Even the big cheese has to bargain-hunt
If our new grocery commissioner has to find savvy ways to beat high grocery prices, what can he do in the role to help the rest of us?
Pierre van Heerden has been armed with a hefty regulatory stick to knock the grocery sector into line on matters of competition, so it’s mildly disheartening that, like the rest of us, he’s been reduced to stockpiling cheese to avoid paying through the nose.
“I normally have two to three blocks in the fridge, purely because I’m not willing to pay $19 a kg for cheddar. I look at it and say I’ll save $5 bucks by doing that . . . buying when it’s on special, then waiting when the price is high,” the country’s inaugural grocery commissioner admits.
A 2022 Governmentcommissioned market study found anaemic competition in the $25 billion grocery sector, dominated by a duopoly of supermarkets: Woolworths and Foodstuffs. It said the industry was marked by grocery prices that appear high by international standards, and profitability for the major grocery retailers that appears higher than expected.
This was followed by a slew of regulatory changes brought in by the last Government.
The reforms, instituted in 2022-23, included the requirement for the two big supermarkets to supply wholesale goods to competitors, a code of conduct that supermarkets are obliged to follow in their dealings with suppliers, and a grocery commissioner and team of some 25 staff, to oversee sector competition at the watchdog Commerce Commission.
To be clear, the Wellington-based van Heerden, in that job since July, doesn’t like “high low pricing” for cheese (or anything else); the term is industry jargon for the model of generally high prices for any given item, punctuated by periods of discount. He says the practice makes it hard to come up with the “true cost”.
“Where things get quite murky in the industry is there are so many rebates and promotional spends and everything else . . . the supplier comes to the supermarket and says, yeah I’ve got my products, but they then have to put a promotional plan in place which they [the supplier] pay for, which can be sort of between 15 and 20 per cent of total turnover for the year that goes into what we call the high low pricing . . . so when you take that out, that is really what the cost is.”
He prefers what he calls “everyday low prices”, where specials are eschewed in favour of a consistent, lower price.
Last year’s Grocery Industry Competition Act allows for further changes to grocery wholesaling regulations if need be, but van Heerden says he wouldn’t immediately banish the practice. He wants to see how the slew of recent regulatory changes works.
Though the previous Government considered the possibility of forcibly breaking up Woolworths and Foodstuffs and creating a third large player, it ultimately held fire. And that appears to be the new minister’s inclination too, and which van Heerden is bound to follow.
“Something like that would be up to the Government, but you know, yes, a third player would certainly help, it would be good to get another competitor in, and there are a number of ways that could happen
. . . I think Australia is better off than we are with three, but you do need to remember that three is not a silver bullet,” he says.
Commerce Minister Andrew Bayly has said the Government is watching the sector closely, but the change already effected needs to be given time to work.
An accountant by training — though his career has largely been as a business manager and executive — van Heerden says an important benchmark for competition will be an annual review of the sector.
The inaugural annual review is expected in August and will serve as a baseline for such measures as supermarket profit margins and prices across a “basket of goods”, but
I normally have two to three blocks in the fridge, purely because I’m not willing to pay $19 a kg for cheddar. Pierre van Heerden
details like what information will be included around wholesale pricing are still being ironed out.
Over time, he says, the reviews will be “a foundation stone” in building a picture of competition in the sector, and “will help us to focus our work and our priorities”.
That’s not fast enough for some. The Warehouse Group chief executive Nick Grayston has complained the new regulatory regime has not helped his company in its battle with the supermarket behemoths and he’s called on the regulator to go a step further and set wholesale prices (so suppliers could go into league with and favour the big supermarket buyers).
The Warehouse is working to suggest further regime changes.
Van Heerden also has high hopes that market forces, despite their seeming ill health, can supply better competition. Technology, for example, might help shoppers beat the supermarkets at their own game of episodic discounts.
“There are already ways to scrape the supermarket data [from their websites], two or three times a day . . .
what’s needed is an app that’s consumer facing, and consumers could go into that app, put in an order, and that app would find the best prices across different supermarkets, and put in those orders for delivery, or maybe for click and collect,” he says.
It might prompt van Heerden, who takes a professional interest in the household shop (he lives with his wife and adult son), to stray more frequently from the New World Thorndon, conveniently located on his route home from work.
It’s not an outlandish idea. New Zealand company Price Pulse is already working on a “proof of concept” for something similar.
But since the demise of online retailer Supie last year, the country has become wary of pinning too much hope on a disruptor.
Supie’s business model cut out the cost of retail stores, and relied, rather, on the virtual shelves of its website, a warehouse and home delivery.
But it suffered from its small scale, and, ultimately, a terminal lack of capital, for what remained a lossmaking start-up. The company stopped trading at the end of October after entering voluntary administration.
However, van Heerden is relatively phlegmatic about Supie’s collapse: “It was very disappointing that Supie went under . . . but it was not the end of competition. And when I look at it, you know they were projecting
$16 million, $17m turnover [annualised revenue]. But they weren’t close to that, the prior year they were about $6m odd.
“Then I look at what The Warehouse has done, and if you look at just the increase in their turnover in food for that same year, it was about $70m, just their increase was vastly more than Supie’s total turnover.”
This is heartening, van Heerden says, despite Grayston’s complaints.
“Sometimes, because one player might have a lot of media attention, people think they were the one to save the industry.”
The Warehouse’s foray of recent years into grocery staples has provided shoppers with more, and cheaper, grocery options than through any other upstart competitor. It’s now experimenting with a basic range of fresh produce across roughly a third of its 257 stores.
But that expansion on to the duopoly’s turf may also have made The Warehouse a target.
Another of Grayston’s complaints is that the commission has dropped an investigation into the behaviour of Sanitarium Health Food Company in cutting the supply of Weet-Bix to the retailer in September (supply was restored after a considerable public outcry).
Van Heerden spent about 20 years as a manager at Sanitarium, first in Australia, where he still owns a house, and from 2007 in Auckland, where he led the New Zealand branch of the company until late in 2016.
He’s also a member of the Seventhday Adventist protestant Christian denomination (the cereal company is owned by the Seventh-day Adventist Church).
While the Herald posed questions on the matter to van Heerden, a commission spokesperson provided the response.
She said the commission requested and reviewed “extensive information and documents from Sanitarium”, and decided against opening a formal investigation because no evidence of anticompetitive purpose or any breach was found.
Furthermore, there was “no potential conflict of interest between the grocery commissioner, and further, he had no involvement in the decision-making process in this matter by the competition branch [which was responsible for assessing and investigating matters under the Commerce Act],” the spokesperson said.
Though the subject is a little touchy, van Heerden’s background, including a stint as chairman of the board of supplier industry group the Food and Grocery Council, gives him a deep understanding of many of the issues, he says.
On another thorny matter, Grayston and the commission have plenty of common ground: after several delays, the regulator is set to rule on the proposed merger of Foodstuffs’ South Island and North Island owner co-operatives at the end of May.
There have been a series of milestones for improved competition passed already, van Heerden insists: the ban on restrictive land use covenants used to hamstring supermarket competition, and the scope for hefty fines under the code of conduct if supermarkets mistreat suppliers, to name a few.
But he’s also a born South African and a long-distance runner. He knows the race is still in its early stages, and the heat has yet to bite.