Concerns over merger make no sense, Foodstuffs’ NI boss says
The proposal to merge Foodstuffs’ North Island and South Island co-operatives into one group will not stifle competition, the company’s North Island chief executive Chris Quin says
Quin, who, if the merger is approved, will become group chief executive, said combining the two co-ops would make it easier for new suppliers to get their products stocked in Foodstuffs supermarkets and ultimately bring down the price of groceries.
Foodstuffs is the operator of 525 supermarkets across its Pak'nSave, New World, Four Square, Gilmours and Trents brands.
Quin said the merger would save the businesses “tens, if not hundreds, of millions” of dollars over coming years, and would be operationally better for staff, suppliers and consumers.
“What they will see over time is better value and innovation because of the benefits of the merger; more investment in technology and in offers,” Quin told Stuff. He said it would make it easier for Foodstuffs staff to “get things done” and comply with regulation.
Whether the Commerce Commission allows the merger to go ahead is up in the air, and Foodstuffs supermarket owner-operators are yet to submit their vote of confidence.
There has been growing opposition to the merger since Foodstuffs North Island and Foodstuffs South Island applied in December for clearance from the Commerce Commission.
The competition watchdog has received 11 submissions and the merger has run into strong objections from The Warehouse and the Food and Grocery Council, as well competition advocates Ernie Newman, Tex Edwards and the Grocery Action Group.
The Commerce Commission said in a “statement of issues” this month that it was concerned about the competitive harm that could result from a merged business putting more of a squeeze on grocery suppliers.
A merged Foodstuffs business might be able to extract lower prices and more favourable terms from suppliers and their combined buying power could reduce the ability of suppliers to invest, resulting in “reduced capacity, quality or innovation”, it said.
But Quin was adamant that was not the case. He said this was a case of a merger of two geographically separated co-operatives, not two corporates, that aimed to cut out duplication of roles and processes to streamline back-end operations.
“The concern is suppliers will be pushed below the sustainable profit line and then competition and supply disappear, which could be bad for consumers,” he said.
“That doesn’t work for us as a business driver, because our ability to make a return is based on having great products on the shelf that appeal to customers — if we don’t, we feel the economic pain of that; that’s what we scratch our head about.”
Quin said a merged co-operative would be able to make more efficient use of its capital and deliver benefits for suppliers because they would have “a single easier engagement” with the business, but with the same options for supplying one store through to all of its stores.
“In its traditional form, a merger sounds like less competition; the fundamental differences are geographically separated operations, so no competition at retail level, and a co-operative not a corporate.
“The things that are in front of customers won’t change; the things that make us more efficient, lower cost and more agile would.”
Quin said a merger to create a national organisation had long been on the cards, and delayed as a result of the Covid-19 pandemic.
The way Quin sees it, any concerns against a merger make no sense and it would make “absolutely no difference” to competition.
Foodstuffs supermarkets competed with each other as it was and that would continue, he said. There have been mergers of Foodstuffs co-operatives before now; in Wellington, Auckland, and two previously in the South Island.
The $25 billion grocery sector has been a focus of the Commerce Commission and grocery commissioner in recent years following a year-long market study by the government that found the grocery sector was dominated by a duopoly of Foodstuffs and Woolworths, and consumers were not getting a fair deal at the checkout as there was little competition to keep prices competitive.
Foodstuffs has a larger business compared with the likes of Australian rival Woolworths. Not by size, but by sales in the New Zealand market.
Costco entered the market in September 2022, and the Warehouse Group has been increasing its own efforts selling groceries since the market study was conducted.
Warehouse Group chief executive Nick Grayston has been vocal about his belief that the government’s drive to introduce more competition, including the five-year appointment of grocery commissioner Pierre Van Heerden, has failed to deliver any real change to the sector.