Unlikely Alliance Formed to Combat Supermarket Power

It’s an unlikely pairing, but Consumer NZ and The NZ Food & Grocery Council have published a joint open letter to parliament calling for a shake-up of the supermarket industry.

“We are not always allies, but we both agree the concentration of market power in our supermarket sector is producing poor outcomes and putting strain on New Zealand households. Both consumers and suppliers are being held to ransom by the duopoly of Foodstuffs and Woolworths NZ,” said Jon Duffy, Consumer NZ chief executive.

Analysis of Statistics NZ data shows an average shop for a typical household equates to 15-20% of income for median or lower income earners.

“The general consensus is that grocery expenditure should sit between 5-15% of total household income. What we're hearing from many New Zealanders is that they're having to spend too much of their weekly pay packet to keep themselves fed. Whatever way you slice it, the cost of groceries keeps going up and the duopoly’s profits are persistently high. Each year households are getting squeezed further,” said Duffy.

Consumer NZ’s sentiment tracker found concerns about the cost of food and groceries have climbed in the past few months with grocery cost concerns ahead of those about fuel, healthcare, energy, insurance and phone bills. Concerns about food prices come in second to rent and mortgage costs.

“Supermarkets are crucial to our communities and economy – but the duopoly are bullying suppliers, even large ones, and consumers are worse off in terms of price paid at the checkout, choice and innovation. With the lack of any real competition between the two supermarket chains, they’ve been able to maintain staggering profit margins which are not enjoyed anywhere else in the world,” said Katherine Rich, Chief Executive of the New Zealand Food & Grocery Council.

Consumer NZ and the Food and Grocery Council are calling for the following changes to benefit consumers and suppliers:

  • A mandatory Code of Conduct for supermarkets to govern dealings between suppliers and supermarkets, address the power imbalance and make business relationships fairer. Similar codes are already in place in Australia and the UK.
  • An increased role for the Commerce Commission including monitoring retail prices and store margins, setting consumer information standards to require unit pricing and prevent confusing pricing and promotional strategies, and limiting the adverse effects of loyalty programmes.
  • Prohibiting restrictive land covenants and exclusivity covenants entered into for anticompetitive reasons, with immediate effect on existing covenants.
  • The right for suppliers to bargain collectively to redress the power imbalance between suppliers and supermarkets.
  • Increasing wholesale access to a wide range of groceries at competitive prices.
  • If the Commission is not satisfied that increasing wholesale access will work either now or in the future, then full enforced structural separation between wholesale and retail and/or compulsory divestment of a significant proportion of supermarkets to arm’s length third parties.