Focus Live: PM Ardern and David Clark on supermarket regulatory measures.
Video / NZ Herald
Retail NZ says it is sceptical that the Government's move to force the big two supermarkets to sell groceries to their competitors at set prices and terms if they fail to adequately wholesale market voluntarily will deliver better prices for consumers.
Greg Harford, chief executive of the retail industry group, said historically government intervention had not resulted in better prices.
Harford said if the Government wanted to deliver better grocery prices for consumers then it could simply remove GST on fruit and vegetables - resulting in an instant 15 per cent cut on current prices.
"We are supportive of some aspects of the response from the Government on the findings of the Commerce Commission – like the code of conduct and independent dispute resolution scheme.
"However, we are sceptical that Government intervention and further regulation in the wholesale market will deliver better prices for Kiwis. Historically we haven't seen government intervention in these circumstances deliver better prices, for example the regulation of Telecom," Harford told the Herald.
"New entrants to the market, or other retailers moving into the grocery market haven't required government intervention in order to set up shop in the New Zealand market or deliver competition in prices.
"Retail is different to markets such as telecommunications or electricity in that retailers tend to want to differentiate themselves by offering products and services that are different from their competitors."
This afternoon Commerce and Consumer Affairs Minister David Clark fleshed out the Government's plan to improve supermarket competition. He said it would start working on a regulatory backstop to make big supermarket companies, like Foodstuffs and Woolworths, provide wholesale goods to competitors at a fair price.
The idea is to give smaller retailers and new market entrants a leg-up, by helping them source and sell a wider range of groceries at better prices.
He provided more details about the new rules.
"Under these changes the existing duopoly will be required to negotiate wholesale offerings to their competitors on commercial terms," Clark explained.
"However if those prices are not what we would expect in a competitive wholesale market the new Grocery Commissioner will be able to impose additional regulation to force fairer prices.
"Ultimately if these interventions don't deliver a fair deal, new regulations can be utilised to require the major retailers to provide wholesale supply at certain terms, including price and range."
Clark said the new system would incentivise the major supermarkets to "play fair".
The Government is calling the move "a shake-up of the grocery sector" and said that it would ultimately drive cheaper prices for consumers at the checkout.
A year-long study into the grocery market by the Commerce Commission found that supermarkets in this country earn $1 million a day in excess profits because of a lack of competition.
Its final report said the sector was not giving Kiwis a fair deal, with little competition to keep prices competitive.
A grocery commissioner has recently been appointed to police the sector and "blow the whistle" on rip-offs as part of the government's efforts to bring down grocery prices. The watchdog is based within the Commerce Commission and will review competition in the sector annually.
Consumer NZ welcomed the new rules to increase competition in the sector.
Earlier this year, the not-for-profit petitioned the Government to go further than the Commerce Commission's recommendations and look into regulating access to wholesale supply.
A petition by Consumer NZ for this racked up more than 78,000 signatures.
"We are pleased the Government has recognised that relying on the supermarket giants to play fair was never going to work," said Consumer NZ chief executive Jon Duffy.
"Although the devil will be in the detail, wholesale access is the key to healthy competition in the grocery sector.
"It will remain difficult for grocery retailers outside the duopoly to set up or expand if they can't access a decent range of wholesale groceries at reasonable prices. This is the logical next step in the Government's work plan to fix the broken supermarket sector."
Spencer Sonn, managing director of Woolworths New Zealand. Photo / Supplied
Supermarkets respond
The operator of supermarket chain Countdown has set up a new wholesale business unit and is underway with work on bringing on a handful of small-scale wholesale customers.
Woolworths New Zealand managing director Spencer Sonn said work had begun to open up its wholesale channel, and the supermarket operator was close to signing up its first multi-store wholesale customer.
He said it was also working to establish the required systems for wholesale and talking with its top 50 suppliers around the terms of wholesale trade and supply.
"It's our view that we are best to get on and do it, and that's what we're doing," Sonn said of the Government's fresh efforts to regulate the sector.
He said he agreed with Government that there should be a backstop for the industry if players did not take active steps to make wholesale happen.
But he warned overly complex regulation could make the cost of living crisis worse.
"The inflation that we are seeing now is being driven by high commodity prices for locally grown and produced goods, significantly increased local and global freight costs, labour shortages, unpredictable weather and global inflationary pressures which many other markets much larger than ours are experiencing too. Unnecessary and overly complex regulation will not solve those problems, and in fact, could make the cost of living crisis worse."
He said future wholesale supply would only be successful if suppliers gave their support around price, range and volumes available to wholesale customers.
Foodstuffs has been contacted for comment.
Sunny Kaushal, chairman of the Dairy and Business Owners Group. Photo / Supplied
What dairy owners say
The dairy owners' association representing over 5000 independent dairies up and down the country says the Government's new rules are unlikely to make much difference to their access to wholesale supply, and the industry has instead made its own moves to seek better wholesale supply and prices.
More urgency was needed than the Government's legislation to help free up wholesale supply, which was expected to come into effect at the end of the year, Sunny Kaushal, chairman of The Dairy and Business Owners Group, said.
Kaushal said the organisation of small business owners was close to finalising a private wholesale supply deal with the supermarket chains.
He could not share specifics as negotiations were underway.
"We as a dairy and business owners' group are in talks with the duopoly to access lower-cost grocery goods as a business-to-business wholesaler. Our ambition is to make dairy cost-competitive, that is as good for consumers as it will be for the environment and for the future of dairies, Kaushal told the Herald.
Kaushal, who owns his own food and hospitality businesses, said the organisation began discussions with the duopoly a couple of months ago. He said the legislation announced by Government would be in effect by the end of the year and diaries needed a better solution well before that.
"Dairies are going to be the third-largest competitor in the market, and we are gearing up for that - it will be a significant leap for the dairy sector," he said.
"Dairies have all the features of a supermarket that is local, and being local means a huge saving in emissions too. Dairies are often the last shop standing and are vital for the community. It is no secret that we are under the gun by the Government's plan for smoked tobacco, which accounts for half of our sales, which is why we were quick in starting talks in wholesale supply so we can diversify what we sell."
