Supermarket merger: ComCom’s first thoughts on mega-Foodstuffs

Foodstuffs owns the Pak’nSave, New World and Four Square supermarkets.

The competition regulator says a merging of supermarket giant Foodstuffs between the North and South Islands would effectively turn it into Woolworths, and result in structural changes for the grocery sector.

“Nationally, the merged entity may be of a more similar size and cost structure to Woolworths,” the Commerce Commission’s statement of preliminary issues released on Thursday read.

“Post-merger, there would be vertical changes in the structure of the grocery sector.

“The number of distinct major retail and wholesale suppliers of grocery products and buyers of grocery products would be reduced.”

Foodstuffs North Island and Foodstuffs South Island announced a plan to merge in November last year.

If it became one, it would operate seven distribution centres and seven transport depots across New Zealand.

The commission’s first assessment of whether or not the merger would substantially reduce competition in the grocery industry largely outlined what it would consider in its decision to approve it or not.

It offered little explanation of what impact a possible merger would have on consumers.

The considerations would include the impact on competition at the retail and wholesale grocery levels, if the single entity would co-ordinate more with rival Woolworths and whether costs would be saved on products, or promotional discounts would occur less frequently.

The regulator would also consider if the merged entity could abuse its power, by raising prices charged to competitors or refusing to deal with them.

In their initial application, the businesses told the commission there was currently no competition between them at the retail level, nor did they meaningfully compete at a wholesale level.

“Each co-operative focuses on competing within the island in which it is based,” a citing of the application read.

“The owner-operator co-operative model means that individual members have discretion as to pricing and some promotions which would not change as a result of the proposed merger.”

They expected product and cost savings if the merger went ahead.

Foodstuffs is often referred to as the second player in the supermarket duopoly against Woolworths, formerly Countdown.

But Foodstuffs is actually split into two separate businesses - Foodstuffs North Island which operates New World, Pak’nSave and Four Square grocery stores in the North Island and Foodstuffs South Island which operates those three brands in the South Island, as well as Raeward Fresh and On The Spot stores.

They also each operate wholesale brands, with Gilmours in the North Island and Trents in the South.

The commission said another business could be included in the merger - the separate non-trading entity called Foodstuffs (N.Z.) which managed both of the businesses branding, marketing, strategy and public relations functions.

Madison Reidy is the host of the NZ Herald’s investment show Markets with Madison. She joined the Herald in 2022 after working in investment, and has covered business and economics for television and radio broadcasters.