Com Com study reveals big problems with NZ supermarkets

Com Com study reveals big problems with NZ supermarkets

Gavin Male

Posted on 17/03/2022

The study reveals a lack of competition between supermarket chains and the need for changes.

Naturally, we depend a lot on our supermarkets. It’s a whooping $22 billion a year industry! So, it’s really important for Kiwis to be able to access good quality groceries at a good quality price.

However, these depend greatly on the competition between supermarkets. The market study undertaken by The Commerce Commission reveals, in New Zealand’s grocery retail market, competition doesn’t appear to be working and some changes need to be implemented to support the Kiwi consumer.

What’s the market study all about?

In November 2020, the Government asked for an independent study to be done by the Commerce Commission. The review looked at the different factors that impact competition in the grocery retail market. The study took place over a year and involved business and consumer surveys, and research into consumer preferences. After the original draft was published, written submission and opinions were reviewed. Now, they have released their final report.

So what did they find out?

The Commerce Commission’s report shows that competition is not working as it should be between supermarkets. It’s that simple!

“We have found that the intensity of competition between the major grocery retailers who dominate the market, Woolworths NZ [Countdown, SuperValue and Fresh Choice] and Foodstuffs [New World, PAK'nSAVE and more], is muted and competitors wanting to enter or expand face significant challenges,” says Anna Rawlings, Commission Chair.

“While there is an increasingly diverse fringe of other competitors in the sector, they are unable to compete effectively with Woolworths NZ and Foodstuffs on price, product range, and store location to offer the convenience of one-stop shopping for the many different kinds of shopping missions that consumers undertake,” says Rawlings.

The study reveals that competition for suppliers is not working well either. Suppliers depend on the two major supermarket chains. Supermarkets realise this and are transferring expenses, risk and uncertainty onto suppliers. Suppliers must agree or they fear not having their products stocked anywhere.

This is reducing innovation and investment by suppliers, resulting in less choice for consumers. When there is less choice, the price of what options are available can rise.

The findings also report the issues facing consumers. The complex pricing strategies and loyalty programmes that the major grocery retailers offer are confusing, resulting in the inability to make a well-informed decision about who to shop with. Also, it was revealed that consumers are not very aware of how their personal data is being used with these loyalty programmes.

The study further showed that grocery prices are high in Aotearoa, compared to international standards. Equally, the profitability of the major supermarkets remained high too. Also, the rate of innovation in the sector is lower than expected and more can be done.

Therefore, the Commerce Commission has made various recommendations on changes that should be implemented to address these issues.

Make it easier for independent supermarkets to set up and grow

“We found that the biggest challenges facing competitors are a lack of suitable sites for store development and difficulties in obtaining competitively priced wholesale supply of a wide range of groceries,” said Rawlings.

To address the issues of finding the right site for independent stores, the Commerce Commission recommends making more land available to supermarkets. This would involve altering planning laws, banning restrictive covenants and exclusivity clauses in leases which are currently stopping grocery stores from being established, and actively reviewing land banking by the major supermarket chains.

To address the challenges faced in getting wholesale supply, the recommendations include regulating the major grocery retailers to fairly review requests by other supply competitors and a requirement for transparency around the criteria of getting supply and the terms and conditions. Also, actively observing the calculated practices of the major supermarket chains, for instance, their use of exclusive trade agreements or ‘best price’ clauses.

If these changes are implemented, Kiwis will be able to shop at more independent supermarkets. This is super important as it means more access to a range of diverse products. It means being able to compare prices and products to find the best groceries for you. Ultimately, it’ll give you more choice to suit your budget!

Working on the relationship between suppliers and retailers

Many suppliers fear their products will be taken off the shelves if they don’t take on pressures they face from the supermarket chains.

To combat this, the Commerce Commission recommends three areas of change. To introduce a required Code of Conduct between suppliers and grocery retailers to strengthen transparency and ban unfair practices. Also, to improve the current protections from established laws that stop unfair terms being used in standard contracts. Finally, to evaluate whether suppliers can enter into collective bargaining.

Help Kiwis make informed choices

As consumers face confusion over pricing and loyalty schemes, the Commerce Commission recommends implementing three changes.

1). Mandate supermarkets’ display consistent formatting of unit pricing for products.

2). Require the major supermarket chains to make sure their pricing practices and promotions are simple to understand.

3). Ensure that major supermarket chains’ terms and conditions for their loyalty programmes are accessible and easy to understand.

These changes should help foster competition within the sector. More competition means more savings and choices for consumers!

How will the Commerce Commission make sure all of this happens?

While the major supermarket chains have announced they will look into their practices outlined by the recommendations, the Commerce Commission has recommended regulatory requirements.

These include creating a dedicated grocery regulator to oversee and monitor the sector, creating a dispute resolution mechanism to resolve any disagreements between suppliers and retailers, and to set a review 3 years after each change is implemented to assess market competitiveness.

The Commerce Commission believes these regulatory requirements will ensure the change needed to stimulate competition in the sector.

The Government must now review and consider the full report and recommendations.

How does this impact Kiwis?

The final findings of this report demonstrate how important competition is for any sector. It shows that the more competition there is, the better it is for customers. It means we can all access a range of different products, saving us money and letting us make an informed choice.

In many ways, it’s all about putting the power into the consumer’s hands and letting us compare our options.

That’s why at PriceMe, we’re all about helping Kiwis compare products! We love to give consumers the gift of knowledge. All you have to do is use our website to compare the products that are out there.

Whether it’s mobile phones, appliances or health and beauty, PriceMe will help you compare! Simply search which products you are looking for and then compare them side-by-side. It couldn’t be easier!

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