Speaker 1: Kiota. I'm Chelsea Daniels and this is the Front Page,
Speaker 1: a daily podcast presented by the New Zealand Herald. An
Speaker 1: investigation into the supermarket majors is underway as a merger
Speaker 1: of hundreds of stores around New Zealand fails to satisfy
Speaker 1: a competition watchdog. Ahead of its final decision later this year.
Speaker 1: The Commerce Commission said that a merger of Foodstuff's North
Speaker 1: Island and food Stuff South Island would affect significant structural
Speaker 1: change in the sector and it continues to have concerns
Speaker 1: around competition. It's all while the Commission's investigating after Consumer
Speaker 1: and z lodged a complaint claiming supermarkets were engaging in
Speaker 1: misleading pricing. So what will all this mean for you
Speaker 1: and the price of your weekly grocery shop? Today on
Speaker 1: the front Page, we're talking all things supermarkets, first with
Speaker 1: nzet Herald reporter Kate McNamara and then with independent consultant
Speaker 1: Ernie Newman. Kate, can you explain how food Stuffs currently operates,
Speaker 1: particularly as this North Island South Island split is a
Speaker 1: bit confusing on paper.
Speaker 2: Yeah, So they are two separate entities, their owner operator
Speaker 2: co ops. So they're co ops the shareholders of which
Speaker 2: are the owners of the individual stores, and they are
Speaker 2: two single island co ops. So there's food Stuff's North
Speaker 2: Island and it really only sells well, it only sells
Speaker 2: in the geography of the North Island and food Stuff's
Speaker 2: South Island that only sells in the geography of the
Speaker 2: South Island. So that's at the retail level. They do
Speaker 2: work together in a variety of areas. Largely and quite
Speaker 2: importantly for the Commerce Commission, they buy separately from suppliers,
Speaker 2: but that's not absolute, and they do overlap. They buy together,
Speaker 2: for example in some instances. One example is when they're
Speaker 2: buying for the home brands, so PAMs for example. So yeah,
Speaker 2: areas of working together. If you, as a media person
Speaker 2: go to get comment, you'll generally find that there's kind
Speaker 2: of one operation for dealing with the media these days,
Speaker 2: or at least they share services across that area. And
Speaker 2: of course they share banners, so pack and Save New
Speaker 2: World and four Square are the main ones, and they
Speaker 2: each separately have other businesses and banners as well.
Speaker 1: So what is food Stuffs wanting to do with this merger.
Speaker 2: Well, it wants to become one single national entity. So
Speaker 2: on the one hand, consumers or you know, kind of
Speaker 2: ordinary people might not see a great deal of difference
Speaker 2: because broadly the same name and they share marketing and
Speaker 2: that kind of thing. So visually, certainly and from the
Speaker 2: outside it might not look very different. But they would
Speaker 2: have scope to do very many more business things together
Speaker 2: as a single entity, so it would be quite a
Speaker 2: big change.
Speaker 1: So essentially we've got food Stuffs North Island, food Stuffs
Speaker 1: South Island, and of course the Woolworths Group end Z
Speaker 1: which is run by Walworth's Australia at the moment. Essentially,
Speaker 1: do we have kind of two point five in our
Speaker 1: supermarket's competition at the moment and this would kind of
Speaker 1: bring it down to two.
Speaker 2: Yeah, you could think of it that way. In its
Speaker 2: market report that the Commerce Commission conducted and completed in
Speaker 2: twenty twenty two, it decided that food Stuffs together and
Speaker 2: Woolworths constitute a duopoly, essentially two big players in the market.
Speaker 3: The Commerce Commission said the duopoly of Wilworth's ENZ and
Speaker 3: food Stuff so it was not working well dealing consumers.
Speaker 3: It found New Zealand supermarkets are making more money than
Speaker 3: those overseas, and then our grocery prices are higher. The
Speaker 3: Competition Watchdog has stopped short of calling for a major
Speaker 3: structural change to the.
