Alex Lim/Things
David Clark and Jacinda Ardern announce the Government’s decision regarding supermarkets.
The government will force Countdown and Foodstuffs to sell groceries to rival retailers at prices set by regulation if they do not voluntarily supply rivals “adequately” The rule change was not recommended by the Commerce Commission after it conducted its $22 billion review of the grocery industry. Countdown and Food Products would be required to negotiate wholesale offers to competitors on commercial terms The Commerce Commission estimated that Countdown and Groceries were making excessive profits of about $430 million a year, a finding contested by supermarket companies. The Government will ask Countdown and Foodstuffs to sell food to commercial rivals in legal quantities if its voluntary supply to the trade is not “sufficient”. The regulatory change was not approved by the Commerce Commission after reviewing the $22 billion food industry. Countdown and Food now have to choose between consumer and competitor offers, in line with marketing commitments The Commerce Commission recently alleged that Countdown and Foodstuffs had a surplus of about $430 million, a claim the supermarket business is contesting.
The Government will force Countdown and Foodstuffs to sell groceries to rival retailers at prices set by regulation if they do not supply rivals “adequately” voluntarily, Trade Minister David Clark has announced.
“Through these changes, New Zealanders will be provided with no ifs or buts, greater competition, a wider range and cheaper products,” Clark said.
The rule change was not recommended by the Commerce Commission after it conducted its review of the $22 billion grocery industry.
READ MORE:
* The public could tell about the breakup of Countdown and Food early next year
* Tom Pullar-Strecker: The supermarket code has a major shortcoming
* 430 million dollars a year in excess profits, but the supermarket is not divided
“We ultimately decided to take stronger action than the Commerce Commission suggested,” Clark said.
“They said any wholesale scheme would have to be voluntary. We’re not sure it will deliver the results consumers deserve.”
Clark said the policy would “give a boost to smaller retailers and new market entrants”.
“It means other retailers will now be able to source and sell a wider range of groceries at better prices,” he said.
Countdown and Food Products would be required to negotiate wholesale offers to competitors on commercial terms.
“However, if these prices are not what we would expect in a competitive wholesale market, the new grocery commissioner will be able to impose additional regulation to force fairer prices,” Clark said.
“Ultimately, if these interventions do not deliver a fair deal, new regulations can be used to require major retailers to provide wholesale supply on certain terms, including price and range.”
The competition watchdog estimated Countdown and Foodstuffs were making excessive profits of around $430 million a year, a finding contested by the supermarket companies.
But he warned that a mandatory wholesale regime could reduce rather than improve price competition and could make the industry less efficient by introducing “significant additional costs”.
He indicated that if such a “wholesale backstop” was introduced, one of the decisions that would need to be made was whether supermarket chains should be required to wholesale at a price that reflected their cost of supply, plus an allowed margin.
An alternative could be that they are obliged to supply rival retailers on the same terms and conditions as they currently supply their own stores.
Countdown and Foodstuffs told the commission they were organized as integrated companies that were not set up for wholesale.
But they have appeared reconciled to some changes since Mr Clark announced in May that the Government was considering scrapping the compulsory wholesale commission.
New World and Pak n’ Save owner Foodstuffs announced in June that it had invited expressions of interest from rival retailers who might want supplies, so it could gauge demand.
Competition campaigner Ernie Newman, a former chief executive of what is now the Food and Grocery Council and a key figure in the break-up of Telecom, has described wholesale regulation as only the “fourth best” option to improve competition in the supermarket sector.
He said challenges include the sheer number of different products supermarkets sell, the fact that many, such as “fruit and vegetables”, vary in quality and the practical difficulties of ensuring supermarkets do not still find ways to favor their own stores.
The “regulatory backstop” would be one of a series of government interventions designed to improve competition in the industry and secure a better deal for supermarket suppliers.
Other previously announced measures include a ban on the use of restrictive covenants and land leases, consultation on a mandatory code of conduct to govern the treatment of suppliers and approval of the appointment of a food commissioner to monitor the sector.
The government said in a cabinet paper in June that the public could be consulted on a breakdown of the countdown and food, if the government chose to go that route.
Clark told fellow ministers he would report back in October with the results of “a detailed cost-benefit analysis” of the various options for “retail divestment” and seek a decision on whether to go ahead with more steps.
Options could be to force Countdown and Foodstuffs to sell some of its stores or some of its banners, the cabinet paper said.
