out much much cheaper, but the separate trips and coordination are much harder than a weekly trip to the supermarket.

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3

Work, and also space. Storing a quarter of a beast and a months worth of non-perishable groceries is not particularly practical if you live in an apartment or even a townhouse. There's also upfront costs of potentially having to buy a separate freezer. 

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2

Yes. We went vegetarian for 3 months to save up for the upfront purchase cost. And yes, bought a separate freezer for it. Well past break even now.

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0

I am meat free more often than not. And we just don't have the space for a separate freezer to shop at scale like we'd need to in order to save money. The general creep of groceries means our shop is about $60 more expensive than it was pre-Covid. There simply isn't any more savings to make.  

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2

Food as well as rent are over inflationary items that people are screwed by to make others rich.

No competition is the main factor in the prices seen in New Zeeland, compared with others around the World.

Having owned a Super Market that I sold after building the Turnover 4 fold, in 4 years  by dropping major priced items compared with my local competition proved my point to me. 

I did work very hard to achieve this, then I retired. Debt free.

Competition is essential to get prices down.  

If you knew what other Countries pay for their basic items, you would cry.....Foul. They are not taxed on food items.

Food is essential for life, as are many over priced items in New Zealand. 

Taxes on all food are also the problem. 

Big  Profit essentials for life Plus GST......totally stupid.  In my humble opinion.

 

 

 

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13

Good post. Now do petrol. $USD 7.76 per gallon in NZ, about USD$4.10 in the US.

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4

Taxes.  Therefore concludes the comprehensive, detailed review.  Move on, nothing to see here....

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1

The taxman claims an extra 13c on a $1 increase in pump price of petrol in GST.

In 2018, NZ consumed about 13k TJ of petrol. 1 TJ is equivalent to 28k litres of liquid fuel. So if fuel prices go up by a dollar for a year, the government brings in $47m more in GST.

Compound that over the rising consumer prices of everything linked to global commodity prices (diesel, bread, coal, gas, etc.), it's not hard to see how the public coffers makes a windfall gain off the ongoing Ukrainian conflict.

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5

Wow, I thought they might actually do something here, but once again the Comcom shows it's cowardice, teethless and clueless.  A brilliant combination for such an agency.

"regulating to require the major grocery retailers to fairly consider any requests they receive to supply competitors" - I mean... REALLY? How the hell could anything like this be policed at the front end, it would just rely on suppliers complaining to the Comcom, which definitely would never get them in the Supermarkets.  Kind of like how no tenant can go to the Tenancy Tribunal anymore because any future landlord asks whether you have ever been to the Tenancy Tribunal for any matter, on their rental agreements. 

"Requiring grocery retailers to display unit pricing in a consistent format".  That will fix the problem of non-competition!

Absolutely pathetic.  Although, come to think of it, are they signalling to overseas supermarkets "Hey, you can come here and charge huge amounts and we won't do anything about it".

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10

Wouldn't even wipe my arse on that waste of time ... although with the way toilet paper prices are going I might need to.

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5

FFS. And urban planning a scapegoat yet again? Total red herring.

Waste of space.

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7

I'll say it again.  A vote for a main stream party is a wasted vote. 

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18

Vote Natbour. We are one.

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0

This report is going to get slammed by the public - we all know we are getting ripped off

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7

Absolutely pathetic. This was an opportunity for the Comm Comm to make a real difference in the lives of all NZ'ers. This is the same outfit that allowed Foodtown to be swallowed up by one of the duopoly in the late 90's early 2000s. They're not really working for us are they.

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5

Its time the public found out about supermarkets' excessive mark ups on meat and milk esp

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1

It actually goes far beyond that as well.  Let's just say the owners of some of Wellingtons biggest Supermarkets are very, very dodgy.  One in particular that I know of treats their employees as exploitable assets, involving them in the drug business.  Some of their staff having taken the fall for them a few years ago with a promise of recompense when they are released. Not to mention the weird booze fuelled parties with the staff members 1/3 of their age where even more dodgy stuff goes down.  Rich/arrogant/bulletproof narcissists who think the world revolves around them (and most of it does thanks to the people involved).

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0

Your headline is an insult to punch-pullers. There are people with no arms who could punch harder than the Commerce Commission it seems. 

 

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1

Another cop out report , do nothing what a surprise , suck it up nz .

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4

What Cost of Living Crisis?

JA said yesterday there isn't one.

Liar. 

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6

Don't worry, I haven't heard her reference the electioneering soundbite "Housing Crisis" in a while either.

Everything is awesome!!!!

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4

She rejects the premise of there ever being anything bad ever.

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4

Costco is coming. Hopefully they rattle a few cages.

 

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5

It seems to me that if another competitor comes in ,one or both of the duopoly will suffer which will lead to lay offs and closures so in the end nothing achieved.

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0

No wonder the masses are getting progressively more resentful and angry at a system that does nothing for the average working class citizen. Wether it be the RBNZ, Govt, or the Commerce Commission we are getting screwed at every turn. 

We live in a world of selfishness where if individuals are doing well then there is no consideration at all for the greater good. Protect your wealth creation processes at any cost to the rest. The resentment over division and inequality in this country is going to absolutely explode in the very near future.  

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8

And we wonder why we had the riots in Wellington.  This is going to get a hell of a lot worse before things change.  How far do the public go before the government starts listening?

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8

Well Jacinda is getting on a Plane...to waste even more of Taxpayers Munny......so do not ask her for Solutions. She does this quite regularly.....but now overseas soon...too.

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2

exactly --   people wonder why Trump got elected -- but without Covid he was a shoe in for another term --    Vast majority of Ordinary people are being shafted  by red and blue term after term --    if Winnie was 20 years younger now would be his chance to actually be the biggest party not just a bit part!     Its there for the taking -- if half a dozen higher profile individuals got together to form a  Ordinary PEOPLE FIRST party  -  

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0

it was never going to be anything more than a virtue signaling exercise  -    after 4 + years of those why would we expect anything more from the handpicked  limited scope consultants! 

 

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1

This would only make sense to me if they were sitting on a market entry application from a new participant and didn't want the new regs to also ping them. 

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0