Are supermarket prices fair? Industry responds to Govt probe

The retail and grocery sector has welcomed the government’s probe into the price of groceries – but Retail NZ says competition is present in the market, and the size of the market is responsible for the high cost of groceries.

Minister of Commerce and Consumer Affairs David Clark this morning announced he has ordered the Commerce Commission to conduct a market study on supermarkets to ensure Kiwis aren’t paying too much for their groceries.

New Zealand has one of the most concentrated retail grocery markets in the world and there were indicators that competition in the sector had “weakened over time”, Clark said.

The probe into the price of groceries will be similar to the market study for fuel conducted last year that led to a more transparent pricing strategy.

Despite popular belief, Retail NZ chief executive Greg Harford said there was “strong competition” in the grocery sector, both from the major players Foodstuffs and Woolworths NZ and from independent operators.

“Supermarkets are competing vigorously with a whole range of businesses that sell food. You’ve got not only independent green grocers, butchers … but also restaurants and cafes.

“We’re increasingly eating out. One third of food is eaten outside of the home these days so there is really strong competition,” Harford told the Herald.

“Supermarket businesses like all retailers are very conscious of what’s going on in the market, they don’t want to overprice their products. A lot of the commentary we often hear around supermarkets is around the price of food relative to other markets but there are several differences, including size of the market.”

Foodstuffs, the operator of supermarkets Pak’nSave, New World, Four Square, Gilmours and Trents, and Woolworths, which operates supermarkets Countdown, FreshChoice and SuperValue, have been contacted for comment.

A spokesperson for Countdown said: “We work hard every day to make food as affordable as we can for our customers. The New Zealand grocery market is intensely competitive and this can be seen by the huge array of choice that is available for customers – including supermarkets, specialty stores, fruit and vege shops, butchers, meal subscription services and more. We welcome the opportunity to demonstrate this in an open and transparent way, and will cooperate fully with the Commerce Commission.”

Antoinette Laird, Foodstuffs head of corporate affairs, said Foodstuffs was “committed” to working with the Commerce Commission on the study.

“Now more than ever, we recognise Foodstuffs has a critical role to play in providing New Zealanders access to their everyday grocery needs, providing strong value and choice as we adapt to our changing world and recover from the challenges Covid-19,” Laird said.

“The New Zealand retail grocery landscape is a busy, competitive market with a range of supermarkets, specialist produce and butchery outlets, discount stores (e.g. Why Knot), online (Woop, My Food Bag, Hello Fresh) and Asian supermarkets – not to mention the arrival of Costco and ready access to restaurant food delivered to the comfort of consumers homes via Uber Eats, Menulog or DeliverEasy.

“We are committed to working with the Commerce Commission to ensure the study is effective for the benefit of all New Zealanders.”

New Zealand was a much smaller market compared to Australia and Britain, markets which are often drawn as comparisons for the price of food, and it lacked the economies of scale to warrant cheaper food prices, Harford said.

“One of the key components of the price of food in New Zealand is GST, which often isn’t levied on fresh fruit and vegetables like it is in other markets.”

Harford said the government had the power to reduce the price of food by 15 per cent if it removed GST on groceries or fruit and vegetables.

Katherine Rich, chief executive of the New Zealand Food and Grocery Council, said the organisation welcomed the review into the price of groceries and hoped an outcome from the probe would be the establishment of a food and grocery code of conduct for supermarkets, similarly to that in Australia that rules out anti-competitive behaviour.

She also welcomed new competition to the market such as the likes of American giant Costco and German discount grocery chain Aldi.

“New Zealand is the most highly concentrated grocery retail market in the world and with that comes some accountabilities and responsibilities. It is time to have a more detailed look at the market,” Rich told the Herald.

“There are parts of the market which do add costs and we’re seeing that right now with supply chain decisions. Because our market is at the bottom of the world and while we have a geographical area the size of Japan, we’ve got a tiny market spread throughout the country that is no bigger than a major city.”

Rich said there was little competition in buying from manufacturers, which was also why the Council welcomed new players to the market such as Costco.

“We need more players in the market. From a food and grocery manufacturer’s perspective, there are few options for you in terms of selling product and that’s why manufacturers have little or no negotiating power when they go up against the supermarkets, and that’s why a food and grocery code of conduct is important because it will rule out egregious behaviour.”

Consumer NZ also welcomed the supermarket investigation. Chief executive Jon Duffy agreed with Rich – he said he hoped the probe would look at both the prices consumers pay and supermarkets’ contracts with their suppliers.

“We need a wide-ranging investigation to gauge the degree to which the stores’ market power is affecting how much consumers pay.

“Supermarkets have a huge influence on the food supply chain, from the farm gate to the dinner table. Their practices not only affect what choices are available to consumers – and which brands end up on shop shelves – but also what we pay at the checkout. Consumers have the right to know whether this market power is being misused.”

Duffy said often private labels – the supermarkets’ own brands – offer stores higher returns but mean other brands can be pushed off shop shelves.

“NZ has one of the most concentrated supermarket industries in the world, dominated by two players. When you’ve got a market like this, there’s a big risk that consumers will end up paying higher prices because the usual competitive pressures don’t apply.”

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