The public profit of the New Zealand-owned supermarket co-operatives is "iceberg" money and doesn't tell the full story of how much store owners earn, an economics professor says.
Foodstuffs North Island and South Island recently released their annual reports.
Foodstuffs North Island earned $44.9 million net profit, a fall from $45.3m in the previous financial year, while Foodstuffs South Island reported a $6.9m net profit after reporting losses in the two previous years.
Foodstuffs doesn’t have a corporate setup like its rival Woolworths. It is a co-operative with store owner-operators who have shares in the two limited liability companies for the two separate island retail chains.
The annual results published therefore don’t give the full picture of the co-operative members' earnings, Auckland University Emeritus Professor of Economics Tim Hazledine said.
The North Island annual report noted that its consolidated statements “cover the perimeter of the Foodstuffs North Island Group only, and do not cover the financial results of our members”.
In an emailed statement, Foodstuffs North Island said member stores' profit was determined "in the more traditional sense as retail sales less total expenses".
"The largest part of this being the cost of goods sold, which is determined by suppliers, and the next largest cost being staff wages, and rent and occupancy cost of the store."
Hazledine said these profit figures were "iceberg-type money", rather "than the real money" which was earned by the Foodstuffs store owners.
He said the public didn't really know how much store owners earned.
"Being a franchise holder in some of these stores, or a New World store, can put you on the rich list. There's a big smoking gun I think as to how much money they're actually making. I bet they can afford to pay the living wage."
And now for fair pay?
On July 12, the union representing supermarket workers, First Union, announced workers in the industry had been accepted by the Ministry of Business, Innovation and Employment (MBIE) to negotiate a Fair Pay Agreement. Fair Pay Agreements allow industry-wide setting of minimum standards including wages, holiday pay, set hours and staffing levels.
The union has long argued Foodstuffs used its co-operative structure to thwart attempts to organise at its stores.
Countdown had negotiated with the union for a number of years, and staff at the Aussie retailer are paid "around the living wage", First Union said.
"But many workers in un-unionised stores in the Foodstuffs chain, or independent supermarkets, are only being paid the minimum wage, and that has to change," the union said in a press release.
Foodstuffs spokesperson Emma Wooster said the co-operatives (North and South Island) were committed to engaging constructively with the Fair Pay process to support its local grocers, and it was working to establish appropriate bargaining parties to best represent its owner-operators through the process. The potential agreement could cover over 500 Pak ’n Save, New World, Four Square, Gilmours, On the Spot, and Raeward Fresh stores.
All were "individually owned and operated by local grocers who employed their local teams in communities across New Zealand".
"Each of our 500 owners employ their team members directly and compete locally with other retailers and businesses for talent. Being a good New Zealand employer who pays fairly and attracts and retains great people is important to our members, and we’re committed to paying our people fairly and investing in their development and futures. "
Hazledine said Countdown would be able to use Foodstuffs' "stinginess" to recruit staff.
The academic said it was disappointing Foodstuffs had "sat back on the minimum wage" for employees, but allowing the union to negotiate on their behalf for a Fair Pay Agreement was a good move.
Hazledine said he had been pleased to see Aussie multinational Woolworths agree to pay its staff the living wage.
MBIE's website showed there had been seven applications for approval for Fair Pay Agreement bargaining. Bus drivers represented by First Union were the first to gain approval to negotiate a Fair Pay Agreement.
Pak 'n Save snatches customers
The budget Pak ‘n Save brand was a strong performer for the co-operatives as its North and South Island operations reported combined net profit of more than $50 million.
Foodstuffs North Island and Foodstuffs South Island released annual reports which showed sales across the two supermarket operations hit $13.3 billion for the latest financial year.
Pak ‘n Save South Island reported a 10.4% increase in revenue while the North Island value outlet reported 6.8% same store revenue growth.
Foodstuffs New World brand didn’t fare as well as its budget offering. In the North Island revenue decreased by 0.5% but in the South Island New World saw revenue growth of 3.2% for the year.
In 2023 Foodstuffs North Island said it distributed $176.7m to its members which included $126m of deferred rebate voucher member funding (an increase of $4.1m), and supplier repatriate rebates of $24.8m (a decrease of $3m).
Deferred rebates are funds received by the co-operatives members "to support the capital structure of Foodstuffs North Island" and are distributed back to them after five years of being held on its balance sheet as "quasi-equity", subject to the strength of the balance sheet.
Supplier repatriate rebates are paid to Foodstuffs North Island by suppliers as part of standard trade terms and then distributed back to members subject to terms of trade being met, Foodstuffs said.
South Island members rebates totalled $262m for the year, its annual report showed.
North Island results were a mixed bag, with record growth of Foodstuffs-owned private label products which saw revenue increase 9.3% year-on-year, however, online retail revenue fell 3.4%.
North Island chief executive Chris Quin said this was a disappointing result, which highlighted “the opportunity and urgency we have to drive a stronger customer experience in our online channels”.
The South Island annual report didn’t break out private label revenue, but did say it had launched more than 140 new products in its private label range, “providing even more affordable options for customers on shelf”.
Private labels are contentious, with concerns the duopoly retailers promote their own-brand goods above branded products. A NZ Food and Grocery Council report authored by consultancy Castalia in 2021 found private labels do more harm than good for suppliers and consumers in New Zealand’s highly concentrated grocery sector.
Hello food-price inflation
Overall, for the South Island sales rose 6.9% to $3.4b, and in the North Island sales increased 3% to $9.8b.
Foodstuffs South Island’s financial year ended on February 28 while the North Island result is for 52 weeks for the year ended April 2. The North Island's previous result was for 53 weeks.
South Island chairman Russell McKenzie said its growth had been driven primarily by food-price inflation, but also by the return of domestic and international tourism to key markets in the second half of the year.
Woolworths NZ reported its half-year financial result in February which showed revenue of $4.1b across its New Zealand Countdown stores, an increase of 1.3% from the previous half-year.
The company’s earnings before interest and tax (ebit) decreased by more than 39% from the previous period, coming in at $122 million.
New rules for supplier relationships
It has been a tumultuous time for Foodstuffs, with the Commerce Commission's market study released in March finding New Zealanders pay too much for food, and the industry is concentrated and dominated by Foodstuffs and Australian-owned Countdown.
Foodstuffs and Countdown's relationship with suppliers was a key issue in the Commerce Commission's market study.
Foodstuffs South Island chief executive Mary Devine said it had "invested a lot of time and effort this year into resetting the way we engage with our suppliers, partnering with them effectively and strongly to deliver the value that our shared customers need from us".
Foodstuffs North Island chairman Dean Waddell said Foodstuffs North Island had embraced the findings of the Commerce Commission’s final market study and made significant progress in the last twelve months to deliver on its commitments.
He said the co-operative had worked fast to improve pricing and promotional practices and ensure loyalty programmes were simple and easy to understand, to end the use of restrictive land covenants and exclusivity provisions in leases, develop a wholesale supply solution for non-member retailers, "and do our part to support the development of a mandatory Grocery Code of Conduct".
The South Island operator said it had actively engaged in the market study process.
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