News
16 November 2021

Inside the Commerce Commission supermarket conference

After 21 hours of vigorous conferencing, where do consumers find themselves as the commission retires to prepare its final report due in March?

Over seven three-hour sessions in late October and early November, Consumer NZ staff attended a Commerce Commission conference to discuss the findings in its draft report into the state of competition in the supermarket sector.

In New Zealand the industry is characterised by the dominance of the two major players: Foodstuffs (New World, Pak‘nSave and Four Square) and Woolworths (Countdown, SuperValue and FreshChoice). Last year, Minister of Commerce and Consumer Affairs David Clark ordered the market study over concerns that competition in the sector had weakened over time.

With representatives from the supermarkets (Foodstuffs and Woolworths), suppliers (both pro and anti the duopoly), industry bodies, economic consultants, social agencies, and even representatives from a monopoly watchdog, the conference had the potential to be a wild ride. Even via Zoom.

As far as competition conferences go, there were some wild moments. The supermarkets came under sustained fire for behaviours that some argued would not be possible or prevalent in a normally competitive market. The supermarkets hit back at the commission’s findings that their profitability is off the charts by international standards and argued serious intervention in the industry isn’t justified. At one point it was economists squaring off at 30 paces.

After 21 hours of vigorous conferencing, where do consumers find themselves as the commission retires to prepare its final report due in March?

Our closing statement to the conference

“This market study is one of the most important pieces of work the Commerce Commission has ever undertaken.

We appreciate the opportunity the commission has afforded Consumer NZ to represent, with other stakeholders, the interests of ordinary New Zealand shoppers as it has looked into the dynamics of this industry.

It is important that those interests are represented here because the market is failing consumers and left alone, will continue to do so. Consumers have lost patience and rightly so.

Over the course of the conference, the two major players have told us they face competition in many shapes and sizes. We disagree. We have heard a lot made of fringe competitors like Costco, Farro Fresh, Supie, Chemist Warehouse, Circle K and Animates, but these players are literally competing at the fringes of the market. They are not providing any real competition in the sector.

This lack of competition is resulting in Kiwi consumers paying higher prices at the checkout. In fact, 81% of consumers agree that supermarket prices are too high. Our supermarket prices shock international visitors and should be seen as a national embarrassment.

The lack of competition is also resulting in a range of other issues for consumers, which we’ve outlined in our submissions and in some of the earlier sessions.

So, it’s clear that something needs to change. We’ve called for a variety of changes to address the problems with our highly concentrated market and are pleased to hear the supermarkets have agreed to make some of these changes. However, the changes the supermarkets are willing to make will not, in our view, be sufficient to bring about the changes required in the industry.

Supermarkets have committed to simplifying and clarifying their pricing and promotional practices but, to ensure this is effective, any changes need to be mandatory and backed by legislation. Offers to voluntarily fix misleading and confusing pricing practices are simply offers to comply with the existing law – the fact that these offers are being put forward as pro-consumer developments should be seen for what they are – a concession that the game is up.

Supermarkets have also said they’re open to a unit pricing standard, and a code of conduct but have argued their loyalty programmes offer great value for customers, that private labels don’t have a detrimental effect on competition and that collective bargaining isn’t in the best interests of consumers.

We disagree.

We’re not convinced private labels are pro-competitive. They offer higher margins for supermarkets, are increasing in number, could be setting price floors and are likely to be reducing consumer choice. We therefore support the inclusion of rules around private labels in any code of conduct.

We dispute loyalty programmes offer significant or genuine value for consumers. When we last looked at loyalty programmes, you had to spend $2000 with Countdown to get a $15 voucher and $2125 to get 15 New World dollars. Less than half of customers were very satisfied with supermarket loyalty programmes. And why should customers have to give up their personal data to access discounts?

The two major supermarkets have made it clear they are not keen on the idea of structural separation or divestment. They’ve said they’re willing to consider operational separation on a voluntary commercial basis but consider other options to be extreme and unwarranted. We don’t think the evidence presented supports this and we consider intervention by the Commerce Commission is necessary and justified.

Without this intervention, consumers will continue to struggle to feed their families or continue paying more for groceries than they should be, they’ll struggle to understand the complex pricing and promotions used by supermarkets, be charged more at the till than the advertised price, have to give up their data to access loyalty programme discounts and continue to be held to ransom by the supermarkets.

The commission’s decisions on the best form of intervention should not be driven by the risks to the supermarkets’ bottom lines if they do intervene. They should be driven by a desire to improve competition and the outcomes for consumers intervention will achieve. We urge the commission and Parliament to be determined in the months that follow and take bold action to ensure the status quo does not win the day and continue to fail consumers.

Thank you,
Consumer NZ”

Consumer NZ is preparing a final submission for the commission to consider as it pulls its final report together. We will keep a careful watch on the outcome and continue to advocate for the best outcomes for consumers. Who knows, if we get this right, maybe we’ll find a 1kg block of cheese under $20 at a supermarket in the future.

Member comments

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Larrie T.
20 Nov 2021
Supermarket Brands

These have bothered me since they were instituted. I will not buy them on principle as they devalue the investment made in research by companies who first produce the good being cloned and reduce competition as the other brands are reduced to make way for the supermarket's brand

Larrie T.
20 Nov 2021
Supermarket Brands

These have bothered me since they were instituted. I will not buy them on principle as they devalue the investment made in research by companies who first produce the good being cloned and reduce competition as the other brands are reduced to make way for the supermarket's brand

Ray S.
20 Nov 2021
Fairness to suppliers too

Whilst pressing for lower prices to consumers there is an enhanced risk of disadvantaging suppliers as well as off-offshoring more goods to low-cost economies. NZ is already importing too much food which can be sourced directly from NZ - there are many instances.

If the aim is to reduce possible super profits being earned by the two main chains then that could be a good thing.

Take care and as some say "be careful of what you wish for".

Ray

Don E.
20 Nov 2021
Sealord and Foodstuffs

I have always supported my local New World, and the excellent Four Square in a very remote town that I often visit, mainly because they are locally owned businesses supported by their NZ cooperative, a great model. BUT I am extremely dissappointed that the co-op has decided that they will stop selling products from Sealord, a NZ owned, 50% Māori owned supplier, in favour of products from Alaska! Kātahi te mahi rorirori ko tērā! If this is how a NZ owned cooperative behaves there is cleary a need for change. Good on the Consumer NZ team for your input into this enquiry on our behalf. Don Edmonds, Kaikohe (me te Tairāwhit).

Donna T.
22 Nov 2021
And next?

Discovered a short while ago that one of the supermarket chains had bought Leigh Fisheries supposedly cutting out the middle man. instead prices have skyrocketed.
The hard ball tactics of these supermarkets has seen the likes of Sealord resist their bullying and now 'overlooked' as a supplier. This is not in NZ's interest and smacks of sheer greed.