Countdown boss says 'don't break us up' while acknowledging Kiwis pay a 10% price premium over Aussies

The boss of one of New Zealand’s big two supermarket chains says multinationals charge 10% more to supply NZ firms the same goods as they sell into Australia.

Countdown’s managing director Spencer Sonn gave evidence to the Economic Development Science and Innovation Select Committee on Tuesday which is hearing submissions on the Grocery Industry Competition Bill.

This Bill aims to improve competition in the supermarket industry and among the measures included is forcing the current big two – cooperative Foodstuffs and Aussie-owned Woolworths – to open up their wholesale networks to competitors at prices that could be set by a regulator if they don't make deals in good faith.

The Commerce Commission published a market study into the grocery sector in March 2022. It found competition was not working well. Inflation is a global concern but food prices have captured significant attention, with the latest Food Price Index showing food prices rose 11.3% in the year ended December 2022.

Sonn told the Committee NZ had an intensely competitive supermarket sector and margins were “extremely thin”, but because of the country’s size of market and geography “it is challenging for New Zealand”, and multinationals charge a 10% premium to “land” goods here.

Both Countdown and Foodstuffs have taken aim at the regulatory backstop currently in the Bill, and that was the focus of Sonn’s evidence.

The duopoly have said they are supportive of the creation of the role of grocery commissioner and for a grocery supply code of conduct.

But Sonn said the regulatory backstop, which effectively is a threat of regulatory intervention to set prices, was unworkable and had no precedence in the grocery sector, anywhere in the world.

The main thrust of Sonn’s argument is that the current integration of wholesale and retail in the Countdown/Woolworths business brings cost benefits which it passes on to consumers.

He said the "structural interventions" allowed for in the Bill would also lead to less stable supply chains, and greater complexity in the business would mean more costs for consumers.

Woolworths wants the regulatory backstop to be completely removed from the Bill, a comprehensive cost-benefit analysis done and the time taken to “get it right”.

“Failing that proper checks and balances need to be added to the backstop to make sure these things are done properly before future decisions are made,” Sonn said.

Foodstuffs earlier told the Committee the wholesale backstop policy had been rushed with no public consultation and limited targeted consultation with the major retailers and suppliers.

Yeah right, says Edwards

But for self-proclaimed duopoly buster, 2degrees founder Tex Edwards, the references to operational separation in the Bill are helpful and should be included “and expanded in detail”.

“We believe that the [Commerce Commission] has not fundamentally ruled out a break up, and this should be considered.”

Edwards, who says he has investors ready to support a supermarket rival, told the Committee in a submission under the Monopoly Watch banner that the regulatory backstop allowing the Government or the Commission to set prices is extreme, but so are the monopoly conditions.

He said there is no easy fix to this problem.

“No tinkering or incremental fix will fix this, it is that hard, only structural separation, and a forced retail divestment will give the distribution power to a third or fourth operator to commence proper price and innovation competition.”

Edwards said Woolworths and Foodstuffs are lying when they say they want competition.

“Woolworths ( Countdown’s parent) and Foodstuffs complain that this regulation is unprecedented and extreme and no one else in the world has done it. Well no one else in the OECD has such a ridiculous market structure,” Edwards said.