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Foodstuffs South Island suffered a net loss in the year to the end of February, in a year of strong price inflation and a contraction of Kiwis’ real purchasing power.
The financial results, however, are considered to be only a very partial picture of the grocery group’s financial health. Both Foodstuffs South Island and Foodstuffs North Island are co-operatives, made up of individual store owner-operators whose financial results are not disclosed.
Revenue for the co-op topped $3.6 billion, a modest increase from $3.3b the previous year. However, the group recorded a net loss of $11.5 million, which followed a net profit of $6.9m a year earlier.
A spokesperson said sales growth topped expectations, driven by “continued inflationary pressures, strong tourism and customers seeking value at our Pak’nSave stores”.
Inflation, as measured by Stats NZ’s basket of goods and services known as the consumer price index, rose 4% in roughly the same 12-month period.
Its figures also show that New Zealanders’ buying power eroded in the period: real gross national disposable income fell by 1%.
Contributing to the loss, operating expenses rose from $295m to $353m.
The spokesperson said a major software upgrade (to SAP S4 Hana) and rollout across the co-op pushed up expenses. The change included a move to the Cloud, and accounting standards require the investment to be expensed in the year of expenditure.
The company’s wage bill also grew by 12%, to $154.7m from $137.9m. At the same time, the co-op’s store count remained unchanged.
The group’s wage growth appears to have considerably outstripped the national trend. Nationally, wages rose by 4%.
Foodstuffs South Island has reported losses in three of the past five years.
New Zealand’s grocery sector is highly concentrated, and dominated by just two players: Foodstuffs and Woolworths NZ. Foodstuffs’ North Island and South Island groups are separate, but work together in a variety of ways, and do not compete for customers. Among their shared banners are New World, Pak’nSave, and Four Square.
Woolworths NZ is largely structured as a single corporate chain, and includes the banners Countdown (rebranding to Woolworths), Super Value and FreshChoice.
The sector is worth over $25b a year, and, taken together, Foodstuffs is the single-largest player. Foodstuffs and Woolworths together control 80% to 90% of the market.
A contentious merger proposal of Foodstuffs North Island and Foodstuffs South Island is currently before the Commerce Commission – members of both co-ops voted in favour of the merger in June.
Foodstuffs South Island results showed merger costs in the year were $4.9m.
Chris Quinn, boss of Foodstuffs North Island will run a merged Foodstuffs if the proposal gets the regulator's nod. Photo / Michael Craig
Foodstuffs North Island has a different financial year; its results are expected later this month.
Last month, the Commerce Commission delayed a decision on the merger for a third time; a final determination is now expected on October 1, some 11 months after the application was lodged. The commission is currently preparing a “statement of unresolved issues” on the matter, to be published in the coming weeks. Interested parties will then have an opportunity to respond to the statement before a final determination is made.
In a “statement of issues” published in April, the watchdog emphasised it was not 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.
The Food and Grocery Council, which represents suppliers, has told the commission a merger would reduce the number of national buyers from three to two, and thereby reduce competition.
Foodstuffs holds that a nationwide co-op will be more efficient, and that the benefits will flow through to customers in the form of lower prices, better quality and innovation.
The proposal comes on the heels of several years of intense regulatory scrutiny of the grocery sector, which has coincided with a period of soaring living costs.
In March 2022, the commission published the results of a market study into the sector that found competition was anaemic and that prices appeared to be anomalously high in an international comparison.
The last Government introduced a range of reforms in 2022 and 2023, including the establishment of a grocery commissioner to oversee competition, 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.
