Foodstuffs has disclosed the extent of competition it faces, in a last-ditch attempt to dissuade the Commerce Commission from radically restructuring the grocery retail sector.
The country’s biggest supermarket chain says shoppers can get better prices, greater convenience, speedier deliveries or gourmet options – if they go elsewhere.
It’s part of a somewhat unorthodox Foodstuffs North Island strategy to show that other players can and will compete in the grocery market; that Foodstuffs and Woolworths do not have shoppers in a stranglehold.
The co-op, whose members and franchisees own all the 556 New World, Pak ‘nSave, Four Square, Fresh Connect, Liquorland and Henry’s stores, has lodged its concluding arguments with the Commerce Commission in the Government-ordered study into competition in the grocery market.
It comes after a final few days of hearings in which commissioners demanded reasons why the Government shouldn’t require the divestment of stores, or parts of the supermarkets’ wholesale and logistics infrastructure. That would help corner dairy owners who are forced to queue up at their closest supermarket checkout to pay retail prices for many of their groceries.
In the submission published this week, the New World and Pak’nSave owner promises to open up its wholesale chain to small competing retailers. “Foodstuffs North Island is exploring how it could put together a commercially attractive offer to supply products to other retailers, in case this may give rise to potential net benefits for grocery market competition,” it reveals.
The co-op argues the situation is not so dark for consumers as the commission has painted it in a draft report: that food prices are mid-range for the OECD, and that the supermarkets are drawing only half the 22-24 percent profits from shoppers claimed by the commission.
“There are only really two big chains in New Zealand, so having another player in the market will bring a lot of value and savings and competition,” he said. “We’re going to be a new competitor in the market and for us this is healthy because it makes us better too.”
– Patrick Noone, Costco
“Foodstuffs North Island competes strongly on the quality, range and service aspects of the retail grocery offer with many players,” it says, but “other than the barriers imposed by regulatory requirements including planning law, there are no material barriers to entry or expansion for competitors catering for a range of shopping missions, operating different business models, and competing across the price, quality, range and service spectrum.”
As evidence of this, it quotes a Newsroom comparison of fruit and vegetable prices, to show that other companies are able to compete effectively for household shoppers.
In the final sentence of an updated action plan, one of the last documents provided to the commission in its year-long inquiry, Foodstuffs North Island says: “We note new entrants have been confirmed. Circle K planning to open more than 100 New Zealand outlets. Costco expected to be opening early in the first half of 2022 in Auckland, with a second location in Christchurch consented.”
“It’s great that businesses continue to see Selwyn as a place to invest. We welcome new retailers who expand our retail options and encourage healthy competition for our growing Selwyn communities.”
– Sam Broughton, Selwyn Mayor
The Foodstuffs North Island public relations representative said he knew nothing more than that about the Costco, but Newsroom investigations show the consented site is a big, undeveloped piece of land on the fringe of the new Iport Industrial Estate in Rolleston, south of Christchurch.
In a planning dispute about a proposed industrial zoning for a neighbouring site, Rolleston Industrial Developments Ltd has filed papers with Selwyn District Council noting that land use consent has been approved for a Costco Wholesale outlet on a block bounded by Iport Drive and Hoskyns Rd. Rolleston Industrial Developments is owned by the Carter Group, the same family property firm that owns Iport.
Costco refused to confirm details: “Although we’re always on the lookout for new locations, at this time we do not have anything we can confirm outside of the Westgate Auckland site I’m afraid,” said Australian/New Zealand marketing manager Casey Lang.
But today, Selwyn District Council planning manager Ben Rhodes confirmed the details. “A resource consent has been granted for Costco, as a large format membership warehouse outlet, in Iport,” he said. “The consent was sought by the land owner and not Costco. The Council has not had any direct contact from Costco over this consent and is not aware of when or if a Costco will actually be established – which it has no control over other than the issuing of the consent.”
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Selwyn Mayor Sam Broughton welcomed the news. “It’s great that businesses continue to see Selwyn as a place to invest,” he said. “We welcome new retailers who expand our retail options and encourage healthy competition for our growing Selwyn communities.”
