The Government's talking tough with the country's supermarkets and is pledging to go further than a recent Commerce Commission inquiry into the sector recommended.
Minister of Commerce and Consumer Affairs, David Clark is pledging to effectively force the supermarket operators’ wholesale arms to supply competitors - or it will regulate. He says the operation of the supermarkets should be reviewed annually - rather than every three years as the commission recommended. And he's talking of compulsory unit pricing on grocery items - though there's no explanation of how that would be done.
Also, Clark says the Ministry of Business, Innovation and Employment (MBIE) is "undertaking further work" around requiring major grocery retailers to divest some of their stores or retail banners. But there's no time frame given. "Obviously this is a longer term piece of work due to its complexity," He said.
The supermarket duopoly in this country has become a very hot item. Food price inflation hit 7.6% in March - the highest level in 11 years.
In its report the commission recommended a series of tweaks to the operation of the supermarket sector, but stopped well short of some of the tough measures it earlier contemplated.
Already, however, the Government has introduced Budget night legislation to ban supermarkets from using restrictive covenants on land, and leases to block competition from setting up shop in certain suburbs and shopping centres. This Bill is currently with select committee.
And Clark said the Government had put supermarkets on notice, "and the message is clear: change at pace to increase competition and be prepared for regulation".
“The Government and New Zealanders have been very clear that the supermarket industry doesn’t work. It’s not competitive and shoppers aren’t getting a fair deal. The duopoly needs to change, and we are preparing the necessary legislation to do that,” Clark said.
He noted that alongside the retail stores, supermarkets have wholesale arms. "We are calling on the duopoly to open these up to would-be competitors, at a fair price. Do this knowing the Government is determined to get a regulatory backstop finalised by the end of the year.
“If supermarkets do not strike good-faith wholesale deals with their competitors – our regulatory measures will make it happen for them. We are not afraid to unlock the stockroom door to ensure a competitive market.
“We are taking these actions because if competitors don’t have proper access to wholesale goods, there’s no real incentive to enter the market. You can’t run supermarkets with empty shelves. And the New Zealand market clearly needs more competition.
“We are also looking at how to implement compulsory unit pricing on grocery products which will give shoppers the ability to better compare products. Plus, we’re getting ready to launch consultation on the code of conduct that retailers will have to adhere to."
Below is the full statement put out by David Clark, while you can read a fact sheet here:
Government acts on supermarket duopoly
·Rejects Commission’s three-year review timeframe
·Urgently pursuing options to generate more competition in the supermarket sector
·Will introduce
o An industry regulator
o A mandatory code of conduct
o Compulsory unit pricing on groceries
o More transparent loyalty schemes
The Government has put supermarkets on notice, and the message is clear: change at pace to increase competition and be prepared for regulation, Minister of Commerce and Consumer Affairs, David Clark announced today.
“The Government and New Zealanders have been very clear that the supermarket industry doesn’t work. It’s not competitive and shoppers aren’t getting a fair deal. The duopoly needs to change, and we are preparing the necessary legislation to do that,” David Clark said.
It comes as part of the Government’s formal response to the Commerce Commission’s market study into New Zealand supermarkets. The report found supermarkets earn $1 million a day in excess profits, straight from the pockets of Kiwi consumers.
The Commission made 14 recommendations including introducing a mandatory code of conduct to establishing an industry regulator and ensuring loyalty programmes are easy to understand and transparent. The Government has accepted 12 of the recommendations and is taking stronger action on the other two.
“The two recommendations not accepted relate to implementing a voluntary wholesale access regime and to a review of competition in three years. These issues can’t be kicked down the road. We need to address the underlying drivers of the lack of competition now.
“I spoke with both supermarket companies this afternoon to make this very clear. They know what is expected from them and the length of time we are prepared to give them to change before regulation kicks in.
“Given the pressure New Zealanders are under due to global inflation and cost of living increases, we can't afford to wait three years. Budget 2022 delivered a cost of living payment for about 2.1 million Kiwis to help with the impact of rising prices and fixing our supermarket sector is another action the Government can take.
