Suppliers and small retailers are feeling let down by the Commerce Commission's lacklustre recommendations on the retail grocery sector
Sarah Hedger isn’t just feeling disappointed. She's feeling defeated, too.
The Commerce Commission unveiled its much awaited final report into the $22 billion supermarket sector this week, finding competition “was not working well”, and making a number of recommendations.
But Hedger, a Nelson-based muesli maker, is struggling to see anything that will loosen Countdown (part of the Australian giant Woolworths) and locally-owned Foodstuffs’ grip on the grocery market.
“It’ll be slightly better, but it’s completely discounting the entire problem they set out to fix in the first place,” she says. “Like a lot of suppliers, we will fight for survival in the supermarkets.”
Newsroom has previously reported how Hedger has spoken out against the way supermarket chains haggle suppliers down on their prices.
The commission report says the major two retailers operate as a duopoly, with a fringe of other retailers snatching up any leftover crumbs. There’s little chance of a new or expanding rival competing with the established retailers, due to a lack of suitable sites for premises and difficulties in sourcing wholesale supply of a range of competitively priced products, according to the report.
As a result, the commission made a number of recommendations, including freeing up land for new grocery stores through tweaking planning laws and banning the use of restrictive land covenants. It’s also proposing improvements to the wholesale supply of products at competitive prices, by forcing major grocery retailers to consider requests for wholesale supply in good faith.
But none of this goes far enough according to those associated with the industry and observers, including watchdog Consumer NZ.
The organisation wanted to see regulation of supermarket price displays, promotions and loyalty schemes, as well as a way to force supermarkets to supply other retailers with groceries at competitive wholesale prices.
Instead, the recommendations rely on supermarkets voluntarily changing their pricing and loyalty scheme practices and to only consider requests for wholesale supply from other retailers in good faith, says Consumer's chief executive Jon Duffy.
"We are concerned the recommendations rely on the supermarkets doing the right thing. While we’re happy to see the spotlight put on the supermarket sector, we are concerned that if the spotlight is removed, supermarkets will revert to the practices that brought about the need for this market study in the first place. Change is likely to be slow and consumers are not going to see lower prices at the checkout any time soon."
"You struggle to have a viable business"
Hedger reckons there's nothing to meaningfully disrupt the duopoly. It would take sheer dumb luck for that to happen.
“The quality of supermarkets in this country are really sub-par, at the expense of consumers who are not being given choices and wondering where the quality products that they used to enjoy are disappearing." – Sarah Hedger, Yum Granola founder
“I feel defeated, almost as much as a consumer as a supplier,” she says. “The quality of supermarkets in this country are really sub-par, at the expense of consumers who are not being given choices and are wondering where the quality products that they used to enjoy are disappearing.”
New Zealand has no shortage of innovative and creative food suppliers, or quality ingredients, but the growth of these businesses is thwarted once they reach mainstream stores, according to Hedger.
“If you can't get shelf space in the supermarkets, then you really struggle to have a viable business in this country,” she says. “We’re hearing about the incredible profits that [the retailers] are reaping, and it’s at the consumers' expense and the suppliers' expense.”
The code of conduct proposal is welcome news to Hedger, but she thinks there’ll be no meaningful change unless the Government ushers in changes that will pave the way for greater competition.
Recommendations 'protect status quo'
Matthew Lane, the general manager of convenience store chain Night 'n Day, is also feeling deflated by the recommendations.
He’s previously told the Commerce Commission that the control the two big chains hold over the grocery retail game is stopping any other player entering or expanding in the market.
“It’s very much more of a status quo with some guidelines on how to act with suppliers and how to act with competitors, than giving anyone an opportunity to gain some of [Woolworths and Foodstuffs'] 80 to 90 percent of the market share.”
“In terms of being able to break into the market, I don't see anything tangible there that will help us generate market share in groceries compared to what we had previously,” – Matthew Lane, Night 'n Day general manager
He thinks the final recommendations are taking a big step back from what was proposed in the commission’s draft report, which included a suggestion that major grocery retailers could sell some of their stores to create a third viable retailer.
“In terms of being able to break into the market, I don't see anything tangible there that will help us generate market share in groceries compared to what we had previously.”
It’ll be business as usual at Night 'n Day, with any plans to expand shelved for now.
“The thing that disappoints me most is I don't see what has come out to genuinely reduce prices to the consumer, or provide competition in the market that drives prices down.”
Still, Katherine Rich, chief executive of the Food and Grocery Council, is hailing the report’s proposal to bring in a grocery industry regulator, saying it would be like "a referee on the field".
For more than a decade, the organisation has been calling for a mandatory code of conduct to shape the relationships between retailers and suppliers.
The former National MP thinks this would be far-reaching in terms of monitoring retailers and scrutinising their conduct, and dealing with disputes with suppliers.
“A code will lay out what good business practices are and have some rules about payment terms, deductions, and just add some sunlight to a very murky part of our industry,” she says.
This includes rules on payment terms and timeframes, ad-hoc payments for shelf displays, and under what circumstances a product can be delisted.
Missed opportunity for reset
Sarah Balle, founder of online supermarket Supie, is underwhelmed, calling the recommendations "a missed opportunity.” None of the recommendations will benefit her business, and she doesn’t think consumers will be better off either.
“If we look at the recommendations, I can't put my finger on any of them that will change the price for consumers tomorrow,” she says.
Balle wants more focus put on New Zealand’s future of food, such as working to secure supply chains.
“[The recommendations] have to some extent protected food producers here, but that doesn’t stop the duopoly from increasing their international supply chains and reducing New Zealand production in favour of cheaper imported goods,” Balle says.
“What we were hoping to see was a reset of the industry, protecting New Zealand’s food future for consumers, for suppliers, and for the environment.”
Chris Quin, chief executive at Foodstuffs North Island, acknowledges competition could work better for customers.
In a written statement, he accepts the sector does need to change and says the company is committed to its role in doing that.
The company will consider the final report in detail, but from an initial review it is committed to working with the Government to support the implementation of the recommendations.
“We’ve been fully engaged in the market study process from the outset over 15 months ago, we’ve listened, and we’ve committed to an action plan that will meaningfully improve outcomes for customers and address the proven issues raised through the market study," he says.
“Our action plan includes a commitment to simplifying our pricing and promotional practices, working with suppliers and the Government to develop a compulsory code of conduct, and ending the use of restrictive land covenants and exclusivity provisions in leases.”
Spencer Sonn, the managing director of Woolworths New Zealand, says the company supports the recommendations and will work with the Government to make changes happen.
“Supplier partnerships are a very important part of our business, which is why we support the introduction of a mandatory grocery code to ensure all retailers are held to the same standards.
“We also support having greater clarity and consistency across retailers around unit pricing and promotions, and we support making changes to land covenants to help free up sites for more supermarkets to be developed. We agree with the Commission’s finding that planning law changes could also play an important part in this.”
