Foodstuffs is one of the largest grocery chains in New Zealand, taking up some 55% of local grocery market share. It is jointly owned by two co-operatives - Foodstuffs North Island Limited (FSNI) and Foodstuffs South Island Limited – and the buying model issue that recently surfaced originated from the former.
According to FSNI’s briefing documents on the new model, the aim of this is to be more customer driven and data/analytics-focused – but its implementation has angered suppliers.
Consultancy firm Hexis Quadrant published analysis stating that whilst many businesses were dealing with COVID-19 fallout, they were ‘heavily leaned on’ by FSNI with emails containing demands and threats of penalties if they did not comply with the new model despite suppliers voicing concerns about major issues such as changes in payment terms and display opportunities.
Even the local food and grocery industry representative body has voiced concerns with Foodstuffs’ methods.
“Like a lot of things in business, it’s not what you do, but how you do it. Many suppliers were given contracts and told to sign or face the consequences,” New Zealand Food and Grocery Council Chief Executive Katherine Rich told FoodNavigator-Asia.
“That was the extent of the negotiation, which isn’t really a negotiation. There was a degree of aggression and threats that was quite a step up. Many suppliers signed in good faith and now it’s up to Foodstuffs North Island to demonstrate that the new model works for suppliers.
“A small number of suppliers are doing well with the new model, but most are paying more and getting less. The level of compliance at store level needs to be improved for the new system to work.”
This, in combination with multiple supplier-retail related disagreements over many years has led Rich to believe that it is time for New Zealand to look into establishing a Grocery Code of Conduct for industry players to adhere to – especially if it does not wish to fall behind.
“Australia and the United Kingdom [have Codes, and these] have made a significant difference to supplier/retailer relationships by providing a clear framework for business dealings - Both those Codes ruled out some of the more egregious behaviour immediately,” she said.
“In New Zealand, good operators have nothing to be afraid of, but there are two hands’ worth of stores that will have to change the way they do business. Faced with demands, bullying, questionable charging, retrospective money demands, and other dubious behaviour, a supplier will be able to point to the Code and remind a buyer of the clear framework that rules out such bad behaviour.
“I realise that because of the combination of factors, the new model and our call for a Grocery Code looks directly causal, [but it’s not just that]. Sure, they’re linked, but there has been a combination of factors over the past decade that have contributed to a united view of suppliers that now is the time for a Code.”
FoodNavigator-Asia has contacted Foodstuffs for comment on recent feedback about its new buying model, but has not received a response till date.
Issues with the Foodstuffs model
Hexis Quadrant also highlighted concerns about the new tender process within FSNI’s new buying strategy, which gives Foodstuffs ‘incredibly broad rights to manage [how] it sees fit’.
“Since September 2020, FSNI has commenced implementing a ‘Request for Tender’ (RFT) process for all branded products – [Based on the RFT documents], FSNI has incredibly broad rights [including] changing any evaluation criterion, RFT Terms and Conditions, or RFT process; cancelling the RFT; choosing not to select the lowest price or highest scoring tender [and many more],” said the analysts.
“Vendors are not permitted to share with anybody or external third party the RFT documentation process without written approval from FSNI.
“[We believe that there are many risks to the market from this model], including the loss of control of discretionary spend here and now for vendors, driving category margins to unprecedented levels, higher barriers to entry for entrepreneurs due to higher trading costs with FSNI, and other grocery stores wanting to do the same thing.”
They also voiced support for a New Zealand Grocery Code of Conduct along these lines.
“[The] recent behaviour shown by some members of the FSNI business should be urgently addressed with the implementation of a [code] of conduct, and [retailers] in New Zealand should be held accountable by an independent government appointed ombudsman or regulator to ensure they do so fairly and equitably,” said the analysts.
“Now is the time to create the change necessary for protection of the hard-working supplier base in New Zealand.”
How likely is this to happen?
Rich is optimistic that such a code is not too far in the making, especially as it is a ‘sound policy idea’.
“I’m always optimistic change can happen when good, solid arguments and sound policy ideas are put forward – [a] Grocery Code for New Zealand is a sound policy idea and it is proving successful in Australia and the United Kingdom,” she said.
“I’m aware high-level New Zealand Government Ministers have been concerned about market dominance and the treatment of suppliers for some time. I believe Prime Minister Jacinda Ardern and her Labour Government will be positive towards such a Code.
“New Zealand has the most highly concentrated supermarket ownership in the world, with more than 95% controlled by two retail teams. When there is that level of dominance in a market it’s a good idea to have a clear baseline for acceptable business conduct.”