“Our supermarkets know they’re in the spotlight, and we’ve recently seen some posturing around price rollbacks. However, it doesn’t fix the systemic problem at large – which is a lack of genuine competition in the sector.
“Alongside the retail stores, supermarkets have wholesale arms. We are calling on the duopoly to open these up to would-be competitors, at a fair price. Do this knowing the Government is determined to get a regulatory backstop finalised by the end of the year.
“If supermarkets do not strike good-faith wholesale deals with their competitors – our regulatory measures will make it happen for them. We are not afraid to unlock the stockroom door to ensure a competitive market.
“We are taking these actions because if competitors don’t have proper access to wholesale goods, there’s no real incentive to enter the market. You can’t run supermarkets with empty shelves. And the New Zealand market clearly needs more competition.
“We are also looking at how to implement compulsory unit pricing on grocery products which will give shoppers the ability to better compare products. Plus, we’re getting ready to launch consultation on the code of conduct that retailers will have to adhere to.
“Whilst we work to establish an industry regulator the Commerce Commission will take on these responsibilities temporarily. Once established the ‘watchdog’ will help keep pressure on the grocery sector, by providing annual state-of-competition reviews to keep supermarkets honest, as opposed to the check-in after three years recommended by the Commission. It will also facilitate a resolution scheme to mediate disputes between suppliers and retailers.
“This work will sit alongside my Budget night legislation to ban supermarkets from using restrictive covenants on land, and leases to block competition from setting up shop in certain suburbs and shopping centres. This Bill is currently with select committee.
“It is important to get this right and I look forward to continuing to engage with the grocery industry as we move forward with this suite of changes through the Grocery Industry Competition Bill which I intend to introduce to the House later this year,” David Clark said.
MBIE is also undertaking further work around requiring major grocery retailers to divest some of their stores or retail banners. Obviously this is a longer term piece of work due to its complexity, David Clark said.
47 Comments
I know someone fairly high up in an industry with self regulation and from the sounds of it it works pretty well (they are shit scared of being regulated and know they are better off behaving well without the red tape being there to force them to). So I think this is the correct move from the government. The only question is why National didn't do this in their 9 years? My guess is they had some mates lobbying them.
Everyone knew about these covenants etc, been going on for years, disgraceful behaviour by a duopoly, they need to be put on notice. But regulation itself will probably not decrease costs due to the cost of adhering to it. Much better to threaten regulation than to do it.
What's the bet the Commerce Commission has a look, finds the margins at the supermarket level are not obscene "nothing to see here etc".
If you look at Foodstuffs North Island on the companies register, there are 269 shareholders. Majority of them owning a parcel of 300 (Franchisees?). Suspect the suppliers charge the stores a list price and then each month a rebate is paid to Foodstuffs Head Office where these are then divvied into the shareholders pockets?
And profit isn’t necessarily the main indicator of a problem. Often monopolies and duopolies are not that profitable due to no need to complete and become efficient. I remember when our mobile phone company duopoly had all the same rhetoric, then 2 degrees came in and prices almost halved overnight, yet they all still can make a good profit.
I have heard burps that made more impact than this.
"The report made a host of recommendations and so we are getting right into the meat of it, setting up some working parties and a new regulator (cause they do this so well) and you know we are going to HAMMER them into accepting a code of conduct (that is without any penalties, que burping in the wind)."
If anyone in Supermarket land is worried about this lot they are faking it.
lol nice, but you are really giving yourself away here. Put the Labour pom poms down for a moment and try and focus. There is no way, none, that there will be any commercial impact (that would be lower pricing to you and me) from this pitiful, pitiful effort from Labour.
If ever there was an useless government this is it. I can't be bothered listing the extensive list of total policy fails, but worse that that they have had the REVERSE impact on social outcomes (housing, health, mental health, cost of living etc) that they campaigned on.
Being a cheer leader for this bunch of morons simply makes you look bad.
How has NZ become such a nebulous country where no one is held responsible for anything? Where clear misdeeds can be perpetuated and nothing is done? The culprits get away scot free and the victims do not receive justice.
