The mystifying supermarket conclusion
GORDON CAMPBELL
OPINION: Hercule Poirot couldn’t have diagnosed the evidence of foul play more clearly. ‘‘The major retailers appear to avoid competing strongly with each other, particularly on price.’’
Such was the conclusion reached by the Commerce Commission last year, when it released its draft findings on the supermarket industry.
The ill effects included ‘‘persistently high profits being earned by the major retailers and high grocery prices when compared internationally.’’
The commission’s preliminary view? ‘‘The core problem is the structure of the market.’’
Yet fast-forward to last week’s release of the commission’s final report and sacre bleu, the structural changes previously floated were not among the recommendations. A most mystifying turn of events.
The three main recommendations the commission could offer to address the current problems at the checkout were to provide more land for an imaginary third player to ride in, build new stores and create genuine competition, a code of good conduct, and an external regulator to ensure the chains behaved better in future.
For consumers, the final report was a crushing disappointment. The chains are currently extracting $22 billion in annual profits, making New Zealand the most lucrative supermarket industry in the OECD.
As the only buyers in town, the chains have also reportedly been able to force suppliers to carry many of the costs and risks of doing business.
Last year, the Commerce Commission identified what was wrong with current industry practice (that is, almost everything) and suggested a range of possible actions to address the problems.
The structural change then being mooted would have meant breaking up the duopoly by requiring the chains to divest parts of their current operations, to foster genuine competition.
But, from calling for divestment, the commission has not even strongly advocated that suppliers be empowered to bargain collectively with the chains and thereby gain some respite from the stranglehold the chains have over the entire operation.
This includes their current ability to force stroppy individual suppliers into silent submission, and the ability to promote their own product lines on the shelves, again at the expense of suppliers.
The commission’s main recommendation involved the creation of a new industry regulator. Think for a moment what powers such a watchdog would need to play that role effectively. For starters, such an office would need sufficient resources to launch its own investigations; it would need investigative powers and the ability to requisition documents; and it would need to be able to impose a penalty regime for non-compliance.
Even if the supermarket regulator’s office was resourced adequately – and if the Ombudsman’s office is any precedent, it wouldn’t be – this would still be a poor substitute for the structural changes the commission had previously flagged as essential.
Instead of having a bureaucratic Mr Plod to arbitrate on the rip-offs to which consumers had allegedly been subjected, wouldn’t it have been better to amend the structures that enable the chains to behave badly in the first place?
Ultimately, we’ll never know what happened during the period between the writing of the commission’s forthright draft, and its banal final report. But the lobbyists do seem to have earned their money this time.