The Commerce Commission made a series of recommendations to try to improve competition in a sector dominated by Woolworths and Foodstuffs. Photo / NZME
The Commerce Commission made a series of recommendations to try to improve competition in a sector dominated by Woolworths and Foodstuffs. Photo / NZME
A major study into the grocery sector found the two major supermarket groups could be making $1 million a day in excess profits because of a lack of competition.
Today the Commerce Commission made a series of recommendations to try to improve competition in a sector dominated by Woolworths, whichowns Countdown and Fresh Choice, and Foodstuffs - owners of New World, Pak n' Save and Four Square.
Recommendations include changing planning laws to make more sites for new supermarkets to be built, including stopping the major supermarkets from using leases and covenants to block competitors from setting up new sites.
The commission also recommended a mandatory code of conduct to govern how supermarkets treat suppliers and the establishment of a supermarket regulator.
"The intensity of competition between the major grocery retailers who dominate the market - Woolworths NZ and Foodstuffs - is muted and competitors wanting to enter or expand face significant challenges," Commerce Commission chairwoman Anna Rawlings said.
Although there is "an increasingly diverse fringe of other competitors in the sector" smaller rivals were unable to compete with Woolworths and Foodstuffs on price, location or range, with most families wanting one-stop shopping.
The culmination of a market study that began in late 2020, the commission's recommendations stopped well short of the possible interventions raised by the Commerce Commission in its interim report in July 2021.
At the time Rawlings hinted that supermarkets could be forced to sell sites, split across brand lines or be separated into retail and wholesale businesses.
Commerce and Consumer Affairs Minister David Clark immediately pledged to begin implementing the report's recommendations.
"The report sets out a clear justification for change in the grocery retail sector," Clark said.
"The status quo will not deliver fairer prices for consumers and a better deal for producers and suppliers."
Clark would not be drawn on how quickly, or to what extent, the changes would impact prices, amid opposition claims that rising inflation amounts to a cost of living "crisis".
"In a workably competitive market, you would see profitability for supermarkets go up and down as new competitors come in and out and as they adopt new competitive strategies," Clark said. "I'd expect to see a disruption in that pattern for the supermarkets."
Commerce and Consumer Affairs Minister David Clark hinted the Government may take strong action against the supermarkets if conduct does not change. Photo / Dean Purcell
Clark repeatedly told reporters that he would consider "other measures" if the behaviour of the supermarkets did not change, but would not be drawn on what they were.
He later said requiring divestments could be considered but it was something he was "not ruling in or out".
Already there have been signs that the supermarkets were moving to change behaviour exposed by the study, with Foodstuffs promising changes late in 2020 that match some of the commission's recommendations, to simplify pricing, end the use of restrictive land covenants and develop a code of conduct.
"We accept that the sector does need to change and we are committed to our role in doing that," Foodstuffs North Island chief executive Chris Quin said.
While it needed to review the 600-page report, the initial view was that "we are committed to working with the Government in supporting the implementation of the recommendations", Quin said.
The report was also hailed by a supplier body, which has complained about the behaviour of supermarket groups, in particular about retrospective or unilateral contract changes to suppliers under threat of having their product removed from shelves.
Katherine Rich, chief executive of the New Zealand Food & Grocery Council said recommendations of a mandatory code of conduct and new grocery regulator was "terrific progress and everything the NZFGC advocated for and more".
