Foodstuffs merger proposal rejected

Foodstuffs owns the brands New World, Pak’nSave and Four Square. Photo / Chris Hyde

The Commerce Commission has refused to give clearance for Foodstuffs to merge its North and South Island entities into a single national grocery company.

“The proposed merger would result in a permanent structural change to the New Zealand grocery industry. We are concerned about the impact this could have on competition and New Zealand consumers,” the regulator’s chairman Dr John Small said today.

“The proposed merger would reduce the number of major buyers of grocery products in New Zealand from three to two, reducing the number of buyers for many suppliers to supply their products to, and creating the largest acquirer of grocery products in New Zealand.”

Small said the merged entity having greater buyer power than Foodstuffs North Island and Foodstuffs South Island each do individually which would harm the competitive process.

A substantial lessening of competition and the associated increase in buyer power would mean the merged entity would likely be able to extract lower prices from suppliers.

But the commission said it was concerned the consolidation with the proposed merger would lead to reduced investment and innovation by suppliers.

Foodstuffs North Island CEO Chris Quin would have been in charge of the new entity if the regulator had approved it. Photo / Michael Craig

And that in turn would mean reduced consumer choice “and/or quality” of grocery products in New Zealand for consumers, the commission added.

Foodstuffs applied for merger clearance from the Commerce Commission in December.

In July, the commission said it was unconvinced by Foodstuffs’ merger plan.

The two Foodstuffs owner-operator co-ops – which run the supermarket banners New World, Four Square and Pak’nSave among other businesses – are separate entities, though they already co-operate in various ways.

In addition, they stick to their respective islands and do not compete at the retail level.

Both Foodstuffs entities today voiced disappointment at the decision.

Foodstuffs North Island CEO Chris Quin said the merger was a once-in-a-generation opportunity for Foodstuffs to meet the challenges of a fast-evolving market.

“This merger is about bringing together the back-end support functions of our two regional co-ops to become more efficient and competitive, so we can better serve our customers. That’s good for everybody.

“This process is about a legal test, and we were confident in putting forward our proposal that it satisfied the legal test. While we’re disappointed with the decision, we’ll await the Commerce Commission’s full reasoning and take time to review it before we decide our next steps.”

The co-ops said owner-operators voted overwhelmingly in support of the proposed merger in June.

“It was a clear sign that both co-ops were united in our vision for the future and committed to delivering the benefits,” Foodstuffs South Island CEO Mary Devine said.

“By joining forces, we would be better equipped to invest in new technology, streamline how we operate and bring fresh ideas to both in-store and online shopping.

“The merger would help us stay ahead of global industry trends, adapt quickly to disruptions, improve how we partner with our suppliers, and continue to serve our communities with the same dedication and excellence that has always defined us.

“Operating as one national business, like our main local and global competitors do, just makes a lot more sense.”

Lisa Asher, a Kiwi expat academic who submitted against the merger proposal, said: “Power underpinned the merger request, not the best interests of New Zealand shoppers.”

Asher said the move was designed to concentrate power and increase profits.

She added: “The Federal Trade Commission in the United States is blocking the merger of Albertsons and Kroger, the largest proposed grocery merger in US history.”