The big two supermarket chains Foodstuffs and Woolworths face multi-million dollar fines for treating suppliers unfairly, the Government has announced.
Commerce and Consumer Affairs Minister Duncan Webb said the big supermarket chains have been taking advantage of their dominance and imposing unreasonable terms and conditions on suppliers.
“We are calling time on their poor behaviour,” Webb said.
The sector will now be bound by a Grocery Code of Conduct, which comes into force on September 28.
Under the code, abuses of power by Foodstuffs and Woolworths could see them face stiff fines of up to $3 million or 3% of turnover, whichever is the greater. Individuals face fines up to $200,000.
The Grocery Commissioner, Pierre van Heerden, will oversee the code.
Webb said the new code required large corporates to do things like pay on time, have plain-English supply contracts and deal with small companies in good faith.
“It’s entirely reasonable and hardly too much to ask. Local suppliers have been stretched for a long time, and that’s stifled innovation and the development of our food supply chain.”
Webb said at a press conference in Christchurch that retaliatory “combat” had been seen when suppliers had asked for price increases, with products then removed from supermarket shelves.
He said there had been other unfair terms imposed on suppliers, such as suppliers being forced to pay for product breakages in the supermarket when those breakages “had nothing to do with the supplier”.
Supermarkets had been demanding “pretty extraordinary terms” including payment of suppliers of 90 or more days.
He said that was the kind of behaviour the Government wanted to crack down on.
NZ Food and Grocery Council Chief Executive Raewyn Bleakley said the code was a long-awaited step that would go a long way to creating the environment needed for a better and fairer grocery sector, that will give suppliers more confidence and help deliver consumers better options.
She said the council would examine the code in detail in the coming days, and would work on training options for its members so they know what the code allows for and what it prohibits, and the avenues available for suppliers to raise concerns.
The market study
The Government ordered the Commerce Commission undertake a market study into the sector in 2020.
The Commission found the market wasn't working well for consumers and recommended a grocery sector regulator and a dispute resolution scheme be established.
The Act also requires the big two to open up their wholesale networks to competitors.
The Grocery Industry Competition Act also makes Foodstuffs North Island, Foodstuffs South Island, and Woolworths New Zealand regulated grocery retailers (RGRs).
This means they must negotiate to offer wholesale supply for potential competitors in good faith and must follow the new code of conduct.
It also includes a "regulatory backstop", or threat that the regulator could set the terms for access to the duopoly supply chains.
Former head of the NZ Food and Grocery Council, Katherine Rich, said in 2020 that supermarket suppliers were forced to be a price taker from Foodstuffs and Woolworths against a threat their products would be booted from shelves if they don’t accept the price.
She said some supermarket owners were “bullies”.
Suppliers told the Commission there was very limited competition in the NZ grocery market.