There is a queue of existing businesses like The Warehouse and Night ‘n Day keen to enter the groceries market, as well as new businesses, if some of the regulatory and structural hurdles are removed. Entrepreneur Tex Edwards, who took on the two big telcos with 2 Degrees, is fronting a consortium of iwi and other investors who want to start a third supermarket chain.
But it’s the arrival of overseas brands like Costco, Ikea and Circle K that are cited as evidence that Foodstuffs and Woolworths NZ don’t have a stranglehold on the market. The Swedish furniture giant announced last week that it would open near the Sylvia Park shopping centre in Auckland, and Costco is building its first $100 million, three-storey 15,000 square metre mega-warehouse at Westgate, on the fringes of west Auckland.
New Zealand is a “ready market” for Costco’s value wholesale retailing, the US company’s New Zealand and Australia managing director Patrick Noone told Food Ticker in July.
“There are only really two big chains in New Zealand, so having another player in the market will bring a lot of value and savings and competition,” he said. “We’re going to be a new competitor in the market and for us this is healthy because it makes us better too.”
“While easy to throw around economic terms like divestment, we all have to be clear about what that would actually mean for owner operators in communities around New Zealand. To be justified, the competition problem … would need to be of unprecedented severity.”
– Chris Quin, Foodstuffs North Island
Noone said he was looking for New Zealand food and beverage manufacturers and suppliers who would supply both the local warehouses and the company’s 13 Australian outlets. “We’ll have some of the best food that’s going to be out there at the best value. We will also have clothing apparel, diamond rings, placesetters, camping, automotive, housewares, electronics – that’s all there too.”
The retailer, which offers discounted prices to members, already has 803 outlets around the world. Its Westgate building was nearing completion before lockdown, and the company has been advertising for staff. “I think Auckland will be successful and I think when we see the proof of that success, we can continue expanding the business. No guarantee, but we are pretty confident.
“Once we get Costco Auckland open, we’ll see how it trades, and then the other two major centres, Christchurch and Wellington.”
Foodstuffs certainly argues Costco will make a big impact. “Costco will compete for different shopping missions, including the main shop, with a very different business model to traditional supermarkets,” the Foodstuffs North Island submission says. “Costco operates a paid membership model, which allows it to offer lower prices, and has a more limited selection of products across a wide range of merchandise categories. Costco has a strong private label presence through its Kirklands brand.”
In its submission, Foodstuffs points out that convenience store chain Circle K has announced plans to open 100 stores in New Zealand, with a particular emphasis on ready-to-eat meals.
It says online retailers Supie and The Honest Grocer (both of which say the supermarkets have tried to heavy their suppliers) are effective competitors for households’ main weekly shop. Supie reported 1700 percent growth in weekly sales over lockdown, the bigger chain observes. And Mackzan will compete similarly with an online only offer, delivering food from restaurants and groceries “within a couple of hours”. Mackzan is launching in Auckland in 2022.
Sydney-based start-up Geezy Go will also compete with an online only offer, “using dark stores, and with a 20-minute delivery proposition”. Geezy Go has started developing its first site in the
Auckland CBD, expected to open in January, and has plans to enter in Wellington. The Foodstuffs submission notes Briscoes plans to expand into gourmet foods, starting with baking mixes.
“It seems disingenuous for Foodstuffs to say that the grocery market includes petrol stations, pet stores, chemists, UberEats, Briscoes and Mitre 10. I have not once heard anyone saying that they’re going to Unichem for their weekly groceries.”
– Sarah Balle, Supie
Meal delivery providers like UberEats have moved into grocery delivery, and DeliverEasy has noted its intention to also expand into groceries. NZX-listed My Food Bag has expanded its offering beyond meal kits to include ready-made meals and grocery items, including fruit boxes, breakfast foods, snacks, bread and meat.
Increasingly, suppliers are creating direct-to-consumer online retails platforms, like Ecostore for cleaning products, Sanford & Sons or Takitimu Seafoods for fish, Neat Meat and Pure South for meat, Fruit Guys and Bounty Box for produce, and Supreme Coffee.