Speaker 2: Sector that does, as you kind of suggest, it masks
Speaker 2: the kind of particularities of food stuffs because they aren't
Speaker 2: one big player, although they don't compete on the retail level,
Speaker 2: because they occupy different geographies.
Speaker 1: Why are regulators and food suppliers so opposed to the merger.
Speaker 2: Well, we don't know that the regulator is opposed to
Speaker 2: the merger. So the process that they go through is
Speaker 2: they've chosen to go through three steps, So they issue
Speaker 2: statements of issue and they outline what they consider to
Speaker 2: be areas of law that they have not yet satisfied
Speaker 2: themselves of wherein there would not be a substantial lessening
Speaker 2: of com petition. But because the process is still ongoing,
Speaker 2: they've just issued their third statement outlining areas where they
Speaker 2: still need to be satisfied that there wouldn't be this
Speaker 2: substantial lessening. And we'll get a decision ultimately in October.
Speaker 2: But it's not over yet, so we can't say yet
Speaker 2: that they're opposed. Suppliers can tend and this is one
Speaker 2: of the areas where regulators still want to be satisfied
Speaker 2: that the merger wouldn't reduce competition, But suppliers contend that
Speaker 2: essentially their market, what they call the upstream market, the
Speaker 2: market for food and groceries, that that would be reduced
Speaker 2: from three players in the market to two if food
Speaker 2: stuffs was consolidated into one. Remember, largely they operate separately
Speaker 2: as buyers, So at the minute, if you're a supplier,
Speaker 2: you likely if you supply food stuffs on both islands,
Speaker 2: you likely deal with a number of different entities. Buying
Speaker 2: is very centralized by foodstuffs North Island. It's less centralized
Speaker 2: on the South Island. Buy from a number of different
Speaker 2: buyers and you would essentially be dealing with a single
Speaker 2: entity if there was a merger. And the Commerce Commission
Speaker 2: has outlined that it's worried about this. It has yet
Speaker 2: to be satisfied that this wouldn't substantially lessen competition. It
Speaker 2: suggests that it might push prices down for suppliers in
Speaker 2: selling their goods, and it's not convinced that you know,
Speaker 2: if there was a price reduction, that that would flow through,
Speaker 2: for example, to benefit consumers, and that it might basically
Speaker 2: increase the market power of food stuff such that they
Speaker 2: could do a variety of things which would be potentially
Speaker 2: damaging to the suppliers, and it worries could also flow
Speaker 2: through to damage to customers. For example, it could make
Speaker 2: it more difficult if you have this merge to food stuffs,
Speaker 2: it could essentially prove to be a barrier to entry
Speaker 2: for other competition if it were to try to enter
Speaker 2: the market. You know, a merged entity would be better
Speaker 2: able to get lower prices, arguably better able possibly to
Speaker 2: get exclusivity in and so that would potentially make it
Speaker 2: harder to break into the market. And to the degree
Speaker 2: that it serves as a barrier to new competition, then
Speaker 2: obviously that's something that the Commerce Commission is concerned about.
Speaker 1: You spoke with Chris Quinn, the man who will likely
Speaker 1: be in charge if this merger goes ahead. How has
Speaker 1: he defended it well.
Speaker 2: He says that food stuffs is relentlessly focused on efficiencies
Speaker 2: and that a merger would allow the entities to be
Speaker 2: more efficient, and that efficiencies will flow through to customers
Speaker 2: and prices, and that because prices are determined by more
Speaker 2: factors than just supermarket costs, that it wouldn't necessarily be
Speaker 2: the case that we would have lower prices after a
Speaker 2: merger than beforehand, because of course you have, you know
Speaker 2: the effect of global pricing on commodities like milk and
Speaker 2: butter and all sorts of other variables. But the degree
Speaker 2: that we're looking at the supermarket's cost then the supermarket
Speaker 2: would be able to reduce he says, its costs through
Speaker 2: these efficiencies, and so he says prices would be lower
Speaker 2: than they would otherwise have been. I don't think anyone
Speaker 2: doubts that it would be more efficient. I think if
Speaker 2: you have you know, two entities doing broadly similar things,
Speaker 2: to condense them into one, you know, you have one
Speaker 2: head office set of overheads, you have one supply chain
Speaker 2: that you're managing, that's going to be more efficient. But
Speaker 2: there are other factors at play. You could, happily, on
Speaker 2: the basis of improving efficiency, reduce market competition right down
Speaker 2: to one single colossus player, and I think most people
Speaker 2: would recognize that actually that would be very bad for markets,
Speaker 2: and it would allow for far too much market power.
