Cracking the grocery code: New Zealand food sector declares victory in 12-year competition battle
Calls for a mandatory code of conduct and to increase local grocery sector competition have been ongoing for some years now, picking up steam especially in the past two years with the New Zealand Food and Grocery Council (NZFGC) leading the charge.
It has overcome pushback from the nation’s two largest supermarket chains Foodstuffs (New World, PAK’n SAVE, Four Square) and Progressive Enterprises (Countdown, SuperValue, FreshChoice), with the country’s Commerce Commission now reiterating its belief that ‘competition is not working well for consumers in the retail grocery sector’ in its final report on the matter.
The local food and grocery sector has received this news with jubilance, declaring it to be a ’victory’ for the sector at long last.
“The [commission’s] findings and recommendations confirm what we have been saying for years – competition in the market is not working well, stifling innovation, consumer choice, and genuine competition, and creating an environment where suppliers are treated unfairly,” NZFGC Chief Executive Katherine Rich told FoodNavigator-Asia.
“[There is] a duopoly in New Zealand’s grocery sector, and ideally there needs to be two or three more sizeable players in the market for there to be genuine competition - The commission [has made it] clear the market is not working, as there is [merely] muted competition between the two main companies, which are taking much-higher-than-normal profits.
“[This situation has affected] suppliers from the imbalance of power in negotiations on issues such as price, promotions, and discounts, [as] the duopoly over the past two decades has pushed excess costs, risks, and uncertainty onto suppliers, with fears of delisting if they do not agree to their terms.”
The report recommended several courses of action for the government and industry to take, including freeing up land for supermarket development and getting current major grocery retailers to voluntarily offer wholesale supply to other retailers, but the most welcome recommendation of all has been its urging of the government to implement a mandatory Grocery Code of Conduct.
“It’s been 12 years since we first pushed for a Code of Conduct [so we] are particularly delighted with the recommendation to introduce a mandatory code in addition to a dedicated Grocery Sector Regulator, who would have the power to monitor, seek information, and resolve disputes,” said Rich.
“[Having a] regulator to monitor industry issues and regularly report to the public and the Government is a powerful mechanism to encourage better behaviour by supermarkets [as] is the introduction of the good-faith principle and the prohibition of certain contract clauses and demands on suppliers.”
Government support to carry battle through
The battle is not officially over yet, as the recommendations made in the final report still need to be formally passed in parliament – but the government has already made its stance clear regarding its support of the commission’s findings.
“The report is very clear – competition in the retail grocery sector in New Zealand is not working, [that] the two major grocery retailers are operating as a duopoly, and that there is little chance for new or expanding rivals to achieve the scale and geographic coverage required to compete effectively with [them],” New Zealand Commerce and Consumer Affairs Minister David Clark said in a live speech on March 8.
“The major grocery retailers are making more than double what the commission considers a fair amount of return on capital for grocery retailing – [in fact], the report suggests supermarkets are effectively deriving excess profits of NZ$1mn (US$681,840) per day each and every day across New Zealand.
“The government will act swiftly on this – [we] accept the commission’s findings, and as a first step the government will make it easier for new retailers to enter the market but increasing the availability of new sites for supermarkets, [and] we will also be commencing work on developing a mandatory Code of Conduct to govern relationships between the major grocery retailers and their suppliers and address imbalances in bargaining power.
“We will also be looking at how to establish a new regulator and dispute resolution scheme that would provide oversight of the retail grocery market including monitoring and enforcing the Grocery Code of Conduct.”
Clark also urged retailers to themselves take steps to improve the state of the industry ‘right now’ based on the commission’s recommendations, such as co-operating with price comparison services, make sure pricing and promotional practices are easy and simple to understand, as well as to increase transparency.
“If required, I will explore backstop options to make sure these changes do happen,” he added.
Rich also called for the government to ensure quick response to the report in terms of implementation.
“We hope there will be cross-party support in the Parliament to put this report into action,” she said.
“Everyone benefits from a flourishing food industry where suppliers have a genuine chance to negotiate and receive fair terms, and which ultimately benefits consumers in terms of innovation and range.”
