Almost everyone shops at a grocery store on a regular basis, so what is happening in the grocery industry in 2023 will be relevant to most Kiwis as consumers, as well as having significant impact on retailers and suppliers.

The NZ Food and Grocery Council represents the suppliers to the supermarkets and companies that support their activities. All these businesses have had challenges since Covid arrived and are still facing a volatile environment, where issues around supply chain, sustainability, the war in Ukraine, labour shortages, escalating wages and inflation, and weather events all need to be constantly managed.

With that backdrop, the emergence of the draft Grocery Industry Competition Bill in November and a tight time frame for submissions to a parliamentary select committee of next Tuesday will make 2023 an eventful year for everyone connected to the grocery industry.

The bill says its objective is to improve competition and efficiency in the industry for the long-term benefit of consumers, and to contribute to a trading environment in which businesses can participate confidently. This is based on the argument more competition should increase the pressure on retailers to deliver lower prices, better quality, and a greater range of products to meet consumers’ demands.

More competition should also result in greater productivity over time, foster innovation, and enable clearer investment signals, all of which are good for consumers.

By the last week of March, when the committee reports back to Parliament, we will have a better idea of where we are headed. And we will know for sure around July, when the bill is expected to become law.

The legislative process doesn’t always move this swiftly, and the commitment to having the law in place before the election indicates the priority retiring Commerce and Consumer Affairs Minister David Clark and his Cabinet colleagues have given to improving this situation amid a range of other competing issues.

Of course, it will take much longer than that for changes to filter through to the checkout.

Questions have been asked about exactly how much prices will drop. The answers are far from straight forward in a dynamic environment where many factors – international and domestic – combine to produce the price of goods.

Changes to prices and choice as a result of these reforms will be gradual and it may be naïve and overly optimistic to expect anything more, given inflation and the labour market factors alone.

What we know from the draft bill is it is intended to address a wide range of desperately needed changes in the sector that the Food and Grocery Council has been raising for many years – namely, competition is not working well, stifling innovation, consumer choice, and creating an environment that has been difficult for suppliers.

The Government moved quickly last year to ban land covenants that prevented competitors setting up shop nearby, and this bill tackles some of the more complex issues, including the establishment of a Code of Conduct the major retailers will be required to comply with. This is intended to limit the power advantage of the retailers when negotiating with suppliers – power which, in the assessment of the Commerce Commission and the Government, forces suppliers to accept unfavourable terms and take on an unfair proportion of the risk and cost of producing their goods.

Anyone in business accepts there is a relationship between risk and reward, and that in a well-functioning market the risk and costs are borne fairly by all.

In a market where there is a power imbalance, that equilibrium doesn’t exist, and the big players make an unreasonable chunk of the return, while the smaller ones – in this case, the suppliers of some of our most-loved brands – bear the risk and cost and have terms dictated to them. These terms can mean suppliers are forced to operate inefficiently and with uncomfortable risk.

As well as enabling the Code, the bill will extend protections against the use of unfair contract terms and enable some suppliers to collectively negotiate terms and conditions of supply.

These measures will work hand-in-hand with the power the bill aims to give to a newly created Grocery Commissioner, who will be able to hold retailers to account and impose additional regulation as required. The Commissioner will also have other enforcement and monitoring tools, including keeping an eye on how the reforms are being implemented and making recommendations for improvement.

Expect also to soon see moves around unit pricing to help consumers more accurately compare the price of products in the same range.

Rebalancing the grocery industry is what we expect the final legislation to achieve.

There is no silver bullet that will fix what is a very complex and entrenched model that is not working in the best interests of consumers or suppliers. But put it all together and we believe the changes will deliver a sector that is fairer for everyone.

Businesses along the value chain are taking on risk and should be able to make a decent profit – decently. The best way to achieve that is to strike a balance so everyone gets a fair opportunity and can get a reasonable return for their efforts.

(as published in the Otago Daily Times, January 11, 2023)