Bernard is an economics columnist for the NZ Herald

Bernard Hickey: Shoppers back ugly tactics

Walmart created the "every day low prices" strategy, which forces suppliers to cut their prices to the bone. Photo / AP
Walmart created the "every day low prices" strategy, which forces suppliers to cut their prices to the bone. Photo / AP

The allegations aired under parliamentary privilege by Shane Jones about the "Countdown Shakedown" are ugly in many ways, but not the obvious.

Jones certainly made Countdown's corporate culture look ugly in a series of tirades that accused the Australian-owned chain of "corruption, racketeering and blackmail".

Countdown has rejected the central allegation that it demanded retrospective payments from suppliers to compensate Countdown for past losses.

But Jones' repeated complaints, and the Food and Grocery Council's confirmation that it had heard of similar cases, has been enough to cause a detailed investigation by the Commerce Commission.

But what could the commission do about it? Could this practice be stopped? It's worth looking across the Tasman to see what Australia's Competition and Consumer Commission (ACCC) has done.

It started investigating Woolworths and Coles Myer more than a year ago over the use of petrol discount vouchers and retrospective payments demanded of suppliers.

It has already done a deal with the supermarkets to stop them issuing vouchers worth more than 4c a litre, aiming to keep them from cloning their dominance in groceries into a similar dominance in fuel retailing.

But the retrospective payments issue is tricky. Australia bans "unconscionable conduct" in its Trade Practices Act, but even then it's not clear these payments fit in that category. Suppliers have been paying for positions in supermarkets for years and the development of retrospective payments for spoilage of products and under-performance is a grey and murky extension of that.

So instead of prosecuting, the ACCC is looking at turning a voluntary code of conduct agreed last year between the suppliers and supermarkets into a set of regulations enforceable by the ACCC. This code would block retrospective payments, although there are many Australian suppliers who are sceptical it will curb the power of the supermarkets.

Ultimately, these retrospective payments are just another way the supermarkets force suppliers to charge the lowest prices over the long run.

New Zealand does not ban unconscionable conduct in the same way. So the Commerce Commission is in a difficult position even if it does find Countdown demanded the retrospective payments. They aren't illegal under the current law, unless there is overt blackmail involved.

The commission could try to prove that any Countdown action was designed to "substantially lessen competition", which would breach Section 36 of the Commerce Act. The trouble is this has been fiendishly difficult to prove in our courts, which have set a very high bar for proof.

This is where it gets ugly for everyone. This practice may not be against the law - it just looks bad. But here's the ugliest of truths: the ruthlessness of the supermarkets in dealing with suppliers is exactly what we, as consumers, demand.

We have come to expect "every day low prices", and the reason for that is bound up in the history of that slogan. American retail giant Walmart invented the every day low prices strategy 60 years ago and has exported it around the world. It promises consumers low prices without needing to wait for sales or comparison shop. Walmart uses its buying power to drive suppliers to cut their prices to the bone, and then passes on those savings to consumers in the form of the lowest possible prices.

The Walmart connection in this Countdown story is not incidental. Woolworths has been forced to harden its attitude in Australia since 2010 because its main rival, Coles Myer, was rejuvenated by the tactics of a hard-nosed Scotsman called Ian McCloud. He arrived in Australia in 2008, brimming with experience from his days as a boss at Asda, the British supermarket chain owned by, you guessed it, Walmart.

Now New Zealand has learned what the Walmartisation of our supermarkets might look like. It's ugly, but it's what we wanted - every day low prices.

Bernard Hickey is the publisher of Hive News.

Debate on this article is now closed.

- Herald on Sunday

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Bernard is an economics columnist for the NZ Herald

Bernard Hickey is the publisher of Hive News, a Wellington-based political and economic subscription news email service. He also writes for and appears regularly on Radio New Zealand, Radio Live, TVNZ and TV3. He has been a financial journalist for 25 years, having worked for Reuters, the Financial Times Group and Fairfax Media.

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