Even the corner takeaway store is a competitor: “Foodstuffs considers that it competes for customers in an overall market food and groceries, that is, share of stomach,” it says. “Consumers may choose to cook a given meal from scratch, or eat out, or order takeaways.”
Matthew Lane is the managing director of the family-owned Night ‘n Day chain, which has expanded from one Dunedin dairy to become the country’s third largest groceries retail chain with 51 convenience stores nationwide. He described how he was reliant on Foodstuffs and Woolworths for wholesale grocery products, because the two companies controlled the entire supply chain.
But first Foodstuffs had cut his South Island supplies to deter him from expanding in the North Island, then Woolworths-owned Countdown had cut his North Island supplies at the start of the Delta outbreak – just when convenience stores were most critical to consumers.
He welcomed Foodstuffs promises to open up fair-priced wholesale supply to competing retailers: “It would be a good step forward to enabling access to dry grocery and being able to pass benefits on to consumers,” he told Newsroom.
Supie founder Sarah Balle was more sceptical. “It almost seems as if Foodstuffs North Island is misleading readers as to the true nature of competition in the grocery sector,” she said.
“It seems disingenuous for Foodstuffs to say that the grocery market includes petrol stations, pet stores, chemists, UberEats, Briscoes and Mitre 10. I have not once heard anyone saying that they’re going to Unichem for their weekly groceries.
“Further, it’s ironic that they mention Uber Eats as a competitor when they have just announced a partnership with Uber Eats to deliver groceries on this platform.”
The supermarket was overplaying the notion that competition exists, by businesses not yet launched in New Zealand like Mackzan and Geezy Go, and inaccuracies like claiming Supie competed in the beer and wine category.
“Despite Foodstuffs North Island mentioning Supie several times throughout their submission, we don’t consider ourselves ‘meaningful or effective competition’,” she told Newsroom this week. “Our turnover in six months is less than what Countdown NZ turns over in half an hour, so we simply do not have sufficient scale to be considered an effective competitor – and we trust that the Commerce Commission understands this to be the case.
“Given Foodstuffs’ lack of admission that there is a competition issue within the sector, we have little hope that they may reform the market without regulatory intervention. Is it possible for them to initiate and implement a market reform when they can’t take the first step and admit that a duopoly exists? Is it possible for them to put together a genuine, commercially attractive wholesale offer?”
Balle said supermarkets had an important role to play in Kiwis’ lives, as food was a necessity of life. “I feel like we’ve done our part on behalf of Kiwis in providing honest feedback to the Commerce Commission as to our experience in being a new entrant in the sector and our view of the food future of New Zealand – beyond just selling groceries,” she said.
“So, we look forward to reading ComCom’s final report in March, and the recommendations they will provide to Government – because it’s then up to the Government to do something about it.”
But Foodstuffs North Island chief Executive Chris Quin rejected any need for government intervention, beyond opening up planning laws to allow more supermarkets to be build, and mandating a “consumer-led” grocery code. He said other changes, like transparent unit pricing and loyalty schemes, would be made by the supermarket chains, of their own accord.
“A number of the Commission’s draft recommendations, such as wholesale separation or forced divestment of retail stores, are not justified and will not produce better outcomes for New Zealand customers,” he said.
“On competition, the extra information and data we have provided supports a conclusion that the retail grocery sector is workably competitive and there are not material barriers to entry or expansion. We welcome the Commission’s acknowledgement that we have competition from a range of existing competitors for the many missions that customers choose to shop, in addition to the strong direct national competition we face from Woolworths New Zealand.
“New Zealand prices are fair by international standards – we rank 21st in the OECD using the appropriate PPP comparison.”
Quin said forced divestment or forced structural separation of existing market participants would be “unprecedented in our economic history”.
“While easy to throw around economic terms like divestment, we all have to be clear about what that would actually mean for owner operators in communities around New Zealand,” he concluded. “To be justified, the competition problem these remedies would be designed to solve would need to be of unprecedented severity, and could only be turned to when other, lesser remedies have been tried. Our final submission clearly demonstrates why we are nowhere near that threshold.”
The Commerce Commission it to deliver its report to Commerce Minister David Clark on March 8.
