Liz Gordon: Rein in the power of the mega market

Reports that the supermarket industry is putting the screws on wine suppliers is the latest twist in a long-running saga. Since a group of grocers got together in Auckland in the mid-1920s and formed what is now Foodstuffs New Zealand, retailers have been looking for ways to force suppliers to reduce prices.

What has changed is that the supermarket industry is now dominated by two huge companies. It is a duopoly. Foodstuffs, a New Zealand-owned collective, has about 56 per cent of the market with Pak'n Save, New World and Four Square stores, and had an income of more than $6 billion last year.

Progressive Enterprises owns most of the rest. It is made up of Countdown, Woolworths and Foodtown stores. It has been owned by a series of Australian companies and since last year by Woolworths Australia, a $32 billion company.

As the supermarket industry has grown and consolidated, its power over suppliers has increased. In the old days, large suppliers like Watties were strong and could demand good prices.

But with growing competition from imported goods, and the constant threat that supermarkets will stop stocking their products, all suppliers are now under constant pressure to reduce prices.

The supermarkets make a virtue out of this. Foodstuffs Auckland heads its supplier information document with the following statement:

"We are the buying agents for our consumers. We make no apology for demanding your very best price at all times ... "

The idea that the supermarkets are somehow the watchdogs for consumers may be comforting, but it only tells part of the story.

Profits are going up, with Foodstuffs recording a 7.8 per cent increase in distributed profits last year. Woolworths Australia also had a bumper year.

The other group feeling the pinch from the duopoly are supermarket workers. While the CEO of Woolworths Australia earns a cosy A$8.5 million ($9.4 million) in pay, supermarket workers struggle to earn much above the minimum wage. The loss of penal rates in the 1990s led to a big drop in wages here, compared to Australian supermarkets where every hour worked above 38 each week is still paid at time and a half.

With Laila Harre as the new Secretary of the National Distribution Union, retail workers are gearing up for a challenge to their low wages and poor conditions.

But while supermarket workers have the opportunity to fight for higher wages through their unions, suppliers do not appear to have any national voice.

While a couple of organisations supposedly represent food manufacturers in New Zealand, they have been silent on the threat to their members posed by the aggressive supermarkets.

The main problem is that manufacturer organisations are based on the belief that competition is good, and the more players in the market, the better. But competition allows the supermarkets to pick suppliers off one by one.

If a supplier fails to comply with price demands, its products simply disappear from the shelves. There are less draconian sanctions, too. Products can be moved from eye height down to the bottom shelf, guaranteeing slower sales and fewer profits.

The duopoly's tactics could not work if suppliers banded together to protect their products. Can you imagine a New Zealand supermarket with no New Zealand wine on the shelves? Or where the baked beans were all made in Asia?

Suppliers could bargain effectively with the Big Two, if they marshalled their forces locally.

Now that Woolworths Australia owns Progressive Enterprises, we are likely to see this company screwing down prices paid to New Zealand suppliers.

While New Zealand consumers may benefit directly, the main beneficiaries will be the Australian shareholders of the company, as increasing profits are pumped over the ditch.

The losers will be New Zealand suppliers and the low-paid workforce. A company with the size and resources of Woolworths Australia has the ability to send hundreds of local suppliers to the wall. It is not in this country's interests that this happen but, with the suppliers so disorganised and the supermarkets so powerful, this is the likely outcome unless the suppliers get their bargaining act together.

The wider issue for the country is that the supermarket industry is growing worldwide, sucking in alcoholic beverages, pharmacies, gas stations and a range of general goods.

The new configuration is the megastore, a 24-hour, sell-anything shop under one roof. Tesco in Britain is trying to incorporate doctors' surgeries into supermarkets. The expansion opportunities are endless.

But, internationally, concern is increasing about the effects of this model, on suppliers and on lifestyles.

Most of us like browsing and shopping at a range of shops, buying our bacon from the butcher who smokes it, free range eggs from a local stall, coffee from the roaster and wine from the tiny shop on the corner.

The logical end of the expansion of supermarkets is that all the other shops will disappear. The British Government is so worried about the disappearance of owner-operated shops that it has launched an inquiry.

Whether looking at the issue socially, economically or environmentally, a society where there is no place left to shop but the mega market is not a healthy one.

Suppliers need to act while they still can, but wider action is also needed. We need to replace the race to the bottom mentality - where low prices are the bottom line whatever the cost - with a race to the top: well-paid workers, diverse suppliers getting a fair price, a balance between mega shops, micro shops and those in the middle.

It is probably time the Government launched its own inquiry into the supermarket industry here, before our suppliers, small shops, pharmacies, independent liquor suppliers, clothing, footwear, furniture, tools and all other retail groups disappear from our communities forever.

* Liz Gordon is a former Alliance MP.