The Government has put supermarkets on notice, and the message is clear: change at pace to increase competition and be prepared for regulation, Minister of Commerce and Consumer Affairs, David Clark announced.
“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,” David Clark said.
It comes as part of the Government’s formal response to the Commerce Commission’s market study into New Zealand supermarkets. The report found supermarkets earn $1 million a day in excess profits, straight from the pockets of Kiwi consumers.
The Commission made 14 recommendations including introducing a mandatory code of conduct to establishing an industry regulator and ensuring loyalty programmes are easy to understand and transparent. The Government has accepted 12 of the recommendations and is taking stronger action on the other two.
“The two recommendations not accepted relate to implementing a voluntary wholesale access regime and to a review of competition in three years. These issues can’t be kicked down the road. We need to address the underlying drivers of the lack of competition now.
“I spoke with both supermarket companies this afternoon to make this very clear. They know what is expected from them and the length of time we are prepared to give them to change before regulation kicks in.
“Given the pressure New Zealanders are under due to global inflation and cost of living increases, we can’t afford to wait three years. Budget 2022 delivered a cost of living payment for about 2.1 million Kiwis to help with the impact of rising prices and fixing our supermarket sector is another action the Government can take.
“Our supermarkets know they’re in the spotlight, and we’ve recently seen some posturing around price rollbacks. However, it doesn’t fix the systemic problem at large – which is a lack of genuine competition in the sector.
“Alongside the retail stores, supermarkets have wholesale arms. We are calling on the duopoly to open these up to would-be competitors, at a fair price. Do this knowing the Government is determined to get a regulatory backstop finalised by the end of the year.
“If supermarkets do not strike good-faith wholesale deals with their competitors – our regulatory measures will make it happen for them. We are not afraid to unlock the stockroom door to ensure a competitive market.
“We are taking these actions because if competitors don’t have proper access to wholesale goods, there’s no real incentive to enter the market. You can’t run supermarkets with empty shelves. And the New Zealand market clearly needs more competition.
“We are also looking at how to implement compulsory unit pricing on grocery products which will give shoppers the ability to better compare products. Plus, we’re getting ready to launch consultation on the code of conduct that retailers will have to adhere to.
“Whilst we work to establish an industry regulator the Commerce Commission will take on these responsibilities temporarily. Once established the ‘watchdog’ will help keep pressure on the grocery sector, by providing annual state-of-competition reviews to keep supermarkets honest, as opposed to the check-in after three years recommended by the Commission. It will also facilitate a resolution scheme to mediate disputes between suppliers and retailers.
“This work will sit alongside my Budget night legislation to ban supermarkets from using restrictive covenants on land, and leases to block competition from setting up shop in certain suburbs and shopping centres. This Bill is currently with select committee.
“It is important to get this right and I look forward to continuing to engage with the grocery industry as we move forward with this suite of changes through the Grocery Industry Competition Bill which I intend to introduce to the House later this year,” David Clark said.
MBIE is also undertaking further work around requiring major grocery retailers to divest some of their stores or retail banners. Obviously this is a longer term piece of work due to its complexity, David Clark said.
FGC welcomes the response
The New Zealand Food & Grocery Council welcomes the Government’s response to the Commerce Commission’s report on its Market Study into the grocery sector, particularly the strong emphasis on a mandatory Code of Conduct.
“It’s a major task unravelling the harm caused by New Zealand’s duopoly market structure, but announcements today make the direction clear,” says Chief Executive Katherine Rich.
“Consumers, suppliers and other retailers will welcome these plans. The Government has recognised change needs to occur if there is to be genuine competition in the grocery market and an improvement in retailer behaviour.
“New Zealand is the only country in the world whose market has distilled down to a duopoly, and the suite of changes announced today will make a difference by nurturing new buds of competition.
“Independent retailers will never be competitive as long as they have to line up at the supermarket with everyone else. As we have said regularly, the wholesale market for groceries is broken, and competitive access to a full range of products is important to support healthy competition.
“Minister Clark’s work deserves high praise. We suspect many might not appreciate the full picture of his work to change the grocery industry’s entire commercial framework. And he has made it clear today there is more to do.
“In his Dunedin no-fuss way he has strengthened the Commerce Act to allow market studies, overseen a market study, strengthened Section 36 of the Commerce Act regarding the use of market power, changed the Fair Trading Act to prohibit unconscionable conduct and unfair trade practices for small businesses, and he will introduce a mandatory Code of Conduct to make supplier/retail relationships more transparent.
“The changes he has quietly championed in the Commerce portfolio will make a difference to the competitiveness of New Zealand’s grocery market.”