The two supermarket chains will no doubt be pleased by the absence of recommendations for big structural changes to the sector in the Commerce Commission’s final report on the grocery market study. Others, particularly those looking to find a way into the market as a third big retailer, will be disappointed.
The Commission’s draft report last year had talked about structural separation of the wholesale food market or forced sales of some sites, both to encourage a third player (or more) into the market. That’s not going to happen – not yet, anyway.
From the point of view of suppliers, the report was a victory because the Commission delivered on all we had brought to their attention, and more.
Their findings and recommendations confirmed what we have been saying for years: competition in the market is not working well, stifling innovation, consumer choice, and genuine competition, and creating an environment where suppliers are treated unfairly.
The Commission accepted all that and recommended the Code of Conduct for supermarkets that suppliers have been talking about for something like 12 years.
What’s more, they said it should be compulsory, which is further than the Code supported by the industry in Australia, where it was negotiated by suppliers and retailers and is voluntary. A New Zealand Code, which the Government has already endorsed, will be quite different to that – it will be mandatory and the Government will hold the pen, reducing the likelihood of dilution. Because of that it will no doubt be further reaching.
If the recommendations are followed closely, a compulsory Code will deal with issues such as:
- prohibiting retrospective contract demands (particularly for money)
- prohibiting unilateral changes to contracts
- ensuring reasonable payment terms, clear and fair delisting processes, and protections of supplier intellectual property (so great ideas are less likely to get swiped for private label)
- prohibiting payments for waste and theft and the requirement to apply the same product ranging and shelf space allocation principles to suppliers’ products as private label products.
In short, a Code will lay out good business practices and provide sunlight into what is a very murky part of our industry.
Suppliers had also suggested an ombudsman-style adjudicator to deal with issues between suppliers and retailers as they arose, but what we got will be even better than that – a regulator.
This is very significant. A regulator will have significant powers to seek and collect information on retail activities, pricing, and promotion, and will no doubt regularly survey suppliers to gauge whether there is behaviour contravening a Code. This ensures ongoing scrutiny on retail practices. This was a smart move by the Commission because it guarantees its recommendations and the issues raised in the report will remain live between implementation and the recommended three-year review.
The report will not be allowed to sit on a shelf somewhere and gather dust. The regulator will hold the supermarkets to account as well as require supermarkets to regularly disclose information.
The fact the regulator will also have to report to Ministers (and so to the public) will surely be enough to motivate retailers to improve their behaviour towards suppliers.
Between the regulator and the Code of Conduct, our industry will finally have a referee on the paddock.
If that’s not enough to convince the supermarkets to change their behaviour, they should take note of the reaction to the report of Commerce Minister David Clark when he said he “unequivocally” accepted the recommendations: “The status quo will not deliver fairer prices for consumers and a better deal for producers and suppliers, and I hope the sector will constructively engage in the changes that need to be made. Given the importance of achieving healthy levels of competition in our retail grocery sector, I have not ruled out some of the other options that the Commerce Commission tabled while developing its report, if consumer benefit is not achieved from the changes recommended in the report”.
He didn’t elaborate, but moves such as structural separation or forced sales of some sites come to mind.
Changes need to happen fast. If there’s a will, there’s no reason we can’t have a Code and a Regulator by the end of the year.
In all, these changes will make a huge difference. We need a flourishing food and grocery supplier base, and if there’s an opportunity for greater innovation and greater choice for consumers then that’s a good thing as well.
(originally published in Supermarket News)