And we are about to learn how long Republican senators in Congress are going to let all this economic self-destruction go on before asserting themselves as the adults in the room.
It sure is hard to drag your eyes away from the car crash that is the US currently. Yet we must. Because the only thing we can do in response is to strengthen our own economic fitness and competitiveness.
Which brings us tidily to competition policy in this country, and the Government’s announcements this week about its desire to build a more competitive food industry.
New Zealand has historically had an ambivalent attitude towards the benefits of competition and the innovation it brings. We accepted uncritically, for example, the argument we were too small to have proper competition in dairy companies and legalised a dairy company monopoly that has only now hit its straps after 20 years.
We have allowed companies to build barriers to entry for new competitors in areas as diverse as building materials and banking.
We don’t like contestability in the provision of public services. We turn up our noses at “wasteful” competition between our universities, schools and hospitals, while at the same time lamenting their poor state.
We also allow a fairly laissez-faire approach to company mergers and acquisitions. This has led to the accumulation of significant market power over the years, perhaps most memorably in 2002 when the Commerce Commission allowed the merger of New Zealand’s second- and third-largest grocers, Woolworths and Foodtown.
That last example appears to be a case of enduring regret. Nearly a quarter of a century on, and regardless of how reasonable Chris Quinn of Foodstuffs tries to sound, the country has a deep suspicion of grocers and how much money they make, particularly in these recent inflationary times.
That suspicion is quite clearly channelled through our politicians, who are under constant pressure to respond.
This is an industry I know a little about. My mum and dad were Four Square grocers from before I was born.
I grew up a supermarket brat in a Self Help store that became a New World. I pushed trolleys and ran a checkout through my school years and spent many a happy hour rearranging shelf displays.
These were times of great innovation and competition in the supermarket industry.
For example, ours was the first supermarket outside Auckland to introduce barcode scanning, and the innovation that was plastic checkout bags the bottom didn’t fall out of (these things clearly come in and out of fashion).
The first point that needs to be made about the current war on supermarkets is that many of the price rises we see at the checkout have not been caused by supermarket owners.
The rampant inflation unleashed in response to Covid was one cause, and large legislated increases in minimum and so-called living wages another.
As a country we are clearly ambivalent about cost increases until they happen.
I heard a commentator using the price of eggs as an example of big price increases the other day, no doubt forgetting our collective decision six years ago to require much better animal husbandry of egg-laying chickens, notwithstanding warnings at the time of a concomitant increase in egg prices.
The country’s absent-minded, cost-plus mentality is not the full story though. There is little doubt in my mind that grocery price margins are higher today than they were before that merger back in 2002, and the Commerce Commission concurs.
Supermarketing in the 1980s and 1990s was much more fluid, dynamic and aggressive, with loss-leading specials and head-to-head competition.
At one stage we were one of three differently-owned supermarkets within a stone’s throw of each other, competing toe to toe and week to week.
These days it tends to be much cosier. It’s a Foodstuffs mall or a Woolworths mall, with the sole competitor a respectful distance away. And the fitouts, while very nice, indicate an at least respectable return on the cost of capital.
So how do we turn back the clock? How do we recreate a more vibrant and competitive supermarket industry?
Screeds have already been written by ComCom and others about what needs to be done but it comes down to two things: access to sites, and wholesale arrangements to buy groceries (in order to sell them on to customers).
These can be legislated for, and probably should. But the big thing is scale, and it’s hard to wave a magic wand and achieve large scale overnight.
Forcibly breaking up chains is doable but creates its own risks, including to investor confidence by riding roughshod over property rights.
Our Government was able to encourage Telecom to split – to the benefit of competition in telecommunications – but only because Telecom wanted to participate in the ultrafast broadband rollout. There is no equivalent carrot in the grocery industry.
However, the businesses involved do need to do some strategic thinking about their futures.
Whether or not they see off this current political attack on their industry, the public’s concerns are not going to go away until they see more real competition.
Perhaps they should move proactively rather than wait for legislators to turn up and make an invariably bigger mess.
For example, Foodstuffs, the owners of New World and Pak’nSave, should consider the shape of their co-operative. If they are really there for their owners, as they attest, then they have to come up with a model that will survive into the future.
They could voluntarily agree to split their brands into two co-operatives, perhaps Pak’nSave in one and New World and Four Square in the other, in return for letting each separate company merge its North and South Island operations, as they have been seeking.
At a stroke there would be three national operations at scale and the ownership of each individual supermarket would remain intact.
Similarly, Woolworths needs to read the writing on the wall. Perhaps it should voluntarily split off its Fresh Choice and Supervalue operations to retain what is for it, the main game.
Finally, if I was the owners of The Warehouse, I would be looking closely again at going all in on discount groceries, either in the company’s own right or by selling its footprint to someone else.
It is making next to nothing out of its current general merchandise range, and arguably with the likes of TEMU and Shein, its old operating model is rapidly shrinking.
At least in this country we are talking about the right things: the need to increase efficiencies and get prices down for consumers.
Quite a contrast with the US, where it’s all about taking actions that will only push prices up and make consumers poorer.
