Incoming Grocery Commissioner Pierre van Heerden describes himself as a straight shooter, and he’ll need to be just that to break up the tightly held monopolies that define the New Zealand grocery sector.

The barriers to entry for a new supermarket player are high, and despite the removal of anti-competitive supermarket land covenants, the existing operators have formed substantial geographic monopolies.

In already developed neighbourhoods, securing a parcel of land big enough to build a supermarket is near impossible; in all likelihood, it will have a supermarket on it already.

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This reporter’s home turf is a prime example, with eight Countdown supermarkets within 3km, or about a 10-minute drive from home (as seen above).

That 10-minute-or-less drive measurement was adopted as the catchment area of a supermarket in the Commerce Commission’s Market Study into the Retail Grocery Sector, from which the commissioner position was created.

There are arguably nine supermarkets in this catchment if you include the Grey Lynn Countdown which has been converted into an online supermarket e-commerce facility, as that prime site is still occupied by Countdown/Woolworths, so isn’t available to anyone else.

This means the area stretching from Queen St in the east, Pt Chev in the west and St Lukes in the south is firmly Countdown territory, except for New World Victoria Park and two upmarket Farro supermarkets.

How does van Heerden, a former Sanitarium executive and chair of the Food and Grocery Council, plan to add competition into such tightly-held monopolies, considering there is no ability to force divestments?

Small scale competition

He acknowledges the existence of land covenants allowed situations like the Grey Lynn monopoly to take place.

“It really shows us what happens when there are land covenants and by removing them, that is no longer an issue, because smaller retailers can come in and compete.”

The covenants may be gone, but the intensively built supermarkets remain.

The idea of smaller retailers is key to van Heerden, who uses the example of Aldi’s market entrance in Australia.

“When Aldi came into the market there, it made a significant difference because they were smaller stores, but they competed very aggressively.

“When I look at the New Zealand market I believe there’s quite a scope for smaller retailers to compete quite aggressively against the larger ones, where you can do your base shop in one store and just top up in another store. That’s what happened in Australia.”

The Grocery Commissioner is aware of the massive public interest in his role. Source: Unsplash

New Zealand has a very different grocery landscape to Australia, where Coles and Woolworths are dominant, but IGA was a widespread third alternative even before Aldi made its entrance.

“It is a different market,” van Heerden says, “but the fact is competition isn’t working as well as it should and we need to try and level those playing fields.”

Greater powers

He says the government’s new wholesale supply rules – major grocery retailers will be required to develop wholesale offerings and consider requests for wholesale supply in good faith – should ensure smaller local players can secure goods at a decent and drive competition.

A few deals have already been cracked, including a wholesale agreement between Woolworths and Pamma Retail Group, the New Zealand master franchisee for the Circle K brand of convenience stores.

Woolworths and Foodstuffs have their own smaller brands (Four Square, SuperValue and FreshChoice, for example) that already compete at the hyper-local level. And van Heerden wants to see more of that.

The Grocery Commission will monitor the sector and has some enforcement powers if needed, including ordering contracts to be varied or cancelled, applying to the courts for penalties, and issuing corrective notices.

But the commissioner wasn’t given the more drastic powers, including the prospect of forced divestment, called for by some pro-competition pundits.

“My role is really to enforce the Grocery Industry Competition Act as it’s been passed by Parliament; any further actions would be something that needs to be referred to the minister for their input.”

‘Disneyland’ legislation

Monopoly Watch’s Tex Edwards, responsible for breaking up the telecommunications duopoly with 2degrees back in the day, said the grocery legislation that enabled the creation of the Grocery Commission and Commissioner wasn’t fit for purpose.

Edwards, who always takes a more extreme approach than other consumer advocacy groups, called the appointment of a commissioner “a massive victory for lobbyists” and “pyrrhic competition”.

“The appointment of the commissioner means nothing to dishevelled consumers, it is fantasy legislation and means Disneyland is coming to the Commerce Commission. It confuses everyone, and gives everyone an opportunity to talk, meet and do workshops, and wear more lanyards.”

Taking a radical stance, Edwards called for major board and leadership shake-ups at Consumer NZ, Transparency International NZ, and Foodstuffs.

Van Heerden says he’s got a reputation in the industry as a straight shooter, and he knows there are differing views on the best way to improve competition. 

“As commissioner I will certainly be listening to all those views, because I think if we all agreed on it, something would be wrong. We have to have opposing opinions in there as well.

“I’m quite happy to talk to all those stakeholder groups who represent the consumer to see what we need to do as a commission to ensure that we get the long-term sustainable competition within the market.”

Bringing mana to the job

Consumer NZ chief executive John Duffy was far more supportive of a commissioner being appointed, but said it wouldn’t be an easy job.

“This is a tough industry, right? We’ve seen that right the way through the Commerce Commission’s market study, and subsequently. That this is an industry that doesn’t take prisoners. It’s a tough, robust, not-for-the-faint-hearted industry and both suppliers and consumers suffer for that.

“So this person is going to need to have real backbone and real mana to bring lots of parties who are in a constant state of conflict together in the room and kind of bang their heads together and get them to play nicely. And that’s easier said than done.”

Duffy said the ongoing monitoring role of the commission and annual reporting would be important not only for Consumer NZ, but for driving any future changes.

“Particularly down the track, if competition doesn’t improve, and the Grocery Commissioner needs to recommend to the government of the day that further action needs to be taken to intervene in this market, at least they’ll have that regular evidence base to show the trend over time.”

Andrew Bevin is an Auckland-based business reporter who covers major industries, markets, regulation, aged care and fisheries.

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