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
OPINION:
Like most Kiwis who've shopped at supermarkets overseas, I've been amazed at how much cheaper – and more superior – the goods and produce are. The exception being Cuba. There was not a lot on the shelves of Cuban supermarkets, and what was there was prohibitively expensive.
But inthe UK, France, Italy, the States, Australia – doing a family shop came in a whole lot cheaper than it did back in New Zealand. And I'm sure if you've been shopping in other countries, you too would have seen quality New Zealand meat being sold for less than what you'd have to pay for it at home.
The Government seized on the public grumpiness at the cost of the weekly grocery shop and asked the Commerce Commission to investigate the state of the nation's supermarkets. And in a draft report that surprised nobody, except perhaps the supermarket owners, the ComCom found that supermarkets are letting down consumers, their treatment of suppliers was leading to a loss of choice for consumers and that they are making far too much money.
The commission says that a return on capital of more than 20 per cent is several times higher than what would be considered "normal" in a relatively low-risk industry. Making money isn't the issue. I don't think many people would begrudge someone earning good coin if they've worked their way up from the bottom, if they've worked seven days a week for many years, if they're taking big financial risks, if they're good corporate citizens and doing their bit for the community.
But I do begrudge it if the money being made is because the supermarkets are using the power of their duopoly to squeeze suppliers till their pips squeak. I heard some horror stories from suppliers this week who phoned in to tell me how they'd been treated by the big two, Foodstuffs which has the New World and Pak'nSave stores, and the Australian-owned Woolworths which has Countdown.
In fact, the ComCom has indicated that it may well go back and investigate some bad behaviour on the part of the duopoly with a view to prosecuting. That remains to be seen. But in the meantime, the stern report and its recommendations have shaken up the sector. The recommendations range from the more benign, encouraging supermarkets to make changes on a voluntary basis, to the seismic – forcing the break-up of the groups into retail and wholesale and forcing supermarkets to sell off sites to new players. That would be a game-changer.
New Zealand has the sixth most expensive grocery sector in the OECD. Photo / Getty Images
One of the reasons international supermarket chains, like Costco and Aldi, have found it difficult to get a foothold into this country is the RMA, which makes getting consent for a supermarket site difficult, or that one of the big two already owns a suitable site, or that one of the big two have previously owned the sites and sold them off with restrictions on the new owners against using the sites as supermarkets.
Consumer Affairs Minister David Clark says New Zealand has one of the most concentrated grocery retail sectors in the western world and that we have the sixth most expensive grocery sector in the OECD and he sees a problem with that. He says nothing's off the table. But remember Jacinda Ardern being "hugely concerned" at New Zealanders being fleeced at the petrol pump and ordering the ComCom to investigate the fuel industry?
That report, too, found that petrol companies appeared to have made "excess returns" for most of the past 10 years and that returns on investment are higher than what they would consider a reasonable return to be. The commission set out proposals for how the wholesale market could be improved, which it believed would flow through to cheaper prices at the pump. Yeah, right. How's that working out for you when you fuel up the inappropriate ute?
Still, waving a stick at big international companies and millionaire supermarket owners is good for votes from families doing it tough, and if this Government knows anything, it's how to capitalise on populist causes. The big two would be sensible to take this report, and its recommendations, very seriously.
