Commerce Commission chair John Small is leading the agency's fight with Foodstuffs as it pursues an uphill battle to merge.
Assessing and fighting the Foodstuffs’ merger effort has cost the Commerce Commission more than $1 million so far, including outside legal advice.
In conducting a near year-long appraisal of Foodstuffs’ application, and in early preparation to defend a High Court appeal, the commission relied on the external legal help of Dr James Every-Palmer KC and the law firm Cuncannon, which specialises in litigation. The external costs totalled $387,107.
External costs also included relatively minor expenses, such as transcription. The commission refused to provide a breakdown of the total “while proceedings are underway”.
The commission released the information to the Herald under the Official Information Act (OIA), following the intervention of the Ombudsman’s office.
It originally refused to release either the names of its outside advisers or the cost, citing the need to maintain professional legal privilege.
The commission also confirmed that its approximate internal costs for considering the Foodstuffs merger clearance application, and initial work on a pending Foodstuffs appeal, was $683,283 to the end of January 2025.
The commission does not release its costs as a matter of course, but last year, also under the provisions of the OIA, it disclosed it spent $533,000 investigating a merger clearance request by AlphaTheta to acquire Serato Audio Research, both music industry companies.
The Serato case ran roughly the same length as the Foodstuffs case (each was nine to 10 months and merger clearance was similarly declined), but the commission relied on no outside advice in that instance.
Several legal specialists told the Herald that the commission’s spending on the Foodstuffs case appeared to be considerably higher than is usual (including on outside legal advice).
They said it is likely prompted by factors including both the public and political mood that is sour on further concentration in the grocery sector, and Foodstuffs’ deep pockets and willingness to challenge the commission in court.
A commission spokeswoman told the Herald that there is no “typical case”, and that merger clearance applications vary in complexity and breadth. She said factors including the volume of submissions and cross-submissions and of Official Information requests, including from the merging parties, all affect the commission’s spending.
She also noted that the Foodstuffs case involved the analysis of effects in acquisition markets and coordinated effects, “which have not frequently been considered in detail in previous Commission cases...”
Foodstuffs South Island (FSSI) and Foodstuffs North Island (FSNI) already collaborate in a variety of ways – they share many of the country’s best-known supermarket banners, including New World and Pak’nSave.
Each is made up largely of owner-operator stores in their respective islands. The entities are legally separate with different boards and management.
In mid-December 2023, the companies applied to the commission, which administers and enforces competition law, for clearance to merge into a single national business.
The application was declined on September 30, 2024. Taken together, the two Foodstuffs entities control the single largest chunk of the New Zealand food and grocery retail and wholesale market.
The commission determined that a merger would reduce the number of major players from three to two; it would be a structural change in the market; and could substantially reduce competition and harm both the supermarkets’ retail customers and suppliers.
In November, Foodstuffs lodged an appeal of the merger clearance decision with the High Court.
Every-Palmer and Fionnghuala Cuncannon, a partner at Cuncannon, will also act for the commission in the appeal, which is scheduled to be heard on March 2-6, 2026.
Cuncannon also represented the commission at the High Court in another recent Foodstuffs case in which FSNI was found to have breached the Commerce Act through its use of anti-competitive land covenants.
Foodstuffs is likely heavily outspending the commission in the merger fight. During the merger clearance process, the supermarkets relied on in-house expertise as well as law firm Chapman Tripp and specialist economists from the German competition consultancy Dusseldorf Competition Economics, and Australian consultancy Houston Kemp, also a specialist in economics and competition.
Commercial litigator Jenny Cooper KC and Iain Thain, a partner at DLA Piper, represent Foodstuffs in its appeal.
Foodstuffs declined to release a current tally of spending on its merger and appeal efforts, but spokesman Stefan Herrick said last year that in financial 2024 alone the companies spent $7.5m on the merger.
The 2024 financial year ended in February 2024 for FSSI and in March 2024 for FSNI – the companies’ combined revenue in the year was nearly $13 billion.
On Friday, Herrick said Foodstuffs remains “hopeful that the High Court will rule in our favour, but it’s important to acknowledge that the delays in getting a decision on our merger application and another 18 months for a court hearing mean this is a lengthy and complex process to navigate”.
Foodstuffs’ costs may not be directly analogous to those of the commission. The disclosed spending was not broken down and could include investment in areas such as dual business plans, on a merger/no-merger basis.
Last year, then Commerce and Consumer Affairs Minister Andrew Bayly revealed he had directed the commission to be a “courageous litigator” and to take more action against possible anti-competitive behaviour, even if it means losing in court.
The commission’s board responded by announcing it had agreed to “over-commit” the agency’s Major Litigation Fund – $12.6m for the current financial year.
The cost of the Foodstuffs appeal will be met by the fund, while the cost of assessing merger clearances is normally met through the agency’s general market appropriation.
Bayly resigned his ministerial portfolios last month following several missteps, but his successor on the commerce file, Scott Simpson, echoed his predecessor on the matter.
He told the Herald that it’s “essential” that the commission is “a courageous, effective litigator that works with the best interests of Kiwi consumers in mind”.
Dr Edward Willis, associate professor at the University of Otago Faculty of Law, noted that if Foodstuffs wins its appeal in the High Court, the commission will “almost certainly” appeal the ruling to the Court of Appeal.
However, Willis thought it considerably more likely that Foodstuffs will lose its case.
Foodstuffs has chosen a difficult moment to attempt consolidation, which it says would drive business efficiencies and, in turn, lower retail food and grocery prices.
Factors including high inflation and faltering economic growth have diminished New Zealanders’ purchasing power since 2018, and food and groceries represent households’ second-highest expense (behind housing).
Both major political parties, Labour and National, have vowed to pursue more competition in the grocery sector to alleviate voters’ cost-of-living concerns, although, so far, both have stopped short of enforcing a break-up of the incumbents.
In 2022, a Labour Government-ordered market study found that Foodstuffs and its main rival, Woolworths NZ, together constitute a duopoly that accounts for more than 80% of the country’s highly concentrated grocery market.
The study determined that competition in the sector was weak, and that prices appeared to be high by international comparison.
New law followed, including measures intended to open competitor access to the supermarkets’ grocery wholesaling divisions and considerable new powers for the commission to monitor the sector.
However, an initial report released by the commission last September, following the shake-up, found little improvement in market competitiveness and some uncomfortable signs of deterioration, chief among which were rising supermarket margins (suggesting rising supermarket profitability).
Supermarkets like FreshChoice Epsom now stay open until 9pm for online orders.