The Commerce Commission has taken extra time to consider whether or not it should approve the merger of Foodstuffs North Island and South Island cooperatives.
The commission was scheduled to report back on March 5 but has pushed its timeframe out until after Easter weekend.
Some submitters believe the application requires the Commerce Commission to do something it isn’t set up to do – consider competition issues in a competitive vacuum it helped create.
Serviced through its North Island and South Island wholesale networks, Foodstuffs co-op members operate 530 stores nationwide: New World, Pak’nSave, Four Square, On The Spot and Raeward Fresh, as well as wholesalers Gilmours and Trents.
A spokesperson for the Commerce Commission said preserving the competitiveness of markets in New Zealand was an enduring priority for the commission, and it intended to carefully scrutinise the implications of the deal for suppliers and consumers.
At the same time the regulator has active fair trading investigations into both Foodstuffs South Island and Foodstuffs North Island over pricing and promotional practices.
The commission is also investigating Woolworths New Zealand on the same grounds. The probes were officially opened two days before the merger application.
As usual with its investigations, the commission doesn’t say when it expects to report back.
How much weight, if any, it will place on the outcome of the deal when making its decision is also unknown.
It has approved mergers in areas subject to investigation before.
While undertaking its year-long market study into residential building supplies, in which it found competition in the sector “was not working as well as it could”, the regulator approved the sale of six ITM stores to industry behemoth Fletcher Building’s distribution subsidiary.
Keen Commerce Commission critic Ken Duston of Habilis Consulting and the Food and Grocery Council submitted that the challenge in assessing the deal was that it must weigh up the possibility of weakening competition in a market that already lacked true competition.
The Food and Grocery Council, which represents food manufacturers and suppliers, said the regulator was faced with “a precipitous decision”.
“It will have far-reaching consequences and should not be rushed. To attempt to apply the likely substantial lessening of competition test in a context which already lacks competition and where supermarket pricing and cost of living continues to be top of mind for New Zealanders, public benefit must be proven beyond doubt.”
The group is against the deal on the grounds it would reduce the number of national buyers from three to two, which it says would be a substantial lessening in competition at retail and wholesale levels across grocery outlets of all sizes.
In their submission, Foodstuffs North Island and South Island said the merger wouldn’t lessen competition because they did not compete for suppliers and that it would reduce grocery costs for consumers by strengthening buying power.
Local producers, such as Sealord, have told Newsroom they’ll struggle to get decent prices from a bigger, stronger Foodstuffs chain.
Duston expected the regulator would “pretend there was no market failure” and apply its standard competition test on its merits.
“As the failed market will not be taken into account, the analysis will demonstrate there are only minimal competition effects, which in turn will result in the merger being approved and the duopoly being further entrenched.”
An alternative option he put forward involved amending the usual competition test to one fit for purpose for assessing a broken market – essentially setting restoration of a competitive market as its goal.
“In effect, the commission would be testing the merger against the desired future state for the grocery sector – a competitive market – not the likely future state of the continuance of the duopoly.”
He acknowledged this was extremely unlikely, with setting out new assessment criteria seen as a risky move and one that would land well outside of the timelines for assessing the merger.
It would also be met with legal challenge from Foodstuffs, but Duston said the new criteria could be tested and validated by the courts.
Other submitters included activists Grocery Action Group and Monopoly Watch, both of which were against the deal and advocated for a divestment or split of Foodstuff’s brands.
The Warehouse Group, which is increasingly adding grocery products to its namesake offering, also submitted against, saying it would make it harder to achieve genuine price competition for consumers.
Its submission, signed off by Warehouse general counsel Erin Vercoe, said in a market where competition levels were already poor, any loss of competition was material.
Vercoe’s submission said Foodstuffs’ argument that the merger would generate cost efficiencies that would be passed on to consumers was similar to those made in the 2013 merger of the Auckland and Wellington Foodstuffs entities.
“And yet in 2020 a market study into grocery was initiated because of the poor grocery market outcomes for consumers and suppliers. There is a real question whether the promised benefits from the Auckland/Wellington Foodstuffs merger ever, or even mostly, eventuated. The application does not mention them.
“The same statements, by the same organisation, a decade later should be treated with caution.”
Foodstuffs isnt a cooperative it is a cartel – wikipedia definition = A cartel is a group of independent market participants who collude with each other in order to improve their profits and dominate the market. The Foodstuffs “cooperative” is a group of independent business acting collectively to create a massive imbalance in negotiating power between themselves as business and their suppliers and customers. It should treated as such.