It's hard to say whether there was sufficient evidence to warrant the Commerce Commission investigating specific claims of retailer pressure, says Food and Grocery Council boss Raewyn Bleakley.
Food chain Farro Fresh is the first big established retailer to speak out about a Commerce Commission probe into grocery suppliers enforcing high prices.
It comes after the commission talked to a number of companies, in its inquiry into pricing pressure being placed on an online retail start-up, The Honest Grocer.
The commission has formally warned three unnamed grocery suppliers who demanded the online retailer charge more than supermarkets. The commission's next step is fines of up to $10 million.
Ben Nathan, the founder of the now-defunct Honest Grocer, spoke publicly this week, for the first time since he first raised concerns two years ago. He's bruised but not broken.
READ MORE: * Three grocery suppliers cautioned for price-fixing * Online grocer faces ‘bully tactics’ from supermarkets * Grocery start-ups shut down in shadow of big supermarkets
Nathan tells Newsroom he's busy now with his import business, Container Door, which he says is "trucking along".
But he's not ruling out a return to the grocery trade. "Never say never. I'm quite keen to get into it again at some point, one day.
"So yes, one day maybe I'll get back into the grocery business with the right partner."
Newsroom approached Farro for comment, and is also now seeking responses from Foodstuffs and Woolworths. Farro has replied through its lawyer, Matt Sumpter at Chapman Tripp.
He discloses the commission had asked questions of Farro.
"Farro voluntarily provided the Commission with information for its investigation," Sumpter says.
"But, in requesting that information, the Commission explained to our client that it was just seeking background information from Farro and that Farro was not the subject of its investigation."
The subjects of the investigation were not Farro or other retailers, but were the three unnamed food suppliers. They were issued formal compliance warnings for pressuring online store The Honest Grocer to charge shoppers higher prices.
Founder Ben Nathan had alleged the food suppliers were put up to it by established retail brands, who didn't want their prices matched or undercut.
He expressed concerns about the withdrawal of products such as bottled water brand Antipodes, a dried pasta range, five wine brands including Otago winery Amisfield, cleaning brand Earthwise, and several more. Most cited concerns about pricing.
His company supplied the Food and Grocery Council and the Commerce Commission with copies of emails from suppliers like Earthwise, who said they were coming under pressure from their trading partners.
"Part of our agreement on offering you a very competitive cost price to allow you to achieve competitive pricing, while achieving margin goals was that pricing would not be lower than Pak'nSave everyday pricing," wrote an Earthwise sales executive, in an email to Nathan. "As I'm sure you can understand this can potentially put trading agreements with our major customers at risk."
"It’s difficult to comment on whether there was sufficient evidence to warrant the Commerce Commission investigating specific claims of retailer pressure on suppliers." – Raewyn Bleakley, Food and Grocery Council
Earthwise did not say it had come under pressure from Pak'nSave owner Foodstuffs, or any other big grocery chain.
Similarly, Sumpter emphasises, "Farro did not receive a Commission Compliance Advice letter."
By speaking out publicly about taking on the big grocery chains, entrepreneur Ben Nathan drew the Commerce Commission's attention to illegal measures which excluded start-ups from competing. Now the watchdog has acted, but too late to save his business.
He had encouraged suppliers to "stand strong" in the face of any heavy-handed tactics from the supermarkets – but as Newsroom revealed, suppliers instead demanded he increase his prices or they would pull the pin. One after another withdrew; some said they'd come under pressure from bigger retailers.
Nathan told the Food and Grocery Council last year: "After loading Italian dried pasta onto the site, all the pictures and prices which takes a long time for us to do... I got a call telling me my prices were too low. A big customer had called them to complain. The supplier said 'pull our account' so we did.
"This is bully tactics."
Eventually, the Honest Grocer was forced to shut up shop.
The commission warned three suppliers their conduct could breach the Commerce Act. It declined to says who those suppliers were; the other suppliers named by Nathan were cleared.
Amisfield Wines and Antipodes Water both they said they were not among the suppliers that received warnings from the Commerce Commission. Earthwise director Jamie Peters did not return calls.
Supie under pressure to raise prices
Another online grocery retailer, Supie, says it too has come under pressure from suppliers to raise its prices.
It reported to investors this year that it had made an impact on grocery competition, since launching in 2021.
"But we’re seeing the pushback from this with multiple suppliers reaching out to us concerned that our prices are competitive with the duopoly and demanding that we increase retail pricing, despite maintaining reasonable profit margins.”