P.S the origin of the term scot free is interesting. It is about people who get away with not paying their fair share of taxes.
I see BL is missing in action here so let me take up his stand. This is a resultant of the woke mind-virus. When you believe in equality of outcomes rather than opportunity you get this. When you think that having 50-60 thousand people sitting around doing nothing means you need to give them more money this is what you get. When you do nothing about Australia exporting criminals to us (ironically we are now their penal colony) this is what happens. When you have a government that is soft on all enforcement this is what happens (lets grow vegetables in the grounds of Parliment). When you have a "Justice" system that has been allowed to rot of decades this is what happens. When you listen to academics and their curated studies aimed at producing "progressive" outcomes that simply break what is working without replacing it with anything that aligns with our timeless needs of social justice (Weak sentencing and legislation), equity (Maori Health), fairness (Taxes) and safety (Crime levels) this is what you get.
OK I'll get down off the soap box now :)
Just think about how much money has been sucked out of NZs economy due to NZ paying an extra million dollars a day more than we should be paying. It would have paid for so much infrastructure over the last 20 years. The government is able to make urgent sweeping changes, as has been shown by covid, or the initial deposit guarantee scheme.
I don't think you have thought this through. If retail prices were lower due to increased competition, that money wouldn't magically be available for infrastructure spending by the government—unless the difference was just hoovered up in taxes, which would leave consumers no better off in the pocket, and perhaps would merely substitute (with considerable dead weight loss) private supermarket infrastructure (new, better shops) for public infrastructure (new, better roads).
Bollocks I say to the comment that they don't know how to implement compulsory unit pricing it has been mandatory in Australia for years . It's a good quick way to compare prices. Don't need to be a maths wizard to do it . Trickery and thievery rules amongst the supermarkets here .
“We are taking these actions because if competitors don’t have proper access to wholesale goods, there’s no real incentive to enter the market. You can’t run supermarkets with empty shelves. And the New Zealand market clearly needs more competition."
This is completely wrong-headed. Discount retailers like Aldi and Lidl will not enter the NZ market because there is no market scale and efficiencies across the supply chain. Yes, countries with similar popns have discount retailers but they're part of larger supply chains (EU). The U.S., Canada have both scale and efficiencies. Japan has market scale and manuf efficiencies.
Your argument would hold, if most of our homegrown products weren't cheaper overseas.
I live in New Plymouth, when I drive around, the farmland I see is full of cows, these same cows are the ones that provide the milk to the Eltham Cheese factory 40 minutes down the road. This Factory is exactly the same factory where all of the large 1kg blocks are produced.
So how is it possible, that 1kg of Fonterra made cheese, costs more for me in New Plymouth, than that same block costs in Perth or the UK.
That is not market/scale. That is a rort.
That's fine if taxpayers are not also asked to stump up whenever business risk in the form of too dry or too wet of weather occurs. Because that is not "just business".
Perhaps we should have one or the other. A free market approach to retail pricing and business risk, or some other approach to both. But not the worst of both worlds.
Looking at the UK for example, they have 17 supermarket chains that all look to have different owners. Some chains will have more customers than our chains, but some will have a lot less. Yet the smaller ones still have prices that are cheaper.
Waitrose has 5% of the market, prob about the same number of customers as one of our chains does, but a simple online search shows milk for $1.18 a litre (https://www.waitrose.com/ecom/shop/search?&searchTerm=milk) compared to $2.57 here (https://www.countdown.co.nz/shop/productdetails?stockcode=282764&gclid=…).
Eltham is a secondary processing plant. Eltham process the 20kg blocks which could be supplied from Hawera, Waikato or even south island sites.
It cost money to further process the 20kg block within NZ very small local market. Then add on the supermarkets markup
The 20kg blocks are shipped overseas in bulk with bulk price. Further processed and sold within a more competitive market
The government also needs to force the supermarkets to make all prices and products available in digital form so that app aggregators can produce apps and websites to assist consumers finding the cheapest products.
The Grocer app is a good start but so much more can be done.
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