The Commerce Commission Market Study into grocery retailing has been thorough and has exceeded all my expectations in terms of the meticulous nature of the research and information gathering from the perspective of economics and competition law.
It has been great to see like-minded groups and advocates join the discussion about how to improve competition, from former FGC CEO Ernie Newman, Night’nDay General Manager Matthew Lane, and Supier CEO Sarah Balle, to grocery retail and sales experts Hexis Quadrant.
Of course, the surprise competition campaigner to burst into the debate was monopoly-buster Tex Edwards, who played a key role in introducing competition into the telecommunications sector and established 2degrees.
Independent store owners, consumers, suppliers and community groups such as National Council of Women, Consumer New Zealand and Poverty Action have all said things need to change for the benefit of consumers. The lack of competition ultimately harms them through prices, lack of choice, the discouragement of innovation, and lost jobs.
It seems the only two groups to believe nothing is wrong and there is ample competition are parts of the duopoly. During the week-long Commerce Commission virtual conference where Commissioners were able to put questions to the supermarkets, there was not even acceptance there was in fact a duopoly. As one retailer professed with a straight face, “the market is not a duopoly. It has two players”.
The supermarkets spent an inordinate amount of time arguing grocery retail was awash with competition from cafes, restaurants, The Warehouse, My Food Bag, the Chemist Warehouse, and the impending arrival of Costco. Judge competition not on the past, but on the future, they told Commissioners. No evidence was presented that any of these additional food or grocery sellers constrained the market power of the duopoly.
Some progress has been made, however.
After 11 years since the idea was first raised, both supermarkets have agreed that a mandatory Grocery Code of Conduct would provide some helpful guardrails to business and supplier relationships. Both have been careful with wording, speaking about a “consumer-focused” code, the commitment to “engage in the development of a code”, and not that they would adopt one or abide by it.
When there are codes that are working well in Australia and the United Kingdom, inferences from the supermarkets that we need to spend years working through a Code specific to New Zealand conditions sounded a lot like an attempt to kick the Mandatory Code of Conduct tin down the road sometime into 2024. As I told the Commissioners, the only upside to New Zealand’s lateness to the implementation of a code is that we benefit from lessons learnt in the UK and Australia and the steps they took to strengthen theirs.
One thing is clear, and that is we do not need to wait for a Grocery Code of Conduct to expect that the principles of fair dealing be implemented as soon as possible. Both supermarkets can easily think about parts of their business and ask the question as to whether certain activities are fair to suppliers, whether it’s one-sided merchandising contracts, treatment of merchandisers, or deletion processes.
A fair-dealing principle would be a powerful foundation and start to a New Zealand Grocery Code of Conduct for supermarkets. And that commitment can start tomorrow.
(originally published in FMCG Business magazine)