Things have moved fast since the Commerce Commission announced the recommendations from its market study into the grocery sector.
With the ink on the report dry for barely a week, stakeholders were being invited by the Ministry for Business, Innovation and Employment to gauge priorities. The Food & Grocery Council was one of the first to sit down with officials, who are clearly keen to get things moving.
No doubt those expecting more from a consumer angle were disappointed the options on market structure in the draft report weren’t retained – such as separation of the wholesale food market and forced sales of sites to encourage a third big player into the market. That’s not going to happen yet, but Commerce Minister David Clark’s comment that he’s not ruling out other options if these recommendations don’t achieve consumer benefit puts everyone on notice. Change is expected by the next review in three years’ time.
For suppliers, the report was a victory. The Commission delivered all we had brought to their attention, and more. They confirmed a lack of competition in the market is stifling innovation and consumer choice, and creates an environment where suppliers are regularly treated unfairly.
I know some suppliers have doubts about what’s been achieved, but I wonder if that means they haven’t read the report in full. In the words of FGC Chair Mike Pretty, the recommendations are “pretty damn significant”.
The big victory was the recommendation for a mandatory Code of Conduct for supermarkets – not a voluntary one written by retailers, but a compulsory set of expectations enshrined by officialdom. Suppliers have been talking about this for 12 years, and there’s no doubt it will put sunlight on what is a very murky part of our industry by laying out good business practices, including:
- prohibiting retrospective contract demands and unilateral changes to contracts
- ensuring reasonable payment terms, clear and fair delisting processes, and protections of supplier intellectual property (so ideas are less likely to be swiped for private label)
- prohibiting payments for waste and theft and the requirement to apply the same product ranging and shelf allocation principles to suppliers’ products as for private label products.
The win suppliers didn’t expect was the recommendation of an industry regulator, which goes far beyond suggestions of a single Commissioner or Adjudicator. A regulatory body will have significant powers, including collecting information on retail activities, enforcing the Code of Conduct, monitoring and enforcing compliance on covenants and land banking, and monitoring conditions of entry to the market and the expansion of retailers.
There were two other big wins.
A dispute resolution scheme was a welcome surprise. It will deal with supplier complaints and concerns (including anonymously). Where now suppliers have to call supermarket CEOs as per supermarket voluntary guidelines, these will be dealt with through this scheme. Crucially, it will be independent, with the Commission wanting it to be free from the influence of retailers, who wanted a voluntary scheme overseen by their own people. This will give suppliers confidence to raise issues.
The Commission also recommended a disclosure regime, which will require supermarkets to disclose market share, store details, information to inform assessments of profitability, the proportion of private label sales, and details of consumer complaints. It will ensure the next review does not begin cold.
This report is a huge leap forward on the transparency and scrutiny of supermarkets, the likes of which we have never seen. The changes will affect every part of the network. Individual stores will have to abide by the Code, rather than hiding behind head office rules, meaning greater accountability, particularly on the treatment of merchandisers and salespeople, and on ad hoc financial demands.
But we still have a duopoly, and we need more sizeable retailers to achieve genuine competition. Time will tell whether the other Commission recommendations make a difference to encouraging new entrants.
(originally published in FMCG Business magazine)