Sue Kedgley: Supermarket spotlight overdue

When food is promoted or sold at a discount, it's normally the supplier that takes the hit in terms of reduced profits. Photo / Dean Purcell

Opinion

I'm delighted that Labour MP Shane Jones has shone the spotlight on supermarket tactics in New Zealand.

And I'm pleased, too, that the Minister of Commerce, Craig Foss, has raised it with the Commerce Commission, as there's really no other way of establishing if the claims are true, as trading relations between supermarkets and their suppliers are intensely secretive, and suppliers are unwilling to blow the whistle for fear of losing their business and access to the marketplace.

I asked the Minister of Justice to initiate a Commerce Commission investigation into supermarket practices five years ago, and presented him with a range of allegations about dubious tactics that supermarkets were using with suppliers, but he said there wasn't enough evidence to justify an inquiry at that time. So I'm hoping that an inquiry will finally happen.

Whatever the veracity of Shane Jones' specific allegation, I'm informed that relationships between Progressive Enterprises and their suppliers have deteriorated significantly over the past year.

Suppliers claim the supermarket company has begun to employ increasingly hardball tactics in its dealings. They say robust negotiations have often deteriorated into ultimatums.

There are also wider complaints about the supermarket duopoly in New Zealand. Our grocery retail sector is the most concentrated in the world, with just two supermarket chains, Foodstuffs and Progressive, controlling around 95 per cent of our grocery retail sector.

This gives them enormous market power which they can use to set the rules, dictate conditions and squeeze more and more money out of suppliers. Suppliers cannot refuse their requests, or afford to get offside with them, no matter how unfair they may appear to be, as supermarkets are, effectively, the gateway to the consumer in New Zealand.

According to numerous suppliers I have spoken to, supermarkets routinely use a variety of trading practices that I believe are unfair. They will sometimes change orders that have been agreed to, at the last minute or even retrospectively. They will sometimes threaten to de-list suppliers if they supply a competitor, or impose additional rebates or charges on suppliers.

They also routinely discriminate against suppliers in favour of their own in-house "home" brands, and this is making it increasingly difficult for small suppliers to compete. (Around a quarter of the products sold in supermarkets these days are home brand products.)

They're also concerned that the trend towards more and more food being sold at a discount or on special, to appeal to price-conscious consumers, is penalising suppliers. For when food is sold at a discount, it's the supplier that takes the hit in terms of reduced profits, while the supermarkets retain their fixed retail margins. Similarly, when food is promoted, it's normally the supplier, not the supermarket, that is asked to pay for the cost of promotions.

Across the Tasman, the Australian Competition and Consumer Commission is investigating complaints that supermarkets misuse their market power to engage in anti-competitive or unfair trading practices with suppliers.

It's also investigating whether supermarkets discriminate against suppliers in favour of their own in-house "home" brands, impose more and more "rebates" or additional payments on suppliers, and threaten to remove products from supermarket shelves if they don't comply with their requests.

The commission has spoken to 50 suppliers, confidentially, and is widening its investigation to look at the underlying imbalance in the bargaining power between supermarkets and their suppliers.

Clearly we need a similar inquiry here which looks at the wider issue of whether our supermarket duopoly is misusing its extensive market power to engage in unfair trading practices with suppliers - as well as the specific complaint that Shane Jones has laid.

It would need to grant suppliers a guarantee of confidentiality to participate in the inquiry, as the Australian inquiry has, otherwise few would be willing to come forward.

Even more importantly, perhaps, we need a supermarket code of conduct in New Zealand that governs relations between supermarkets and their suppliers, and ensures that suppliers are treated fairly. At present there's no oversight or scrutiny over how supermarkets operate.

Britain has a supermarket code of practice, and an Ombudsman with the power to investigate breaches of the code anonymously, and to impose hefty fines. And Australia is also looking at introducing a similar code.

If we don't follow suit and set some rules as to what constitutes fair and unfair practices, more and more suppliers will be driven to the wall.

When local producers exit the market, supermarkets often turn to overseas markets to source cheaper products and ingredients.