Supermarkets and fair prices
Analysis: Some sweet deals and wider ranges on the supermarket shelves could be just around the corner. But it won’t be a random act of kindness, writes Tom Pullar-Strecker.
Wellington shopper Frank Wilson McColl says supermarket prices seemed to increase when the country went into lockdown earlier this year, and never quite returned to their previous level.
‘‘Looking back at invoices for this time last year these things are more expensive – soy milk, soy yoghurt, produce and meat has gone up ... I’ve stopped buying the soy yoghurt and chicken sausages we used to get regularly.’’
Another, Jen Stewart in Nelson, says she’s feeling the crunch, too. ‘‘I did definitely notice they went up during Covid-19 lockdown, but it was a bit more complex than that – what actually happened was the ‘sales’ and ‘specials’ that we had come to rely on suddenly disappeared.
‘‘I can see how they can claim ‘our prices never changed!’ Because the full retail prices maybe didn’t actually change. But in practice, the routinely discounted prices disappeared, and people like us who plan their shops around their discounts were in for a bit of a shock.’’
Stewart says she wonders whether New Zealanders are being given enough choice.
‘‘I guess as an immigrant from overseas, I don’t in general feel that there’s enough competition here. Food costs account for way more of my weekly budget than I was used to in the United States.
‘‘Part of that is that there’s fewer suppliers of food here in New Zealand, so less competition. But a big part of it is because we act like a Third World country in a lot of ways – exporting our premium produce and animal products overseas for top dollar – meanwhile the average Kiwi finds our best products out of reach financially. ’’
The good news for them and other shoppers is that customers can expect supermarkets to woo them with some new sweeteners as they try to put their best foot forward during a Governmentordered competition review next year.
Last year, BP gave away free petrol at some of its service stations as a promotion while it was being put under the spotlight of the Commerce Commission’s first ever ‘‘market study’’.
The fuel study resulted in a law charge that will force petrol stations to display the price of premium fuels on their roadside signs and moves to help independent petrol companies grow their market share.
The $21 billion supermarket industry will be next to face the commission’s scrutiny.
Labour committed in its election manifesto to getting a market study into the industry under way before the end of the year, saying groceries were a core household expense and there was a need to ensure prices were fair.
Don’t expect ‘‘free food hours’’ from Countdown. But a smart response might be for it to open up a bit of shelf space to more local and artisan food producers on flexible terms, to create more of the vibe of a street market within their stores.
It would be no surprise either if Countdown and Pak ‘n Save and New World owner Foodstuffs cut their margins on some closely-watched staples that commonly cause gripes, such as milk, cheese and veggies.
Competition lawyer Andrew Matthews of Matthews Law says supermarkets will be wellresourced to address the threat of regulation and will ‘‘of course’’ try to win over public opinion during the review.
‘‘That would be the smart thing to do. They know the game and there will be a strategy.
‘‘I am not suggesting bad intent, but you put your best foot forward – it is just ‘advocacy’.’’
Labour appeared mainly concerned in its manifesto that the supermarket chain duopoly was exploiting its market power over consumers. It cited research that spending on food had risen
9.2 per cent over the three years to June last year and that profit margins were high when compared to variable costs and that competition had weakened. That echoes the Government’s rhetoric during the fuel study, when Prime Minister Jacinda Ardern claimed motorists were being ‘‘fleeced at the pump’’.
Consumer NZ research director Jessica Wilson says high margins and pricing practices are also its major concern.
A particular complaint is that supermarkets are tricking consumers by too frequently promoting prices as ‘‘specials’’.
Wilson says Consumer NZ would like to see some form of price monitoring for groceries introduced.
But the other topic that will concern the commission is whether supermarkets are exploiting their market power over food producers and their other suppliers.
New Zealand Food & Grocery Council chief executive Katherine Rich says demands being made of suppliers by stores sometimes ‘‘overstep the line between robust negotiation and bullying’’. Matthews says supermarkets around the world have imposed terms and conditions on suppliers ‘‘that you wouldn’t normally see in competitive markets’’ and then sometimes unilaterally change them.
Issues that can cause problems include rules relating to stock damage and returns, requiring additional payments from suppliers, and who covers the cost of promotions. Supermarkets also have both clear market power and a ‘‘conflict of interest’’ when promoting their own-label home bands, Matthews says.
‘‘In some categories house brands can be 30 per cent of a product range.’’
From consumers’ perspective, the consequences of that market power could manifest themselves in them not getting the variety of boutique new products they might otherwise expect, he says.
Matthews expects the supermarkets’ defence will be that driving hard bargains with suppliers and investing in their own-label brands helps them deliver good value to consumers.
‘‘They [supermarkets] know the game and there will be a strategy ... I am not suggesting bad intent, but you put your best foot forward – it is just ‘advocacy’.’’ Andrew Matthews competition lawyer
‘‘That has been the traditional argument,’’ he says.
But while supermarkets may ask people to trust that they are passing on the efficiencies to consumers ‘‘what guarantee do we have on that when there is a duopoly?’’, he says.
The supermarket chains will inevitably argue that they are not really the duopoly they are often painted to be, and that trends in the industry are changing.
They will point out they compete with a growing number of food producers that are selling online and delivering direct to consumers in the wake of Covid-19, speciality stores, street markets, takeaway stores and eating out.
If the fuel review sets the precedent, they may readily offer some concessions with regard to making their pricing and specials clearer.
If they are genuinely frightened by the review, they may even voluntarily ‘‘unbundle’’ a bit of shelf space to make it easier for small producers to sell on their shelves on their own terms.
More awkwardly for the Commerce Commission, they may point out that if it still has concerns about them abusing market power over suppliers, there is already a law change in the pipeline to address that.
Last year, the Government announced that it intended to extend the Fair Trading Act so it also banned unfair contract terms in commercial contracts, and not just between businesses and consumers.
But that is unlikely to be enough to completely stave off new regulation.
Wilson says it is hard to introduce competition back into a market once it has been reduced.
On the supplier side, an industry code could be something similar to Australia’s Food and Grocery Code of Conduct, or the UK’s Groceries Supply Code of Practice.
The latter is designed to protect food suppliers from the power imbalances they face dealing with Britain’s 13 largest supermarket chains that have an annual turnover above £1 billion (NZ$1.96b).
The Groceries Supply Code of Practice has its own independent adjudicator and some teeth.
Last year, Britain’s Co-Op supermarket was forced to cough up £1.3m and change its practices after it was accused of stopping stocking some products abruptly and altering supply agreements unilaterally.
Australia’s code was beefed up this month after a government review to require – among others things – the appointment of an independent government reviewer and new confidentiality rules that are designed to protect suppliers who lodge complaints from retaliation.
Countdown and Foodstuffs should have at least the best part of next year to convince shoppers, the commission, and the Government that the minimum of interventions is needed here.
In the meantime they are largely keeping their thoughts to themselves.
Countdown declined an interview but said in a statement that it ‘‘worked hard every day to make food as affordable as we can for our customers’’ and would cooperate fully with the Commerce Commission.
Foodstuff chief executive Chris Quin said in a statement that it was ‘‘ fully open to a Commerce Commission market study that takes into consideration the retail grocery sector and we are committed to doing all we can to ensure any future study is effective for the future benefit of all New Zealanders’’.
Law firm Simpson Grierson says there is no set timeframe for a market study.
But it said Labour’s plan seemed to be to complete it by late next year, clearing the way for the next study, into the building materials industry, to get under way before the start of 2022.