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Editorial: Supermarkets decoded

It’s taken a speech by Labour MP Shane Jones under Parliamentary privilege to get a formal inquiry into at least some aspects of the operations of one of the two local supermarket chains. The MP alleged that Countdown was using its market power to deal unfairly with some of its suppliers.

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The Commerce Commission has announced it will formally investigate a complaint against Countdown laid by Mr Jones.

It’s welcome news that the black box known as the supermarket industry is being partly prised open. The scale of the Commission’s task can be seen from across the Tasman where the Australian Competition and Consumer Commission (ACCC) has been carrying out a similar investigation into supermarket market power for over a year. The ACCC has resorted to its compulsory information powers in an effort to find out what really goes on in the industry.

Supermarkets may be markets of goods and produce within their four walls but two dominant supermarket chains aren’t a functioning market. They’re a duopoly – one step up from a monopoly. We have possibly the most concentrated supermarket industry in the world now – but it wasn’t always like this. In our 1997 survey of supermarkets there were nine in the Auckland area. Then there was some real competition.

The market power this concentration gives can be seen in the 3 percent increase in revenue Countdown and Foodstuffs achieved in the 2012 year, even though food prices rose by less than 1 percent for the year. They have also been giving more shelf space to their own home brands.

Whatever the results of the Commerce Commission’s investigation, we would like to see a code of conduct brought in similar to that in the UK. The code would even up the imbalance of power between supermarkets and their suppliers, and guarantee fair dealing. We would also like the Commerce Commission to have a more active continuing role in monitoring supermarkets and their market power.

If current trends continue ultimately there will be less choice for consumers and higher prices. Anti-competitive market structures don’t just disadvantage consumers but also the whole economy.

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About the author:

David 100

David Naulls is Consumer's deputy CEO and the editor of Consumer magazine.

David works closely with the research and testing team to ensure the quality of all articles published by Consumer NZ. He has previously been a research writer and contract books writer at Consumer. Before returning as Content Editor, he was a freelance writer and editor for 25 years. David has post-graduate qualifications in journalism and political philosophy.