Commerce Commission hopes to shake up Fletcher Building dominance of building supplies
The Commerce Commission has opened a new investigation into rebates paid by Winstone Wallboards, which rewards suppliers who buy more Gib – a tactic that aspiring competitors say is blocking their entry.
New commission chair Dr John Small delivered the final report from a wider, year-long market study into residential building supplies this morning. He says building regulations focusing on safety, health and durability remain critical, but a specific requirement for competition needs to be added in.
Fletcher Building, which owns Winstone Wallboards, hit back immediately. There has been criticism of Gib's 95 percent market share, but Fletcher says that reflects nearly 100 years' legacy of earning the trust of customers. "We are therefore surprised by the commission’s conclusion that it needs a third investigation to collect information about Winstone Wallboards and its rebates," says corporate affairs general manager Christian May.
READ MORE: * Jonathan Milne: Supplier backhanders lock out new building products * Nikki Mandow: Is Winstone Wallboards bad or actually really good?
Nonetheless, the company has now written to suppliers saying it will no longer use quantity-forcing rebates, and will instead move to a tailored, flat pricing model. That model, too, rewards high-volume purchases. "Given its position in the market, Winstone Wallboards is showing leadership," May says.
Small says this market study didn't identify specific issues, like whether Winstone is using its market dominance to pull in excessive profits. That would be a matter for the investigation.
Asked if the recommendations are intended to shake up Fletcher's dominance of the building market, he replies: "That's part of it."
Fletcher dominates the supply of products including plasterboard (Winstone Wallboards), cement (Golden Bay Cement), concrete (Firth) and insulation (Tasman Insulation). It also operates PlaceMakers and is active in residential construction. Its competitor Carter Holt Harvey manufactures products including structural timber (CHH Woodproducts) and operates retailer Carters.
The commission previously investigated Winstone Wallboards' rebates in 2014, but didn't have powers to act then. The scope of the commission's powers have now widened. And Small warns building suppliers that further changes to s36 of the Commerce Act will strengthen its arm further, to take court action against anti-competitive conduct.
He says the report's nine recommendations will make "a real difference" in delivering more choice and better quality along with greater innovation for the benefit of NZ homeowners.
“Ensuring the building regulatory system continues to deliver quality housing to New Zealanders is critical, and must remain a core objective,” Small says. "However, we can’t ignore the fact that changes are needed to enhance the building regulatory system for the benefit of all New Zealanders. We have heard compelling evidence that competition should take a more prominent position in the regulatory system and its decision-making."
Former commission chair Anna Rawlings, who ended her term this week, says the consultation with industry stakeholders and other interested parties and testing of the preliminary findings have given further confidence in the findings and recommendations, and greater clarity about the importance of scale.
Competition for the supply of key building supplies is not working as well as it could, she says. “It needs to be easier for new building products and new methods to be introduced into New Zealand, and for competing suppliers to be able to expand their businesses – that is the essence of competition."
The commission has identified two main factors making it difficult for competing products to be introduced and expand: ► The building regulatory system continues to incentivise designers, builders and building consent authorities (BCAs) to favour familiar building products over new or competing products; ► Quantity-forcing rebates paid by established suppliers to merchants appear, under certain conditions, to be reinforcing regulatory factors impacting entry and expansion, making it difficult for new or competing products to access distribution channels and increase sales.
“This market study shows that familiar products have become embedded in home-building practice in New Zealand," Rawlings says.
As in previous market studies into the fuel and the groceries sectors, the commission has also identified land covenants and exclusive leases that benefit merchants, which will be the focus of further work using the commission’s compliance and enforcement functions and powers. It's already launched in inquiry into one land covenant.
