Inaugural grocery commissioner Pierre van Heerden was appointed to the job last year as part of a slate of reforms aimed at improving competition in the grocery sector.
Inaugural grocery commissioner Pierre van Heerden was appointed to the job last year as part of a slate of reforms aimed at improving competition in the grocery sector.
The Commerce Commission has now twice delayed a final decision on the hot potato competition issue of whether to allow the supermarket operator Foodstuffs to merge its North Island and South Island co-operatives.
In a statement of issues, published on Thursday, the competition watchdog emphasised that it is: “currently notsatisfied that the proposed merger would not substantially lessen competition.”
However, interested parties now have the opportunity to respond to the commission’s reasons. A decision date is set for May 31.
It noted that it is still actively considering whether competition both in the upstream market – for the purchase of groceries from suppliers – and in the downstream market – for the retail supply of groceries – would be substantially lessened by the proposed merger.
The commission will only give clearance for the merger if it is not likely to substantially lessen competition in the $25b grocery market, which is dominated by just two supermarket groups.
Foodstuffs and Woolworths dominate the retail market. Foodstuffs is comprised of two owner co-operatives; while the two groups keep to separate North Island and South Island geographies, and do not compete at the retail level, they currently share such things as store banners – New World, Pak’nSave, and Four Square – as well as functions like marketing, product ranging and some pricing.
Foodstuffs argued that a merger would allow for consolidated management and operations across its two owner co-ops, would combine the best aspects of both operations and that the improved efficiency would lead to cost reductions for consumers.
The commission’s newly published statement identifies several key areas where it currently assesses that competition might be lessened in the case of a merger.
It highlighted the potential for the merged entity’s buying power to result in unilateral and co-ordinated effects in upstream markets for the acquisition of groceries from suppliers.
“First, a merged entity may have the ability to profitably depress prices paid to suppliers to a level below the competitive price for a significant period of time ... second, where prices are determined by bilateral negotiation between a buyer and seller, a merger may increase a merged entity’s bargaining power such that it may have the ability to negotiate a lower price for the acquisition of the same amount of input,” it said.
The statement also warned that a merger could result in a loss of actual or potential competition at the retail level between Foodstuffs North Island and Foodstuffs South Island.
In particular, it is concerned about increased barriers to entry and or barriers to the expansion of third parties in grocery retail. Such barriers to entry could include: a merged Foodstuffs’ buying power in the acquisition of groceries affecting competitors’ ability to acquire groceries on competitive terms; advantages Foodstuffs could gain over smaller retailers through deeper data on retail sales and customer insights; and, the ability of the merged entity to deter new entrants or competitor expansion through strategically targeted price cuts or other behaviour.
The statement noted that the effect of a merger on wholesale supply is not an area of concern.
New Zealand’s grocery sector has been the subject of intense scrutiny in recent years. In March 2022 the commission published the results of a market study into the sector that found competition was anaemic.
The last Government introduced a range of reforms in 2022 and 2023, including the establishment of a grocery commissioner to oversee competition in the sector, providing for mandatory wholesale supply of goods by the supermarkets, and establishing a code of conduct that supermarkets are obliged to follow in their dealings with suppliers.
In January, the commission published a statement of preliminary issues on the proposed merger.
Chief executive of Foodstuffs North Island Chris Quin would assume the role of CEO-designate of the merged entity should it receive the green light from the Commerce Commission.
The commission originally anticipated a decision on the merger on March 5; it later pushed the date out to April 4. Submissions made on the preliminary statement, emphasised opposition.
The New Zealand Food and Grocery Council, which represents suppliers, said the proposal would reduce the number of national buyers from three to two, thereby reducing competition and would have “perverse impacts and cost increases for supply”.
Emerging grocery competitor The Warehouse Group said a merger would “negatively impact consumers” for reasons that included an increased requirement for costly government regulation of a more consolidated sector.
The newly formed consumer advocacy group, Consumer Action Group, said a merger would “consolidate market power for Foodstuffs, provide less competition and not more, and reduce the range of products available to consumers.”
