The New Zealand retail grocery sector was determined by Commerce Commission New Zealand last year to be a ‘duopoly with a fringe of other competitors, [dominated] by Foodstuffs and Woolworths NZ’s (Countdown’s) supermarket chains’,
This conclusion led to the government committing to implementing significant changes to change this situation.
In its latest step, the local Ministry of Commerce and Consumer Affairs has announced what it deems an ‘unprecedented shake-up’ of the grocery sector, mandating the two major supermarkets to provide their competitors with fair access to their products on wholesale terms.
“The Commerce Commission has found that New Zealand supermarkets earn NZ$1mn daily in excess profits because of a lack of competition - These new regulatory measures will deliver a more competitive wholesale grocery market,” Commerce and Consumer Affairs Minister David Clark said via a formal statement.
“Alongside retail stores, supermarkets also have behind-the-scenes wholesale operations [and this change] will ultimately require the duopoly to open these up to would-be competitors.
“Under these changes the existing duopoly will be required to negotiate wholesale offerings to their competitors on commercial terms - however if those prices are not what we would expect in a competitive wholesale market the new Grocery Commissioner will be able to impose additional regulation to force fairer prices.”
The hope is that these changes will give a boost to smaller retailers and new market entrants and enable these to source more groceries at better prices than before, such that these cost benefits can be passed on to consumers.
"Supermarkets are well advised to lock in good-faith wholesale arrangements on their own terms, or we will have no problem stepping in to make it happen,” Clark added.
“New regulations can be utilised to require the major retailers to provide wholesale supply at certain terms, including price and range.”
The local food and grocery sector, represented by the New Zealand Food and Grocery Council (NZFGC) voiced a warm welcome to these changes.
“It’s great the government has accepted the wholesale market is broken - Shoppers already see it everyday when they see small retailers lining up at supermarkets to get groceries for their store,” NZFGC Chief Executive Katherine Rich told FoodNavigator-Asia.
“They have to do that because they have nowhere else to buy wholesale goods at reasonable prices, [and] it’s the reason these smaller dairies and retailers cannot be as competitive on pricing, because what they’re paying for their goods is the same as shoppers at supermarkets pay.
“In the past, the big supermarkets have declined requests from some independent retailers seeking wholesale supply. This will change that.”
More change still on the way
Despite the huge change, Clark has also stated that this is just the beginning and that more initiatives are on the way to fix the local ‘broken’ retail grocery system.
““Alongside these improvements to wholesale access, the Government is also building flexibility into its approach to a collective bargaining exemption for grocery suppliers [as] many suppliers, particularly small ones, are unable to effectively negotiate terms of supply with the major grocery retailers on their own,” he said.
“This exemption will allow greater scope for them to do this collectively, helping to address imbalances in bargaining power. [Greater] competition, a wider range and cheaper products will be provided to New Zealanders through these changes.
“[We] are working to address the systemic lack of grocery competition in New Zealand [and this] announcement is just the latest in our plan to deliver a fairer deal at the checkout for Kiwis.”
NZFGC hopes that eventually, the system will improve to a state where no more government intervention is required, but acknowledged that this will take significant time and effort to reach.
“[The] Grocery Commissioner is still needed to play a key role in implementation and scrutiny - In a well-functioning and competitive wholesale market these steps by the Government wouldn’t be needed, and it’s just further proof of how broken and uncompetitive the grocery market is right now,” said Rich.
“But what we do need in the long term is an independent wholesaler and other independent retailers to enter the market.”