Speaker 2: So efficiency is one consideration, but the concentration of market
Speaker 2: power is also a consideration.
Speaker 4: Auckland and Wellington Foodstuffs have already merged in twenty thirteen.
Speaker 4: It was promised to make things much cheaper and so forth. Well,
Speaker 4: Foodstuffs North Island has made over one hundred percent increase
Speaker 4: in profit from twenty thirteen to twenty twenty three, and
Speaker 4: I'm pretty sure customers are paying for that.
Speaker 1: You've been following this case and the widest supermarket issue
Speaker 1: for some time now, what do you make of the
Speaker 1: issues going on here?
Speaker 2: Well, I suppose there are two big issues and the
Speaker 2: first isn't directly related to the second. So the second
Speaker 2: is the merger issue itself and the legal basis on
Speaker 2: which that decision will be made. And then there are
Speaker 2: you know, the sort of tide of public opinion which
Speaker 2: includes I think politicians thinking as well, and kind of
Speaker 2: the way in which the issue has become quite politicized.
Speaker 2: And I think that is a very interesting moment in
Speaker 2: context for the merger application, because we have this moment
Speaker 2: that comes on the heels of three four years of
Speaker 2: very concerted and consistent scrutiny of the supermarket sector, of
Speaker 2: the very high concentration of power that the two players
Speaker 2: wield and the profits that they make. We had through
Speaker 2: the Market Study and through the Commerce Commission we have
Speaker 2: a lot of new money through budgets successive budgets, Budget
Speaker 2: twenty twenty two, Budget twenty twenty three for a grocery
Speaker 2: team the Commerce Commission, for widened powers for the Commerce
Speaker 2: Commission to wield, and so you know, it's part of
Speaker 2: a public and political consciousness I think at the minute
Speaker 2: that concentration of power and the grocery sector. So that's
Speaker 2: kind of the big picture. And inside of that we
Speaker 2: have this unfolding question of a merger which can't actually
Speaker 2: because the Commerce Commission has to make these decisions on
Speaker 2: their merits within the context of the law, it can't
Speaker 2: take into account or it isn't supposed to take into
Speaker 2: account public sentiment or sentiment. So there's kind of an
Speaker 2: interesting tension there what it can do and kind of
Speaker 2: what the government has essentially armed it to do, and
Speaker 2: really the previous labor government armed it to do is
Speaker 2: to take as much time as it needs, you might say,
Speaker 2: and use considerable money and resource as the public sector
Speaker 2: has it to make this determination. So it has a
Speaker 2: lot more firepower than it ever had. It can't change
Speaker 2: the law and the precedence within which it makes the decision,
Speaker 2: but it can throw a lot of resources at the
Speaker 2: decision making to make the right decision, and if it
Speaker 2: goes against then it will need to have done a
Speaker 2: very good and thorough job because of the possibility for challenge.
Speaker 1: Thanks for joining us KAY.
Speaker 5: To discuss what more needs to be done to increase
Speaker 5: competition in our grocery sector. We're joined now by independent
Speaker 5: consultant Ernie Newman. Ernie, can we start with your thoughts
Speaker 5: on the proposed food Stuff's merger.
Speaker 1: Do you think it's a good or bad idea?
Speaker 6: I think it's clearly a bad idea. We already have
Speaker 6: a duopoly. We already have demonstrably one of the three
Speaker 6: least competitive grocery industries on the OEPED and the whole
Speaker 6: notion of cutting two point five grocery retailers down to
Speaker 6: two is totally adverse to the interests of consumers.
