Editorial: Commerce Commission supermarket study fails to supply fast-moving goods

The Commerce Commission found competition in the $22 billion supermarket sector is weak, but stopped short of recommending dramatic interventions. Photo / Sylvie Whinray

Opinion

EDITORIAL:

As soon as the Commerce Commission released its final report into competition in the $22 billion a year supermarket industry, it was clear that the implied threats of a break-up made last year were empty.

In theory, an attack on the two supermarket giants may be appealing and the initial view of the commission appeared to be necessary. But the idea of forcing owner-operators to sell would be extremely controversial, not to mention disruptive.

When the commission revealed it had significantly overestimated the profitability of New Zealand's supermarket groups - a remarkable feat in itself - it was clear more measured recommendations would follow.

Therefore, Tuesday's conclusion of the market study was anti-climatic, given the interim report put structural changes for Foodstuffs (New World and Pak'nSave) and Woolworths (Countdown and SuperValue) firmly in play.

It should not be seen as insignificant though.

The recommendations include meaningful changes on the use of lease provisions, covenants and land banking, which could lead to enough quality sites becoming available, that places for a growing rival to set up shop is not nearly the barrier it currently represents.

A mandatory code of conduct for suppliers would be a welcome development.

In an efficient market, giving suppliers greater power in negotiations with retailers would, all else being equal, tend to push up prices. But a thriving local food and beverage sector and a profitable landscape for imported products are ultimately good for consumers.

The commission's recommendation of a new grocery regulatory, as well as periodic monitoring of the sector, will if nothing else, provide the public with information on whether other recommendations are having an impact.

Taken together, the key recommendations could lead to a material improvement for shoppers over the long term.

None of the changes, however, are likely to lead to improvement soon. After the interim report talked up major interventions, the recommendations feel tepid.

Commerce and Consumer Affairs Minister David Clark told reporters the Government would move swiftly and he expected the supermarkets to do the same.

Looking busy will not hide the fact that inflation, including rising food prices, is high now, and the recommendations will do nothing to fix this.

This makes the actions of the Commerce Commission in July 2021 seem unwise.

Although outgoing chairwoman Anna Rawlings says she did not push a particular option then, the interim report raised expectations that it would push for radical intervention, including major structural changes and even floating the fantastical idea that the Government itself may somehow enter the market.

Clark has warned some of the more dramatic options earlier mooted by the commission could be back on the table if the supermarkets do not respond quickly and constructively.

Given the commission's suggestion that the time to measure progress will be in several years, real intervention would also presumably be years away.

Any improvement in the competitive landscape will be slow. For consumers facing high inflation, it is unlikely that any imperceptible impact on prices in the future will be sheeted back to the market study.