Commerce Minister points to record food price rises as evidence that grocery giants can’t be trusted and firm Government intervention is needed urgently
The Government is ready to move faster and further than the Commerce Commission’s cautious advice, to ensure supermarket competition brings down food prices.
Commerce Minister David Clark told Newsroom he would respond next month to the commission’s report on competition – or the lack of it – between the two big supermarket chains, Foodstuffs and Woolworths.
He wants to move quickly on agreed changes, most likely a code of conduct to prevent the chains exploiting farmers and other suppliers, and consistent unit pricing so shoppers can compare how much different products really cost.
But the big questions his officials are discussing with the Commerce Commission is whether lawmakers can go further than the commission was able to, under its constrained deadlines. The Government is understood to be considering whether it can break open the wholesale duopoly or, more likely, the cosy club of retailers.
Statistics NZ figures published yesterday show food prices increasing 7.6 percent in the past year – the fastest rise in more than 10 years. Clark said it highlighted the grocery sector’s role in driving up prices. “Omicron, ongoing disruptions to global supply chains and Russia’s invasion of Ukraine are putting pressure on prices in every country, but that is exacerbated here by the lack of competition at the checkout. And that is something we can act on.”
As Dunedin MP, he was hearing his constituents express concerns about rising food costs. “Cost of living is top of mind to people on fixed and modest incomes,” he said.
When he went shopping he winced at the price of tomatoes, broccoli and lettuce. “Every New Zealander can see the cost of food when they go to do their weekly shop.”
He told Newsroom he was considering options including making the supermarkets divest some of their stores. “As the Commerce Commission says, there needs to be an understanding of the costs and benefits of going down that route. And it’s important to consider that the ultimate goal here is more competitors in the market and the knowledge that consumers are paying a fair price at the checkout.
“I think it behoves us to think about what the best way of getting there is, and one of the options on the table for consideration is retail divestment.”
Though there are many grocery retail brands in the market – Countdown, Pak’nSave, New World, Four Square, Super Value, Freshchoice, Fresh Collective and more – they are all just shopfronts for the two big chains. More than 560 of the stores are Foodstuffs, and the remaining 250-plus are owned or franchised to Woolworths NZ.
The Government is sending a shot across the bows of the supermarkets, if they don’t return some of their excessive profits to suppliers and consumers. Officials are considering whether they could be forced to separate and sell some of their stores to a local challenger such as the Warehouse, Night’n Day or an iwi consortium, or to an overseas player such as Aldi or Costco.
Smaller retailers such as Night’n Day have told Newsroom of the big players cutting their supply chains if they try to expand; local producers such as Sealord and Orchard Fresh complain of their products being “deleted” to make way for cheap imported products marketed under supermarket house brands.
Last month, the Commerce Commission had stopped short of forced divestment of retail stores or wholesale operations, after pleas from Chris Quin and other supermarket executives that it would entail taking businesses from families that had owned them for two or three generations.
But there are other ways to skin a fat cat – and indeed, Newsroom understands some frustrated store owners could consider splitting off to create new brands if they were freed of contractual and regulatory hurdles.
“There are a number of different ways that retail divestment could be implemented, if we were to go down that track,” Clark said.
One supermarket owner told Newsroom they were constrained at present by franchise agreements with restrictive non-compete clauses if they left. But the Government could require the removal of those restrictions.
He wasn’t sure ministers entirely understood how difficult it was: “No one in Government, I think, has ever owned a business.”
The owner agreed with the Commerce Commission’s analysis that the supermarkets were earning excess profits of about $1 million a day, over the top of appropriate revenues. “The profit as stated was correct,” he said. “The issue as I see it – and Quin is correct on this – that the cost of doing business in New Zealand is horrific. Think about it: we are a country of 5 million, which is one city in Oz stretched over 2000 kilometres.”
Clark said: “Given the importance of healthy levels of competition in our retail grocery sector, I have not ruled out going further than the options that the Commission tabled in its final report.”
It was important a third grocery chain was given the opportunity to build market share and offer competitive prices. He pointed to economic analysis showing the arrival of Aldi in Australia had saved shoppers $2 billion a year in reduced prices across grocery chains. And Costco has begun signing up New Zealand members before the opening of its first warehouse in August. It is planning super-stores in west Auckland and south of Christchurch.
“The recommendations from the report form a robust prescription for changing the nature of competition in the New Zealand market, but the real test will be when we see new players entering the market or some of the existing players expanding to challenge the duopoly,” said Clark.
“And it makes sense for various iwi to consider this because Māori have a significant stake in our primary industries and fishing and meat production. And as we’ve seen around the world, successful grocery retail often depends upon strong vertical integration, where supply chains can be built so that consumers have a familiar and likeable offering of range, quality, service and price in a place that’s convenient to them.”
Newsroom has spoken with leaders including Martin Wikaira from Tuwharetoa, Teresa Tepania-Ashton from Te Aupouri, and Mavis Mullins from the big Ātihau-Whanganui land incorporation – all of them say iwi consortiums are ready to front up to invest in groceries for the health and economic wellbeing of their communities.
Clark said: “Alongside others who might expand or come into the market, I’d be delighted if there were iwi that were interested as well.”
He was also concerned to see Kiwi producers treated better. “Some of the stories I’ve heard about the way suppliers have been treated are cause for concern. It highlights the need to have regulatory oversight of the sector, and a code of conduct that guides those who are involved. You know, it’s as plain as that.”