The Wrap: Supermarket duopoly battle is reheated a little

by | Jun 1, 2022 | News

It’s already been a long week for Foodstuffs and Woolworths. 

On Monday, after much agitation and lobbying from consumer advocates, the supermarket duopoly was put on notice, with Minister of Commerce and Consumer Affairs, David Clark announcing the need to change at pace and be prepared for regulation. “The Government and New Zealanders have been very clear that the supermarket industry doesn’t work. It’s not competitive and shoppers aren’t getting a fair deal. The duopoly needs to change, and we are preparing the necessary legislation to do that,” said Clark. 

The two supermarkets currently have a 90% share of New Zealand’s main food-shopping market, and a recent Commerce Commission study found that supermarkets earn $1 million a day in excess profits, coming straight from the pockets of Kiwi consumers. The Government has now accepted 12 of the Commission’s 14 recent recommendations and is beefing up the remaining two. Rejecting the Commission’s three-year review timeframe as kicking the can down the road, Clark signalled the Government’s determination to address underlying drivers of the lack of competition with more urgency and to get a regulatory backstop finalised by the end of the year. “Given the pressure New Zealanders are under due to global inflation and cost of living increases, we can’t afford to wait three years” said Clark.

Proposed reforms include introducing:

o   An industry regulator
o   A mandatory code of conduct
o   Compulsory unit pricing on groceries
o   More transparent loyalty schemes

Potentially more disruptive, is the call for the duopoly to open up the supermarket’s wholesale to “would-be competitors, at a fair price.” With the warning that if supermarkets do not strike good-faith wholesale deals with their competitors, the government’s regulatory measures “will make it happen for them”. 

Herewith, The Wrap

This call has been cautiously welcomed by pundits. The Government has finally gotten serious about threatening the supermarket duopoly with a break-up, said Bernard Hickey, writing in The Kākā.

“Opening up supermarkets’ wholesale arms to competitors, and potential separation of their wholesale and retail arms, could be a game changer”, says Green Party commerce and consumer affairs spokesperson Ricardo Menéndez March. “We’ve seen it drive better competition in sectors like telecommunications and it has real potential to bring food prices down for people in Aotearoa.”

Asking supermarkets to open up wholesale should be viewed as a short-term solution while an independent wholesaler established, said Food and Grocery Council chief executive Katherine Rich, on RNZ.

“Not a great outcome”, said Sarah Balle, founder of online supermarket Supie. Balle is worried that opening up wholesale access via existing suppliers could give the duopoly more power, making the food industry even more dependant than they already are. “That means that in theory all food should be supplied through them and their supply chains,” she said on RNZ. “Wholesalers need to be independent “so that we truly have an alternative in New Zealand outside of the duopoly”.

The National Party is currently positioning itself as “pro competition” and supporting the CC’s recommendations. Going soft on the duopoly down the line could prove be a deal breaker for Kiwis at the checkout.

A potential change of Government next year, warns Hickey, gives the duopoly “enough time and a perceived power vacuum to mount a successful rearguard action to deflect and fudge any real profit-threatening change”.

What’s next? Who’s next?

The Grocery Industry Competition Bill, currently with select committees, proposes banning supermarkets from using restrictive covenants on land, and leases to block competition from setting up shop in certain suburbs and shopping centres. Clark has suggested there is more work to be done requiring major grocery retailers to divest some of their stores or retail banners.

On Tuesday, Acting Prime Minister Grant Robertson reiterated on RNZ that a shake-up is on the cards, confirming that the German-owned supermarket giant Aldi was “one of the players” interested in entering the New Zealand market. Then there’s American multinational Costco, due to open in August or September at its 14,000sq m Westgate warehouse. Costco is another massive player — as of 2021, the two retailers ranked the forth and sixth largest in the world.

Another question to ask is why we’re welcoming these behemoths in, rather than boosting community-based food innovation hubs and locally-owned initiatives, such as the sustainably-minded Supie, started by Balle “on the smell of an oily rag”.

“Fixing supermarkets isn’t the only solution to providing healthy, affordable kai in our communities”, says the Green’s Menéndez March. Farmers markets, community markets, and urban food gardens can shorten the supply chain, reducing transport costs and emissions, and deserve more support from Government and local councils. Aotearoa has excellent conditions for growing our own food. Supporting local food security helps communities break free from the supermarket giants and their volatile global supply chains”.

Another challenge is in small towns like Thames, with just the one supermarket on offer. Rich predicts new players would likely target main centres first, which could widen the competition divide if other areas were still under a monopoly. Rich also cautioned that beneficial change for consumers could take years, and would require cross-party support to ensure that the changes have longevity. “It took a long time for New Zealand to deal with the Telecom monopoly and it’s going to take a long time for New Zealand to break the supermarket duopoly”, she said. 

The Wrap is produced by Sarah Heeringa

Photo by Franki Chamaki on Unsplash

 

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