Commerce Commission chair Anna Rawlings. Photo / Mark Mitchell
Commerce Commission chair Anna Rawlings. Photo / Mark Mitchell
OPINION:
This column was compiled prior to the release of the Commerce Commission's final report this morning. See our story here.
Eight months after the competition watchdog delivered a blunt assessment of the problems in the $20 billion a year grocery market, we will see if it hasstuck to its guns.
At 8.30am, Commerce Commission chair Anna Rawlings will deliver the final report from its market study into supermarket competition.
In July, the interim report read like an argument for some kind of structural separation of the industry, dominated by two players, Foodstuffs (New World, Pak n' Save and Four Square) and Woolworths (Countdown, Super Value and Fresh Choice).
The Food & Grocery Council did not disguise its surprise, with chief executive Katherine Rich suggesting supermarkets were having a "Telecom moment", pointing to a time when the telecommunications giant arguably misread the public mood for change which ultimately led to the break-up into Chorus and what would become Spark.
Rich's claims hardly seemed an exaggeration.
"Our preliminary view is that the core problem is the structure of the market," Rawlings said when the interim report was released. Woolworths and Foodstuffs were effectively a duopoly, as they largely only seemed to consider each other when setting prices.
This led to profits "consistently and materially above what we would expect in a workably competitive market," Rawlings said. Claiming returns on capital were in excess of 20 per cent, the commission claimed that in a truly competitive market, new entrants would enter to take a slice of the profits.
Solutions could range from a code to frame fair dealings with suppliers, forcing the divestment of some supermarkets or even splitting the market companies into parts along brand lines or between wholesale or retail.
Tuesday's final report will reveal the extent to which the supermarkets have been able to convince the commission either that the interim report was based on evidence that did not stand up to scrutiny, or that the companies should be allowed to change their behaviour voluntarily, or both.
In his final submission to the commission in December, Foodstuffs North Island chief executive Chris Quin (a former Telecom executive) claimed that "correctly calculated", the businesses' average return on capital was 9-12 per cent, in line with international comparisons used by the commission.
Foodstuffs North Island chief executive Chris Quin. Photo / Supplied
Earlier, Quin had indicated an action plan which would simplify pricing for customers, change the way it uses leases and covenants and work "with suppliers and the Government to develop a consumer-focused grocery code".
All of the commitments are material, but all seem like tacit acknowledgements of behaviour that cannot be explained away in a competitive market.
In the lead-up to the report, there are few indications on how far the commission would go in its recommendations, or the mood of the Government to force change.
The market study was a pre-election promise by Labour leader Jacinda Ardern "to ensure the cost of living in New Zealand is fair".
When the interim report was released, Commerce and Consumer Affairs Minister David Clark did describe the supermarket groups as being a duopoly in response to questions from reporters but adopted a largely neutral tone.
There have been few signs in recent months that the Government is attempting to build public support for a significant intervention.
With the cost of living now becoming a hot political topic as inflation hits the highest in a generation, and supermarkets taking a major chunk of Kiwi households' budget, the ball will be very much in the Government's court if the commission recommends meaningful changes.
