The Commerce Commission last week declined clearance for a merger between Foodstuffs North Island and Foodstuffs South Island.
Sasha Borissenko is a freelance journalist who has reported extensively on the legal industry.
OPINION
With weekly grocery spending increasing from 7.3% in 2019 to 28.9%, it’s been a comfort to see the Commerce Commission flexing its legislative muscles for the benefit of consumer underdogs.
Aftermonths of prolonged deadlines, last week the Commerce Commission (ComCom) declined clearance for Foodstuffs North Island to merge with Foodstuffs South Island under the Commerce Act because the move could further stifle competition.
The audacity of a merger that would see Foodstuffs becoming ‘one single national grocery entity’ in competition with Woolworths - so soon after the Grocery Industry Competition Act 2023 was introduced - hasn’t escaped me. Neither is the fact the duopoly - often referring to Foodstuffs and Woolworths (in its current iteration) - is technically a ‘throuple’ of retailers.
But we’re getting ahead of ourselves. Let’s backtrack to April when new Grocery Commissioner Pierre van Heerden outlined his intentions in a strongly worded letter to the grocery sector.
He warned the country’s $25 billion grocery sector needed more competition, warning retailers to take their obligations seriously. Essentially, the newly adopted legal instruments created following the watchdog’s 2022 mega study into the grocery sector had a grace period, which was coming to an end.
Fast forward to June, ComCom acted on findings revealed in the 2022 market study by filing charges in the High Court against Foodstuffs North Island. Pointing to land covenants dating back to 2013, ComCom argued the retailer blocked potential competitors from setting up camp at particular sites.
In his Wellington High Court decision released in August, Justice Paul Radich said the “serious” and “deliberate” actions hindered rivals from entering the market in two locations in Wellington and one in South Napier.
Foodstuffs North Island was fined $3.25 million - the most significant penalty ever under the Commerce Act. Justice Radich acknowledged Foodstuffs admitted the conduct at the earliest opportunity.
Lacklustre supply code
In August, van Heerden launched a review of the Grocery Supply Code less than a year after its introduction over concerns systemic issues still needed to be addressed.
Frankly, the writing was on the wall when the code was released last year. It introduced mandatory requirements, including the need to have contracts between retailers and suppliers. [I still find it wild that “handshake” agreements, as van Heerden put it, have been a thing, but I digress.]
It loosely also addressed premium real-estate or shelf pricing, where supermarkets were tasked with providing all suppliers with their product range and shelf-range principles.
Breaches of the code could result in fines of up to $3m (or 3% of business turnover) and $200,000 for individuals.
Grocery Commissioner Pierre van Heerden. Photo / Mark Mitchell
‘Supermarketing’, as I like to call it, allows suppliers to pay more for eye-level areas, for example. It’s no coincidence that the confectionary aisles traditionally sport discounted items a head shorter than others. Marketing to children? Who’s to say?
There are three issues. First, the unequal bargaining power between suppliers and retailers is thwarted by the fact there are so few retailers to sell to. Second, supplier ‘supermarketing’ and paying for business activities such as supermarket staff parties is deemed reasonable if it benefits the supplier in some form.
This brings me to the third underlying issue: the code aims to level the playing field among retailers and suppliers, but what if all suppliers aren’t equal? There’s a massive difference between a multinational company with deep pockets and endless supply and Joe Bloggs creating chutney in their local commercial kitchen.
Grocery report punctuates problems
Then there was last month’s inaugural grocery report, which reiterated the Supply Code was not working.
Ultimately, there had been no meaningful improvement in competition between 2019 and 2023, resulting in an average household spending $214 a week on groceries, or about 13% of their total weekly budget.
With the fourth-highest grocery spending in the OECD, retail margins had in fact increased, and retailers were continuing to enjoy the benefit of high market shares and high levels of profitability, the report read.
On top of the Supply Code review, the report outlined ComCom’s promise to launch an inquiry into the wholesale regime, introduce disclosure standards, attempt to persuade new players into the market, and continue to monitor and regulate the sector under the Commerce Act, Fair Trading Act, and Grocery Industry Competition Act.
The problem with fines is there’s no guarantee supermarkets won’t pass them onto customers. There’s also the issue of the cost of justice. For example, will we see an appeal following last week’s failed merger? Probably. From a resourcing perspective, ComCom, like the whole public sector, has had its fair share of job cuts.
Finally, although commerce minister Andrew Bayly has openly supported van Heerden’s intentions, regulations minister David Seymour is not here for it. It’s perhaps another reason why throuples don’t work.
