Retail NZ sceptical Government intervention in grocery sector will serve up cheaper prices

Spotlight Live: PM Ardern and David Clark discuss supermarket regulation.Video/New Zealand Herald

Retail NZ has expressed doubts that the government will force the two major supermarkets to sell groceries to rivals at fixed prices and terms, and whether they will offer consumers better prices if they fail to voluntarily fully wholesale the market.

Retail Group chief executive Greg Harford said historically government intervention had not resulted in better prices.

Harford said if the government wanted to offer consumers better prices for groceries, it could simply remove the excise tax on fruit and vegetables – resulting in an immediate 15 per cent reduction in current prices.

“We support the government’s response to certain aspects of the Commerce Commission findings – such as the code of conduct and the independent dispute resolution scheme.

“However, we doubt that government intervention and further regulation of wholesale markets will result in better prices for New Zealanders. Historically, we have not seen government intervention in these circumstances resulting in better prices, such as Regulation of telecommunications,” Harford told the Herald.

“New entrants to the market or other retailers entering the grocery market do not need government intervention to set up shop or offer price competition in the New Zealand market.

“Retail is different from markets such as telecommunications or electricity, where retailers tend to differentiate themselves by offering products and services that are different from their competitors.”

This afternoon, Commerce and Consumer Affairs Minister David Clark fleshed out the government’s plans to improve competition in supermarkets. He said it would start to develop regulatory support to allow big supermarket companies such as Foodstuffs and Woolworths to offer wholesale goods to rivals at fair prices.

The idea is to support smaller retailers and new market entrants by helping them source and sell a wider range of groceries at better prices.

He provided more details on the new rules.

“Under these changes, existing duopolies will be required to negotiate wholesale products with competitors on commercial terms,” ​​Clark explained.

“However, if these prices are not what we expect in a competitive wholesale market, the new grocery commissioner will be able to impose additional regulation to force fairer prices.

“Ultimately, if these interventions do not result in a fair deal, new regulations could be used to require major retailers to make wholesale supplies on specific terms, including price and range.”

Clark said the new system would incentivise big supermarkets to “level the playing field”.

The government called the move a “reshuffling of the grocery industry” and said it would eventually offer consumers cheaper prices at the checkout.

A year-long study of the grocery market by the Commerce Commission found that the country’s supermarkets are making $1 million a day in excess profits due to a lack of competition.

Its final report said the industry was not giving New Zealanders a fair deal and there was little competition to keep prices competitive.

As part of the government’s efforts to lower grocery prices, a grocery commissioner was recently appointed to oversee the industry and “explore” theft. The regulator is housed within the Commerce Commission and will review competition in the industry annually.

New Zealand consumers have welcomed new rules that increase competition in the industry.

Earlier this year, the nonprofit petitioned the government to go further than the Commerce Commission recommended and look into regulating access to wholesale supply.

A petition by New Zealand consumers about this garnered more than 78,000 signatures.

“We’re delighted that the government recognises that relying on supermarket giants to level the playing field is not going to work,” Consumer NZ chief executive Jon Duffy said.

“While the devil is in the details, wholesale access is key to healthy competition in the grocery industry.

“If grocery retailers outside the duopoly cannot get a fair amount of wholesale groceries at reasonable prices, they will still have difficulty establishing or expanding. This is the logical next step in the government’s work plan to repair the broken supermarket sector.”

Spencer Sonn, managing director of Woolworths New  Retail NZ sceptical Government intervention in grocery sector will serve up cheaper prices
Spencer Sonn, managing director of Woolworths New

Supermarket responds

The operator of supermarket chain Countdown has launched a new wholesale business unit and is trying to attract a small number of small-scale wholesale customers.

Woolworths New Zealand managing director Spencer Sonn said the opening of its wholesale channel had already begun and the supermarket operator was about to sign up its first multi-store wholesale customer.

He said it was also working on setting up the systems needed for wholesale and in dialogue with the top 50 suppliers on wholesale trade and supply terms.

“We think we’d better keep going, and that’s what we’re doing,” Thorne said of the government’s new effort to regulate the industry.

He said he agreed with the government that the industry should have support if players do not take aggressive steps to achieve wholesale.

But he warned that overly complex regulation could worsen the cost of living crisis.

“The inflation we are seeing now is driven by high commodity prices for locally grown and produced goods, significant increases in local and global freight costs, labour shortages, unpredictable weather and global inflationary pressures, many others much larger than ours markets are also going through. Unnecessary and overly complex regulation will not solve these problems and, in fact, may make the cost of living crisis worse.”

He said future wholesale supply would only be successful if suppliers were supportive in terms of price, range and quantities available to wholesale customers.

Foodstuffs has been contacted for comment.

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