Speaker 1: The Commerce Commission has come out saying that the merger
Speaker 1: of food Stuff's North Island and South Ireland could affect
Speaker 1: significant structural change in the sector. It continues to have
Speaker 1: concerns around that competition aspect. How do we get around
Speaker 1: competition in the grocery sector in New Zealand.
Speaker 6: Well, that's a very big question. And by way background,
Speaker 6: there are three initiatives underway with the Common Commission at
Speaker 6: the moment. There is the market Study, there is the
Speaker 6: application for the merger of food Stuff's North and Foods
Speaker 6: South South Island. And there is separate legal action by
Speaker 6: the Communist Commission in relation to food Stuff's North Island
Speaker 6: for anti competitive land to covenants. So somewhere in the
Speaker 6: middle of all that has got to be a solution
Speaker 6: to me, the market study is the key one. You
Speaker 6: know where that is landed now is the market study
Speaker 6: was completed. A Government of the day followed the recommendation.
Speaker 6: It appointed a Grocery Commissioner who's been active now for
Speaker 6: about a year, and basically the recommendation was that we
Speaker 6: wait three years to see how effective his role would be.
Speaker 6: And so we're in that waiting game at the moment.
Speaker 6: Although there are a lot of people who would argue
Speaker 6: we can't afford to wait another three years. It takes
Speaker 6: an action on a problem which is quite clearly staring
Speaker 6: us in the face every time we go and buy
Speaker 6: a packet of Fairnis.
Speaker 5: Well.
Speaker 1: This month actually marks a year since the Grocery Commissioner,
Speaker 1: Pierre van Heerden was appointed after they investigation into our
Speaker 1: supermarket duopoly. Has much changed in the last year since
Speaker 1: his appointment.
Speaker 6: I don't think anything has changed for consumers. I think
Speaker 6: some things have changed for suppliers, but even that is
Speaker 6: pretty much at the margin. The difficulty, I think is
Speaker 6: that he doesn't have the powers that he needs to
Speaker 6: do his job. Clearly, what's needed here is to undo
Speaker 6: the harm that was done by the agglomeration of the
Speaker 6: sector over the last twenty years or so. Most countries
Speaker 6: have three or four or five or sixth competing supermarket chains.
Speaker 6: It's a huge industry with a huge impact on cost
Speaker 6: of living and societal well being and so on, and
Speaker 6: to actually have a duopoly is totally unsatisfactory. So until
Speaker 6: we actually attack the core of the problem, which is
Speaker 6: market structure, we're not going to fix that problem by
Speaker 6: trying to change people's behavior.
Speaker 1: Why won't other world leading supermarkets enter the New Zealand market.
Speaker 1: I'm thinking AUDI is taking over in Australia at the moment.
Speaker 1: Why is it so difficult for them to cut through
Speaker 1: this dieopoly that we're seeing.
Speaker 6: Here because the market is arguably well and truly oversupplied. Ironically,
Speaker 6: we probably have too many supermarkets for our size, and
Speaker 6: to some extent that the actions of the jeopolis by
Speaker 6: flooding the market with kind of a store on every
Speaker 6: street corner to make it impossible for a third imprint
Speaker 6: to come in. And that's been exacerbated by the issue
Speaker 6: of the land covenants. So back in the last ten
Speaker 6: or twenty years, the supermarkets have made a practice of
Speaker 6: tying up all the available land that a competitor might
Speaker 6: use through covenants which say, you know that you can't
Speaker 6: put a butcher or the vegetable store, or certainly not
Speaker 6: a competing supermarket on this piece of land.
Speaker 1: Here, it's possible for large operators to prevent competitors from
Speaker 1: releasing land in.
Speaker 4: The same area, a practice called land banking that's no
Speaker 4: longer allowed.
