The New Zealand Commerce Commission has outlined changes it believes are needed to improve competition in the country’s grocery sector.
The draft proposals aim to address what it describes as harmful commercial behaviours by major supermarkets and large suppliers.
Pierre van Heerden, Grocery Commissioner, said they know the current grocery market is not serving Kiwi consumers well.
“The status quo lets a few major players set the rules for the rest of the industry which is negatively impacting consumers, new and expanding competitors, and small suppliers.”
The Commission is focusing on issues within the Grocery Supply Code and the operation of the wholesale grocery market. Its draft review of the Supply Code proposes limiting the situations in which supermarkets can charge suppliers for standard retail activities, such as stocking shelves and setting up displays.
“My concern is that the power imbalance between the major supermarkets and small suppliers creates a reluctance among suppliers to push back on supermarket demands or behaviour for fear of damaging relationships or losing access to supermarket shelves,” van Heerden said.
The proposed changes would require supermarkets to keep records when charging suppliers for promotions and prohibit retaliatory action against suppliers who assert their rights.
“We believe that setting these rules in place will help mitigate the power imbalance and allow suppliers to be more confident market participants so they can innovate and invest in better products and more choice for consumers.”
Pieter de Wet, Interim Managing Director of Woolworths New Zealand, said they support the Grocery Supply Code because they feel that consistent rules hold everyone to the same high standard and help businesses of all sizes to grow and succeed.
“Wholesale is a new and fast-evolving area for us. We’re building the best offering possible for the wider grocery industry and kiwi shoppers. In just three years we’ve developed a business which provides grocery products to more than 100 retail sites and we have over 60 customers using our service to provide more choices for shoppers.
“We’re working closely with suppliers and wholesale customers to further improve and develop our wholesale business.”
In a separate preliminary report into wholesale supply, the Commission raised concerns that promotional payments and rebates – worth around $5 billion – are largely unavailable to new or smaller retailers.
“The prices the major supermarkets pay suppliers are subsidised by around $5 billion in rebates, discounts, and promotional payments. Competing retailers can’t negotiate similar levels of support due to their weaker buying power.
“Consumers lose out because prices jump around more. This can mean the average price is more expensive and it’s harder for consumers to assess the value of products,” said van Heerden.
He said that New Zealand’s major supermarkets use high-low pricing far more than retailers in other countries, and that reducing reliance on promotions would lead to lower and more stable pricing for shoppers.
The Commission is encouraging major supermarkets and suppliers to reduce their reliance on promotional funding, with the expectation that savings would be passed through to consumers in the form of everyday lower prices.
“The best option is for large suppliers and the major supermarkets to voluntarily change their behaviour. If they don’t, we’ll have to consider our other alternatives,” said van Heerden.
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