The Commerce Commission's study into supermarkets has concluded that competition in the retail grocery sector "is not working well for consumers". Video / Mark Mitchell
A report into competition in the $22 billion supermarket sector represents "the Telecom moment" for the industry, the Food & Grocery Council says.
On Thursday the competition watchdog found major issues in the supermarket industry which is dominated by two major companies, raising the prospect of structural separation of the wholesale food market or forced sales of some sites to encourage a third player into the market.
For the Food & Grocery Council, the report was the culmination of years of pressure to highlight what it claims are major problems in the sector.
Commerce and Consumer Affairs Minister David Clark at a midday standup in central Auckland: "We’ve certainly heard anecdotes about suppliers facing unreasonable pressures from the big chains ... Some of the stories I’ve heard sound really unacceptable." Photo / Dean Purcell
Its chief executive Katherine Rich, a former National MP, has long claimed that the supermarkets use their power to squeeze suppliers, without passing on the savings to customers.
Asked about alleged supplier bullying at a midday press conference, Commerce and Consumer Affairs Minister David Clark said, "We've certainly heard anecdotes about suppliers facing unreasonable pressures from the big chains. Some of those are documented in the study. And I expect we'll hear more over the coming weeks and months. The submissions process is now open and it's a chance for people to tell their stories."
Asked if there was supplier intimidation (something alleged by then Labour MP Shane Jones in a 2014 campaign against the big chains, who denied wrongdoing), Clark said, "Some of the stories I've heard sound really unacceptable [but] I'm going to want to read the whole report to get the detail on those but I would expect that everyone in the sector will be taking a good hard look at themselves, even before that final report."
Rich said she had been braced for a report suggesting modest changes and so was surprised not only by the recommendations, but also suggestions of structural separation.
"It really is the supermarket industry's Telecom moment," Rich said, referring to a time when the former state-owned giant was caught by surprise as the Government moved to structural separation into Chorus and what would become Spark.
Asked if this was the big supermarket chains' "Telecom moment," Clark said, "The report lays out a range of options for addressing the challenges that the Commerce Commission has quantified. We will look for the final report - we're now consulting - to see which option will best address the problems they've identified."
The Minister circumvented other questions, including whether the Government was open to a state-owned "KiwiShop" chain, or what the report meant when it raised the possibility of "sponsoring" a new, third supermarket contender, Clark stuck to the same line that the initial report had described the lay of the land. After consultation, there would be specific recommendations. He would not comment on specific remedies until that time.
Clark did call the two major supermarket chains a "duopoly" at one point, but was otherwise largely reserved in his comments.
Rich said the supermarkets would likely raise dire warnings about what could happen if they were forced to make major changes to their business model, but the country should not be afraid of the debate.
"They'll be all the same arguments that Telecom used when it failed to read the room. But look what happened, we have a flourishing telecommunications market and better services than ever," Rich said.
NZ Food and Grocery Council chief executive Katherine Rich welcomed calls for a mandatory code of conduct for supermarkets. Photo / Mark Mitchell
Clark said he would welcome pre-emptive changes in behaviour.
"To anyone in the sector who is not behaving as they should, I would say they should take the opportunity now to demonstrate they do have the best interests of customers at heart."
Beyond the alleged squeeze on suppliers, the Minister said today's report "suggests that some of the offers and deals that are out there are actually confusing for consumers
"We've got a story today laid out by the Commerce Commission that there have been extraordinary profits made in the sector over a period of time and compared to international settings we know that there are big profits being made here.
"We're only a few weeks away from the final report. It will give us a view of the best way everyone in the sector can get a fair deal, including suppliers, including consumers. We want everyone here to be winning, not just one part of the sector to be taking out super-profits."
Clark added, "We will do whatever it takes to make sure New Zealanders get a fair deal at the checkout."
"We don't expect that all the options today will be implemented, but it's important to have the discussion. It's an opportunity for our industry to think about doing things in a better way, not just for suppliers, but for consumers and retailers themselves," Rich said.
Rich said the report was "thorough and meticulous", covering all of the points the Food and Grocery Council hoped it would cover, including on how they treat suppliers and what it does to the range of options available in New Zealand.
"It considers all the things we've been saying for years about the treatment of suppliers and the impact on innovation, closures and prices for consumers."
On several occasions Commerce Commission chair Anna Rawlings referred to the concerns raised by Rich and the council as part of the study.
Rich said it was pleasing to see reference to the creation of a mandatory code of conduct for the supermarkets.
"One of the things the supermarkets need to listen to and reflect is the strong message about the treatment of suppliers and the importance of having more transparent business relationships which can be overseen by a mandatory code."
She also welcomed the reference the commission made to supermarket profitability, describing the profits as excessive and stable, and at a level at which one would normally expect new players to come in to try to share in the profits, but did not.
"The conclusions about the profitability of the New Zealand market is exactly what the Food and Grocery Council has been talking about for years," Rich said.
"The Commerce Commission highlighted the number of times that promotional money taken from suppliers does not get passed on to consumers and we've been saying that. It's gone to fatter margins, not lower prices for consumers," Rich said.
"I believe we have one of the most profitable supermarket networks in the world. We welcome and we need new players to come into the market. Until that happens the level of competition is not enough to keep a check on prices for consumers."
So far the supermarkets have offered little comment on the report. Woolworths, the Australian company that owns the Countdown chain, said the changes would be likely to have a significant impact on its business.
So far Foodstuffs, owner of New World and Pak'nSave, has not provided the Herald with comment.
David Seymour, leader of the Act Party said the study cost millions of dollars and told us what we already knew. But he also referenced the changes at Telecom in the early 2000s.
"There is little real competition in the grocery duopoly, suppliers are treated poorly, if not wickedly, and consumers pay higher prices than they would in a more competitive market," Seymour said in a statement.
"The basic options are to do nothing, unbundle wholesale and retail in a move similar to the Telecom unbundling of the early 2000s, or address the wider problems of it being too difficult to do business in New Zealand."
But Seymour said while the unbundling of Telecom "might have been acceptable, at a pinch" given it was the legacy of a government department "taking private firms and trouncing their property rights would be unacceptable in a free society that wants people to invest".
National's commerce and consumer affairs spokesman Todd McClay said the report "will likely confirm what a lot of New Zealanders are experiencing when they head to the shops". However, the Government should reflect on its role in the rising cost of food.
