Merger costs of $7.1m help Foodstuffs North Island to a modest loss. Photo / Tracy Neal
Foodstuffs North Island recorded a modest $3.28m net loss in the financial year to the end of March, its first such loss and largely due to tax changes.
Nevertheless, the grocery co-op - owned by its individual store owner-operators - appears to be in good health. The losses were recordedafter distributions and dividends to store-owning members which topped $163m.
Individual store owner-operators’ financial results are not disclosed and the group’s financial results are considered to be only a very partial picture of the underlying businesses.
Revenue across the group continued to grow, it topped $9.23b, up from $8.46b the previous year.
Contributing to the loss, operating expenses climbed to $692m, up nearly 7% from last year.
A spokesperson said the net profit after tax loss was largely due to tax legislation change which removed tax depreciation deduction on commercial buildings: “This meant our deferred tax liability increased by approximately $56m, with a corresponding increase to tax expense.”
The effect is one-off and accounted for in full in the 2024 financial year.
Earlier in the month, Foodstuffs North Island’s counterpart, Foodstuffs South Island, also reported a loss for its financial year, which is slightly offset. It posted a net loss of $11.5m, on revenue of $3.6b. It too is a co-op made up of individual store owners whose financial results are not made public.
Taken together, Foodstuffs constitutes the country’s largest supermarket group. It includes New World, Pak’nSave and Four Square.
The two co-ops are currently seeking clearance from the competition regulator the Commerce Commission to merge their operations.
Last month their members voted decisively in favour of consolidation. However, final approval must be given by the High Court, and it is also subject to clearance from the commission.
The application to the commission was formally made last December and merger costs to the grocers reached $12m in the last financial year - $4.9m for the South Island and $7.1m for the North Island.
The groups are currently linked in various ways, but they operate in separate geographies and do not compete for retail customers.
The prospect of a merger is controversial. It offers obvious efficiencies, such as merging head offices. But it would allow the groups to fully integrate, including merging technology and data sharing and centralising pricing and purchasing, which touch on areas important to competition.
It also comes in the midst of intense regulatory scrutiny and a period of significant regulatory change for the grocery sector.
In March 2022, the Commerce Commission published the results of a market study that found the $22b sector was essentially carved up between two big players, constituting a duopoly: Foodstuffs and its Australian-owned rival Woolworths NZ, structured as a single corporate chain (banners include Countdown, rebranding to Woolworths, Super Value and FreshChoice).
The report found that competition between the duopoly players was anaemic and that prices appeared to be anomalously high in an international comparison.
The last Labour Government introduced a range of reforms, which have come into effect over the last several years, including the establishment of a grocery commissioner to oversee and report on competition in the sector, the mandated wholesale supply of goods by the supermarkets, and a code of conduct that supermarkets are obliged to follow in their dealings with suppliers.
The New Zealand Food and Grocery Council, which represents suppliers and manufacturers to the grocery stores, has said the merger would reduce the number of major national buyers from three to two, and thereby reduce competition.
The commission is currently preparing a “statement of unresolved issues” on the matter, to be published in the coming weeks. A final determination is expected on October 1.
In a “statement of issues” published in April, the watchdog emphasised it was not yet satisfied the proposed merger would not substantially lessen competition.
Of particular concern was whether competition in the so-called upstream market, for the purchase of groceries from suppliers, would be substantially lessened by the proposed merger.
Other submitters have argued that retail customers would be no better off, and that Foodstuffs itself would bank any savings from a merger.
Chris Quin, chief executive of Foodstuffs North Island, couches the issues differently. He told the Herald that the a slew of recently introduced regulation for the supermarkets curtails grocers’ power.
And he emphasised that Foodstuffs has simply taken on the challenge to find savings and efficiencies laid down for it, both by the public and by the Government.
In the face of upward spiralling living costs and general inflation, he said the best lever he has for easing grocery prices is more efficient operations.