Supie founder Sarah Balle says she raised the problem with the Commerce Commission and the Food & Grocery Council this year.
"One of my concerns now is that suppliers won’t be open and transparent as to why they are choosing to no longer supply particular retailers, if it is related to resale price maintenance or perceived pressure from the duopoly – they will simply give another reason so that they don’t run into issues.
"This is also concerning because the duopoly can now control more of the supply chain and wholesale prices to independent retailers due to the wholesale regulations imposed by the Government."
She says suppliers are used to dealing with the major supermarkets. Now with independent retailers such as Supie (and previously The Honest Grocer) entering the market, suppliers need to take a look at what they want for Kiwi consumers, rather than just the duopoly as their customers – because it may end up that the spotlight gets shone on suppliers limiting the ability for New Zealand to increase grocery retail competition.
"Yes, this may stem from the perceived dominance of the duopoly, but suppliers have to play their part in promoting and enabling grocery retail competition."
The Food and Grocery Council says the new Grocery Commissioner, appointed this month, has advised suppliers and retailers on how to make complaints and general inquiries.
"It’s difficult to comment on whether there was sufficient evidence to warrant the Commerce Commission investigating specific claims of retailer pressure on suppliers and whether any such alleged actions might have fallen foul of the rules in place at the time," says chief executive Raewyn Bleakley.
"In future, we expect the newly appointed Grocery Commissioner ... will enable suppliers to raise any concerns about retailer behaviour with confidence they will be investigated."
This isn't the first time the Commerce Commission has cracked down on resale price maintenance. In 2006, it prosecuted computer parts wholesaler Morning Star Computer Ltd.
The company had told its resellers not to advertise six products for sale below the recommended retail price. It threatened to increase wholesale prices to the resellers if they advertised the products below the recommended retail prices. Morning Star was convicted and fined $50,000.
After being approached by Nathan and other start-up retailers, the Food and Grocery Council raised concerns about similar practices in groceries. It said (and the Commission agreed) that established grocery retailers were seeking to limit entry and expansion by other grocery retailers, by pressuring suppliers.
"Pressure on suppliers has been aimed at limiting the access to products by the online provider, The Honest Grocer," the council said in its submissions to an inquiry into grocery competition. "After agreeing to supply The Honest Grocer and supplying the new player, many suppliers have withdrawn products due to genuine fear that they risk other parts of their business."
"Some suppliers may decline to supply potential entrants, or choose to supply potential entrants on terms that are less favourable, even without direct pressure, due to concern about the possible response from major grocery retailers." – market study report, Commerce Commission
In its final report in March 2022, the commission said this pressure could occur either directly or indirectly. It could be, for instance, a supplier making the decision not to supply a new entrant to preserve their relationship with existing retailers. The level of concentration in the retail grocery sector was likely to be a contributing factor, it heard, as suppliers are likely to be reluctant to jeopardise their existing relationships with the major grocery retailers, by supplying a new entrant on favourable terms.
"We are aware of examples of some suppliers indicating that they are only willing to supply if a grocery retailer does not undercut the retail prices set by other grocery retailers of the supplier’s products," the commission reported.
"We are also aware of several examples of suppliers allegedly refusing to supply grocery retailers where they are concerned that the retail prices being offered are too low. We have received information which appears to suggest that in some cases the refusal to supply occurred after concerns were raised by another grocery retailer the supplier trades with."
But it wasn't always under express duress from the big supermarket chains: "Some suppliers may decline to supply potential entrants, or choose to supply potential entrants on terms that are less favourable, even without direct pressure, due to concern about the possible response from major grocery retailers."
The commission said it would investigate, as such behaviour made it hard for challengers to enter the grocery market and expand, because they couldn't compete effectively on price.
The Grocery Industry Competition Act, which came into force this month, gives the Commerce Commission new powers to monitor and regulate the grocery sector.
A new Grocery Supply Code is promised, to address the imbalance in power between retailers and suppliers. It will contain a dispute resolution scheme for suppliers and wholesale customers of the major grocery retailers.
This month, former Mojo and Sanitarium boss Pierre van Heerden was named as New Zealand's first Grocery Commissioner.
He sent an open letter to the grocery sector, saying the new Grocery Industry Competition Act will help protect start-up retailers, suppliers and consumers.
It would enable better access to reliable, cost-effective wholesale supply, and make it easier to enter and expand in the grocery retail market.
