Mark 6 July 2022 down as another significant day in the history of New Zealand’s food & grocery industry.
That was the day two more steps were taken towards introducing better and fairer deals for supermarket shoppers and suppliers – the establishment of a Grocery Commissioner and the release of a discussion document on a new mandatory Code of Conduct for supermarkets.
The Grocery Commissioner announcement is a perfect example of how serious the Government is about what’s been happening in the industry.
The Commissioner is designed to keep an eye on how the reforms are being implemented and provide annual state-of-competition reviews. Or, as Consumer Affairs Minister David Clark described it, being “a referee of the sector, keeping the supermarket duopoly honest and blowing the whistle where it suspects there is a problem”.
That means it will ensure changes such as the introduction of unit pricing are implemented, and will be a mediator in disputes between suppliers and retailers, and shoppers and retailers. It will be able to issue warnings and put fines in place that could be set as a proportion of supermarkets’ turnover.
And they’ve given it some real grunt by basing it inside the Commerce Commission, whose grocery market study recommended it in its 14 recommendations for change. The Commission has a wealth of information at its fingertips that the Commissioner will be able to call on. As well as having knowledge of economic and competition regulation, fair trading, and consumer protection, the Commission also now has a deep understanding of the grocery sector as a result of its work on the study.
The Government said legislation to establish the Commissioner will be introduced to Parliament later this year, with the first Commissioner likely to be appointed early next year. The Food & Grocery Council wants that to be a matter of priority. Whenever it happens, that will be another significant day in grocery history in this country.
Though the decision to appoint a Grocery Commissioner and base it inside the Commission has caught some in the industry by surprise, there was no such reaction surrounding the mandatory Code of Conduct.
This was something FGC has been publicly pushing for since 2010 to protect suppliers from the market power of the supermarket duopoly that has resulted in:
- a lack of competition
- uncompetitive behaviour and restrictive practices, especially in retailer and supplier relationships
- unclear obligations of good faith
- a lack of dispute resolution processes
- a lack of choice and competitive prices for consumers due to uncompetitive behaviour.
The lack of competition has enabled the duopoly to push excess costs, risks, and uncertainty onto suppliers, with fears of delisting if they do not agree to their terms.
The discussion paper is another big step towards putting in place safeguards to protect suppliers from that market power. For example, it canvasses a range of options to reduce the risk of supermarkets using the threat of “delisting” products in an underhand way to squeeze suppliers, or from leaning on their suppliers to pay for the cost of promotions that may not be worthwhile for the supplier.
David Clark summed it up perfectly: “Historically, there has been an imbalance in the bargaining power major grocery retailers have over their suppliers. The Grocery Code of Conduct will address this by preventing the major retailers from using their power to push costs and risks onto those suppliers. It will ensure that this relationship is conducted fairly.” He said it was especially important for the small, artisan brands and the emerging start-ups: “We want them to feel empowered …”
It’s true most of the great New Zealand food brands started life in someone’s kitchen or garage, and if the Code does nothing else, it will succeed if it encourages that sort of innovation and ingenuity to give consumers more choice.
The discussion paper was developed with input from an advisory group during many meetings between the major retailers, FGC, and consumer groups.
The deadline for submissions on the Code is August 10 and I encourage everyone in the industry to read the document and have their say.
The Commissioner announcement and the issuing of the Code document add to some great progress we have already seen since the Commission made its recommendations in March.
Already, the Government has legislated to ban restrictive land covenants and lease agreements imposed by supermarkets, and it expects to finalise the shape of new wholesale regulation rules in October. David Clark also expects to report back to Cabinet in October on options for forcing Countdown and Foodstuffs to sell some of their stores or chains to make way for a third supermarket operator, though they have not decided if they will make that very controversial move. These changes will not solve everything, but they will significantly move the dial.
Everyone benefits from a flourishing food industry where suppliers have a genuine chance to negotiate and receive fair terms, and which ultimately benefits consumers in terms of innovation and range. It’s been a long time coming but we’re getting closer.
(originally published in Supermarket News)