The investigation of competition in the grocery market found that many items at supermarkets are on sale for half the year or more, Marc Daalder reports
The Commerce Commission has referred supermarkets for enforcement action over alleged breaches of competition or fair trading laws.
It cautioned that none of the findings from its investigation into competition in the supermarket sector should be taken as evidence that grocery giants broke the law, but said it was “considering what further action may be required in relation to the major grocery retailers’ pricing practices, utilising our Fair Trading compliance and enforcement functions and powers”.
While the commission’s “last resort” threat to break up the wholesale and retail arms of Foodstuffs and Woolworths NZ, which it found were running a duopoly in the grocery sector, has attracted the headlines, its report also uncovered price and data practices that troubled consumers.
Nearly a third of complaints the commission has received about grocery stores since November relate to supermarket promotions. These complaints came in the wake of an investigation and complaint by Consumer NZ, which tracked prices for 22 products at Countdown, New World and Pak’nSave stores in early 2020 and found “some products were on ‘special’ so often that shoppers risked being misled about the savings available”.
Additional analysis commissioned for the market study backed up these suspicions. As much as an eighth of products sold at retail grocery stores in 2019 were on “promotions” for more than three-quarters of the year.
At North Island Pak’nSaves, the commission found, between a quarter and half of products were on promotion for more than half of 2019.
This was one symptom of a complex and at times opaque system of promotions, sales, specials and "everyday low" prices which the commission said made it difficult for consumers to make informed purchases. This was compounded by the lack of uniform and comprehensive unit pricing – prices per kilogram, per 100 grams or per litre – which consumers usually rely on to compare different offers.
"Our preliminary view is that the major grocery retailers’ use of an array of different promotional mechanisms, and their complexity and frequent use particularly in combination with one another, makes it hard for consumers to accurately assess the value of competing offers," the commission wrote.
"This is unlikely to currently be mitigated by the major grocery retailers’ display of unit pricing, because of inconsistencies and other issues with their unit pricing practices."
The commission's recommended solution to this is a "consumer information standard" under the Fair Trading Act, which would require stores to prominently display unit prices in standardised fonts and in reference to standardised units. The commission said it was hopeful that grocery giants would also voluntarily reduce the complexity of their promotional systems but that an information standard could also force them to do so.
Percentage of grocery products sold on promotion
Consumer NZ chief executive John Duffy welcomed the requirement for unit pricing. He said Consumer NZ research showed 70 percent of consumers "felt supermarket 'specials' had become so common they questioned whether the savings were genuine".
Supermarket loyalty programmes also came under the microscope. The commission found "consumers do not have a good understanding of the terms and conditions applying to the loyalty programmes that they subscribe to. This can make it difficult for consumers to understand how discounts and rewards are earned, and to compare them with those offered through other loyalty programmes and other promotional mechanisms."
The commission pointed to Countdown's Onecard as an example. Consumers get a point for every dollar spent at Countdown. After spending $1000, a consumer is more likely to think of the number of points they've earned (1000) than its monetary value ($7.50).
"We have major concerns about these programmes and price discrimination that’s resulting from them," Duffy said.
Loyalty programmes also raise data privacy concerns. More than half of consumers surveyed by the commission reported they knew nothing or "a little" about how their data was used by loyalty programmes. The commission said it was concerned that many wouldn't know that anonymised, aggregate data was passed on to third parties.
Many of the conclusions around loyalty programmes and opaque discount systems echo the findings of the commission's first market study, into the retail fuel sector. The draft report from that investigation recommended regulatory changes to address these issues, but those recommendations were absent from the final version of the report.
It remains to be seen whether the consumer recommendations in this draft report will make it into the final edition.
In addition to investigating potential legal breaches with regard to pricing, the commission could also look into the use of land covenants to prevent new supermarkets from being built near existing ones and "allegations about retailers seeking to limit the ability of suppliers to deal with other retailers," a spokesperson for the commission said.
Minister of Commerce and Consumer Affairs David Clark was careful what he said about the specific complaints of misleading pricing or discounts.
"The Commission is legally required to act independently of the government when carrying out its enforcement functions and I cannot influence it in relation to any individual case," he told Newsroom. "This enables the Commission to be effective and impartial in enforcing the law.
"Any alleged misconduct in relation to the Fair Trading Act is an enforcement matter for the Commerce Commission and they take this very seriously.
"I am concerned when misconduct does occur but it is up to the Commerce Commission to investigate and it would be inappropriate for me to comment further at this stage."
