‘With privilege comes responsibility’: New Zealand food industry lauds launch of government’s supermarket review

01-Dec-2020 - Last updated on 01-Dec-2020 at 01:51 GMT

The New Zealand government’s announcement of a market study into the supermarkets industry to review areas such as competition, product pricing and procurement has been warmly welcomed by the local food industry. ©Getty Images

The review was announced by Minister of Commerce and Consumer Affairs David Clark earlier this month, who emphasised that one of the main aims here is to analyse competition within the supermarket sector.

“Groceries are one of our most regular expenses, so we want to make sure pricing is fair – [We] know that the average Kiwi household spends roughly 17%of its weekly expenses on food, and this has been increasing year on year,” Clark said in the initial announcement.

“It’s been a tough year for many Kiwis and launching this study is an early fulfilment of a [campaign] commitment to make sure we’re not paying more than we should during the weekly shop.

“A market study into supermarkets will identify whether there are issues affecting competition, potentially leading to recommendations that could ensure [grocery shopping] is gentler on the household budget - Some of the big supermarket chains have said there is already a healthy degree of competition in the sector, and we want to test whether that is the case.”

According to New Zealand Food and Grocery Council (NZFGC) Chief Executive Katherine Rich, this is the first time such a study into supermarkets has been conducted in the country.

“In terms of supermarket ownership, New Zealand has the most concentrated market in the world – two dominant teams control over 95% of mainstream supermarkets,” she told FoodNavigator-Asia.

“[There] are indications that competition in the supermarket has weakened, and [in such] a small market [with such high ownership concentration, this] is a fair question for the government to be asking.

“[Such a] privileged market position comes with additional responsibilities and accountabilities [on the part of privileged players] – and the government is aiming to make sure consumers are getting a fair deal.”

Rich suggested that the review make the effects of such concentrated market power in a community more transparent, as well as how factors like costs, deductions, deletion threats, supermarket margin expectations and more are affecting local suppliers as well as end-product prices charged to consumers.

When asked whether local supermarkets or firms had anything to fear in terms of product pricing impacts or marketing mechanisms being affected by this review, she said this was unlikely and reiterated that NZFGC would be wholeheartedly supporting this initiative.

Clark has stated that the review is to be completed by the Commerce Commission and its final report published by 23 November 2021.

More details about the study

According to Clark’s submission document Initiating a Commerce Commission market study into supermarkets which has been published on the Ministry of Business, Innovation and Employment (MBIE) website, there is a ‘clear public interest in carrying out a market study into New Zealand retail grocery markets’.

“[The supermarkets] Foodstuffs (New World, PAK‘nSAVE, and Four Square) and Progressive Enterprises (Countdown, SuperValue, and FreshChoice) cover approximately 75% of the New Zealand grocery retail market,” said Clark via the document.

“[There are indicators which] may suggest lower levels of competition than I would expect in a workable competitive market, [such as] unequal bargaining power which may allow supermarkets to push prices unreasonably low for suppliers - Whilst low wholesale prices are usually good for consumers, it is uncertain how much of this benefit is being passed through to consumers.

“[In addition, prior] research has [indicated decreased competition] for supermarkets, grocery stores, and specialised food retailers, [and] the 2019 Household Expenditure Survey showed average weekly household expenditure on food increased by 9.2% in three years to 30 June 2019 compared with an increase of 6.5% for other categories – [this is important] as food prices impact all New Zealanders.”

He added that the grocery sector is considered to have now ‘moved on from a COVID-19 response to the recovery phase’, so the commencement of this process would be a timely one.

Grocery Code of Conduct

Interestingly, whilst the MBIE document stated 75% as the market ownership by the two grocery powerhouses, NZFGC has identified this number as closer to 95%, which Rich said is based on solely mainstream supermarkets.

“We arrived at the 95% figure which represents the mainstream supermarkets such as Countdown, PAK’nSAVE, New World, Farro, Moore Wilsons etc – they might have included the food solution companies like My Food Bag, Hello Fresh and also specialty stores,” she told us.

“[Either way, I believe that] this study could help with the establishment of a New Zealand Grocery Code of Conduct - it is a natural progression. A Code will never be a panacea, but those with experience in Australia and the United Kingdom report Codes there have made a huge difference, ruling out some egregious behaviours immediately and laying the foundation for better retailer/supplier relationships.

“I believe a Code here will ensure better treatment of all grocery suppliers to supermarkets – growers, manufacturers, marketers, and particularly merchandisers.”

“Other markets faced with similar concerns have moved in this direction and it makes sense that New Zealand does too.”