Speaker 6: Over the ditch, these behaviors that have been banned in
Speaker 6: Australia for fifteen years have been perpetuated against the New
Speaker 6: Zealand consumers. Now they've been called out on that one
Speaker 6: by the Communist Commission, and in the case of food
Speaker 6: Stuff's North Island, there is action going on on that
Speaker 6: front already, but the damage has been done with those
Speaker 6: covenants and it'll take ten or twenty years to get
Speaker 6: to the point that enough land starts to free up
Speaker 6: for a thirty inprint to conumplay coming in.
Speaker 1: You're chief executive of the Telecommunications Users Association of New
Speaker 1: Zealand for eleven years, and during that time when Telecom
Speaker 1: now Spark was split up in separate companies to end
Speaker 1: the monopoly had over the market. How does that change
Speaker 1: compare with what's happening with supermarkets now?
Speaker 6: It was equally long and drawn out. There was equally
Speaker 6: enormous resistance from the telecom people. Interestingly, some of the
Speaker 6: same people are involved in the supermarket industry now. There
Speaker 6: was just as much of an effect on society because
Speaker 6: we had only effectively one fixed line and broadband tellic
Speaker 6: communications company to go to, so the stakes were extremely
Speaker 6: high and it was very, very bitterly fought. The outcome
Speaker 6: of that telecommunications remedy was that we moved from the
Speaker 6: least competitive telecommunications market in the world to one of
Speaker 6: the most competitive, and we really have the value from
Speaker 6: that today and we need to aspire to get that
Speaker 6: same outcome in our grocery industry.
Speaker 1: There was a lot of disappointment last year when Soupy,
Speaker 1: the online supermarket retailer collapsed only after a few years
Speaker 1: of operation. What do you think is preventing new players
Speaker 1: coming into the market to break up that duopoly. You've
Speaker 1: mentioned the land needed, but also online it seems as well.
Speaker 6: Yeah, the Communist Commission has done some good work looking
Speaker 6: at that. Yes, there is a space for online competition,
Speaker 6: but the Commission has made it very clear that there
Speaker 6: is a concept called the main shop. You know, what
Speaker 6: we do was sort of on payday or the Saturday
Speaker 6: after we go out and we get our fortnight or
Speaker 6: our week or months supply of groceries, and a high
Speaker 6: percentage of our grocery spend is done in that one
Speaker 6: main shop. Now, the super type operations are not really
Speaker 6: suited to that. They're good for top up shops. You know.
Speaker 6: Not everyone has access or wants to have access to
Speaker 6: online shopping. There is still a very very large chunk
Speaker 6: of the market for people who want to go out
Speaker 6: to a supermarket once a week, once a fortnite and
Speaker 6: stock up. And that's the part of the market that
Speaker 6: is blocked by lack of sites and by the sheer
Speaker 6: difficulty of trying to come in and compete against a
Speaker 6: very well entrenched Cooperly.
Speaker 1: Should the government get more involved here.
Speaker 6: I think, yes, I think this is going to require
Speaker 6: a political solution, you know, breaking up a failed market.
Speaker 6: There is precedent for it, but governments are reluctant to
Speaker 6: get in. But I think the circumstances here are so
Speaker 6: exceptional that the government will have to And interestingly, it
Speaker 6: was under a national government predominantly that the biggest steps
Speaker 6: in the telecom breakup. Stephen Joyce was the minister at
Speaker 6: the time. But I think the government needs to find
Speaker 6: a really good creative solution to get on there and
Speaker 6: break this up and give us three or four or
Speaker 6: more players. You know, back in the day when I
Speaker 6: worked in the industry in the nineteen eighties, there were
Speaker 6: half a dozen competing supermarkets, and there's no reason why
Speaker 6: it can't recur. That it's a very big industry and
Speaker 6: pretty of money there for a lot more people.
Speaker 1: Thanks for joining us, Ernie. That said, for this episode
Speaker 1: of The Front Page. You can read more about today's
Speaker 1: stories and extensive news coverage at nzat herold dot co
Speaker 1: dot z. The Front Page is produced by Ethan Seals
Speaker 1: with sound engineer Patty Fox. I'm Chelsea Daniels. Subscribe to
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