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Commission releases supermarket prices findings

Photo: Daniel Hines/SunLive.

UPDATE 9.41AM: The Commerce Commission's draft report into competition in the retail grocery sector has found that it is not working well for consumers.

Its chairperson Anna Rawlings says if competition was more effective, retailers would face stronger pressures to deliver the right prices, quality and range to satisfy a diverse range of consumer preferences.

The government asked the commission to look at whether competition in the $22 billion a year grocery industry was working well and, if not, what could be done to improve it.

"Our preliminary view is that the core problem is the structure of the market," Rawlings says.

"In competitive terms, the major retailers, Woolworths NZ and Foodstuffs, are a duopoly, and while there is an increasingly diverse fringe of other grocery retailers, they have a limited impact on competition.

"This is because they are unable to compete with the major grocery retailers on price and product range in order to satisfy the widespread consumer demand for a main shop at a single store," Rawlings says.

Woolworths owns the Countdown chain and and Foodstuffs has has the Pak'nSave, New World and Four Square brands.

The major retailers were earning "persistently high profits" and New Zealand had high grocery prices compared to other countries, the commission's draft report found.

"The major retailers appear to avoid competing strongly with each other, particularly on price," Rawlings says.

"Competitors wanting to enter the market or expand face significant challenges, including a lack of competitively priced wholesale supply and a lack of suitable sites for large scale stores."

The commission found the major retailers' complicated pricing strategies, promotions and loyalty programmes could confuse customers and make it informed buying decisions difficult.

Many suppliers had few alternatives but to supply the major retailers, which allowed the retailers to use buyer power to push risks costs back on to suppliers, it found.

"Without intervention, we currently see little prospect of a new or expanding rival being able to constrain the major retailers effectively, and improve competition in the sector," Rawlings says.

"We consider the best options for improving competition are those that enable an increase in the number of retailers directly competing against Foodstuffs and Woolworths NZ for a consumer's main shop."

The commission recommends making it easier for new competitors to enter the market, or existing independent retailers to expand, by increasing wholesale access to a wide range of groceries at competitive prices.

It suggested making land more available through changes to planning laws and restrictions on the use of covenants.

If this did not work, another potential option is to directly stimulate retail competition by creating a further major grocery retailer.

Options to strengthen suppliers' bargaining power with retailers included introducing a mandatory industry Code of Conduct and allowing suppliers to bargain collectively.

Introducing mandatory unit pricing, and asking the major retailers to simplify pricing and promotions and make loyalty programme terms clear, could help consumers, the commission said.

The commission's draft findings are preliminary and subject to consultation before its final report is published late November.

In a statement this morning, Commerce and Consumer Affairs Minister David Clark welcomed the findings, saying consumers deserved to know if they were getting a fair deal at the checkout.

"And the draft findings indicate they may not," the statement says.

"I encourage everyone to read the draft and make a submission as this will help the Commission form the final report. I look forward to a public discussion of the issues in the draft report and seeing the Commission's final recommendations."

EARLIER:

The country's main supermarket chains could be in for a shake up this morning - and shoppers in for cheaper food - when the Commerce Commission releases its draft investigation into the groceries industry.

Sector experts say it could recommend forcing supermarkets to let in more competition, or call for the government to intervene to cut the cost of essential items.

Food prices rose 2.8 per cent in the year ended June, the highest annual rate in six months, while fruit and vegetable prices gained close to 10 per cent on a year ago.

Supermarket shoppers told RNZ they are concerned about how much they are paying for pantry staples.

"I think they've gone up quite sharply," says Warwick Seymour, in Christchurch.

"It's taking a big chunk of our salaries just to put a proper meal on the table," Nelson resident Ali Kahawaji says.

Consumer NZ says six out of 10 New Zealanders name food and groceries as the everyday expense they are most worried about.

Shoppers told RNZ there is a clear reason - Foodstuffs and Countdown control over 90 per cent of the country's grocery market.

"There's a duopoly happening and that basically means there's no competition for prices," Aaron Hemi, from Ratana, says.

Jon Duffy says the government may consider legislating control prices. Photo: Jon Duffy.

