Govt which barred small shops from trading early this year now wants shoppers to get a fair deal from supermarkets

The PM two years ago said her government would do it and – hurrah – today it became the stuff of an official announcement.  The competitiveness of supermarkets will be studied to see if Kiwis are getting a fair deal at the checkout counter.

The supermarkets to be studied – let’s note – are the same ones whose small-shop competitors were  nobbled by the Government and barred from trading during the The Great Covid Lockdown earlier this year.

News of the government’s decision to investigate supermarket competition was one of three items posted on The Beehive website since Point or Order last monitored what the PM and her team are doing.

The other items tell us:

  • Masks must be worn on all public transport in Auckland and in and out of Auckland and on domestic flights throughout the country from Thursday.
  • Tourism Minister Stuart Nash has delivered a speech to the Tourism Industry Aotearoa annual summit.

But let’s focus on the grocery business. 

Back in October 2018, Jacinda Ardern publicly declared her intent to push through a law allowing the Commerce Commission to compel companies to prove they are operating competitively. She would nominate the petrol sector initially to have to prove its innocence and demonstrate it was  behaving competitively.  But supermarkets were in her gun sights, too.

“Other areas around the cost of living have been raised, particularly when New Zealanders compared what happens in Australia,” Arden told Stuff.

“Kiwis say, ‘Why are we seeing that marked increase here?’. I wouldn’t be surprised if we see a nomination in other areas like [supermarkets].”

New Zealand’s supermarket industry is dominated by two major players, Countdown and Foodstuffs, which control the four major supermarkets brands.

Today the Government has launched a market study to ensure New Zealanders are paying a fair price for groceries.

“Supermarkets are an integral part of our communities and economy, so it’s important to ensure that Kiwis are getting a fair deal at the checkout,” Minister of Commerce and Consumer Affairs David Clark said.

 “Groceries are one of our most regular expenses, so we want to make sure pricing is fair. New Zealand has one of the most concentrated retail grocery markets in the world and there are indicators that competition in the sector has weakened over time.

 “We also know that the average Kiwi household spends roughly 17 percent of its weekly expenses on food, and this has been increasing year on year. It’s been a tough year for many Kiwis and launching this study is an early fulfilment of a Labour Party campaign commitment to make sure we’re not paying more than we should during the weekly shop.”  

Clark said a market study into supermarkets would identify whether there are issues affecting competition,

“ … potentially leading to recommendations that could ensure the weekly shop is gentler on the household budget. I’m pleased the Commerce Commission will be getting this work underway.

““Some of the big supermarket chains have said there is already a healthy degree of competition in the sector, and we want to test whether that is the case.”

SOME of the big supermarket chains?

But we only have three chains  – three with market clout, at least.  Foodstuffs, which owns Pak ‘n Save and New World supermarkets, has 53 per cent of the grocery market while Australian-owned Countown has 32.4 per cent, according to Canstar Blue.

Clark then extolled the virtues of market studies, saying “they help improve consumer outcomes” in industries where competition is suspected not to be working well.

“Helping improve consumer outcomes” – we presume –  means “giving shoppers a better deal”.

Clark went on:

“If issues affecting competition are identified in the study into supermarkets, the Government will consider the necessary changes to bring about better outcomes for consumers.”

That sounds ominous for supermarket operators.

Clark seemed anxious to sound not-too-threatening and credited supermarkets with playing a vital role during the COVID-19 lockdown in ensuring continued supply of stock to consumers.

“I was impressed with the sector’s measured approach to managing supply issues during the lockdown. While there were some allegations of price-gouging during this time, the study has a focus on longer term competition issues and isn’t primarily about the conduct of supermarkets in relation to those concerns.”

Ah, yes.  That reminds us of the time when the government removed competition from the supermarkets by forcing butchers, bakers and greengrocers to close their businesses.

Clark was Minister of Health in those days.

His press statement today, as Minister of Consumer Affairs, includes a note about the Commerce Commission’s market study into the retail fuel industry last year and its finding that that motorists were paying high petrol prices due to a lack of competition.

This led to improvements that include making pricing more transparent by requiring fuel prices to be displayed on forecourt price boards.

Does this mean we can look forward to hundreds of prices being displayed in supermarket carparks or over supermarket windows, where just a few “specials” are highlighted now?

But first there’s some procedural stuff. The Commerce Commission can’t begin the study until the Terms of Reference is published in The Gazette, which is expected to happen on 19 November 2020.

The matters to be considered in the study must include, but are not restricted to:

  1. the structure of the grocery industry at the wholesale and retail levels
  2. the nature of competition at the wholesale and retail levels of the grocery industry
  3. the pricing practices of the major grocery retailers
  4. the grocery procurement practices of the major grocery retailers and
  5. the price, quality, product range and service offerings for retail customers.

The Commission is required to publish its final report on the study by 23 November next year.

We wonder if their work will include a chat with economist Christoph Schumacher says.

Early this year, he was interviewed for a Stuff report about American superstore Costco being on track to open a three-level store at Westgate next year.

Despite public enthusiasm for foreign supermarkets Aldi, Coles, Lidl or Kaufland to come here, too, they were not expected to arrive any time soon, Stuff reported.

Schumacher, from Massey University’s school of economics and finance, said the supermarkets would only come if they thought they could break into the market.

“That they haven’t speaks to the barriers of entry for new companies in terms of regulation,” Schumacher said.

“It also speaks to the power of existing companies. If the two existing companies knew a third company was coming, they could make the life of the new company very difficult.”

Schumacher said the decades-long saga between Countdown owner Woolworths, and Foodstuffs over the development of Pak ‘n Save Wairau Park, Auckland, showed the lengths the supermarket companies were willing to go to block direct competition.

Significant population growth could make New Zealand a more attractive prospect for a third store but it might take the Government getting involved to change the status quo, he said.

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17 NOVEMBER 2020


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