For a year the main supermarket chains have been under the scrutiny of the Commerce Commission, which has been looking into the price, quality and range available to customers, whether the major retailers have too much bargaining power, and if they co-ordinate with one another to profit more.

Consumer NZ's chief executive Jon Duffy says the commission will make recommendations to the government in its report this morning.

That could include "pedestrian" or "nuclear" recommendations, he says.

"The government could sweep in here and say 'this is an essential industry, food prices are too high and the supermarkets margins are contributing and we want to legislate to control prices',"

The commission could also suggest a mandatory code of conduct for supermarkets, to ensure they do not use their dominant market position to abuse suppliers.

"We think that's a no brainer," he says.

The government may also consider forcing Foodstuffs and Countdown to give up some of their stores or warehouses, to make way for a new nationwide supermarket chain, he says.

Auckland University senior marketing lecturer Dr Bodo Lang says when the German-owned supermarket chain Aldi entered the Australian market, prices went down.

"That's a pretty clear indication of a market that's similar to ours in a similar geographic position, culturally similar, that competition works for grocery retailing prices."

Lang says a less "heavy handed" approach could be to change the law to make it easier for an online grocery retailer like Amazon to join the market, at least in large centres.

"That's one of those trends that's been picking up anyway since Covid. We've all become a little bit more used to online grocery shopping, and many people don't enjoy grocery shopping particularly," he says.

-RNZ/Katie Todd.

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9 Comments
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Government intervention.

Posted on 30-07-2021 12:06 | By morepork

Not something I would normally advocate, but this is essential basics for people and profiteering in it cannot be allowed. At the moment the big 2 have it sown up and consumers can do very little. The time has come for price control on essential basics and even, possibly, limits on profits in this sector. They have a right to make a profit, but there is no need for obscene profits...

Profit vs Profiteering

Posted on 29-07-2021 19:02 | By

Price controls wont work. Amazon online shopping may if allowed but it would take lots. As their profit margins widen it becomes more attractive for an international (Costco?) and the government can encourage the planting of a new brand.

too hard basket

Posted on 29-07-2021 13:03 | By

nothing will be done nothing can be done, sick leave, holidays, parental leave, OSH, Worksafe , minimum wage, the list goes on. transport cost, fuel increase, rates, all goes on the cost of food to produce and retail, today suppermarket tomatoes $16 kg broc $3.99 mushrooms $12.99, fish snapper $ 42 kg lamb rack $48 each, whole salmon $150 each. you will have to put up with it and live with it i am afraid.

Duffy your a failure

Posted on 29-07-2021 12:52 | By

So who would have thought a controlled duopoly would cause high prices. Even a child knows that and we paid for these clowns to come up with lets fix the prices. Your a moron, price fixing never ever worked in history. We need competition that successive governments allowed to be destroyed. Govt like usual is the cause of the problem.

Uninterrupted Profits

Posted on 29-07-2021 11:09 | By Gigilo

Of course it is quite obvious to everyone that this industry had open season during the covid lockdowns at the expense of many businesses in food and grocery supply. Huge profits would have been realized. Time to bring them into line.

Nothing more to add...

Posted on 29-07-2021 11:03 | By

Can’t really say anything more than what Dumkof2, Kancho and Slim Shady have said already......completely agree with them.

supermarkets

Posted on 29-07-2021 10:30 | By dumbkof2

so how many millions did this cost. just needed to ask any grocery shopper and they would have told them the same thing. big rip off

No surprises

Posted on 29-07-2021 10:01 | By Kancho

But what can be done, answer nothing. The commerce commission has allowed the two big boys suppress competition buying up smaller competitors and bully suppliers . We live in a country with very poor productivity so everything is expensive. We have employers struggle with costs of extra holidays, , sick leave etc and this rolls over into price. Two months of no production per employee. We sell off assets to overseas who want returns on investment that pushes up prices more . And before you blame previous governments Labour is exacerbating this even more.

Expensive wish wash

Posted on 29-07-2021 10:01 | By

This has cost millions and I could have told them all that for nothing. There is no policy recommendation whatsoever. Just lofty wishy washy high school economic basics.