Competition in supermarkets: the government is considering “regulatory support”

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The government is considering forcing Countdown and Foodstuffs to supply rival retailers with groceries on terms backed by regulations to improve competition, Trade Minister David Clark has said.

Clark indicated that no final decision has been made and said it was important to take the time to make the right decision.

Consumer NZ called for such a change on Tuesday, but competition advocate Tex Edwards predicted it wouldn’t be enough to provoke “similar” competition from a new supermarket chain and it wouldn’t. would only result in a “Pyrrhic competition”.

The Commerce Commission considered imposing an obligation on both supermarket groups to wholesale products to rivals when it conducted its market study of the $22 billion grocery industry.

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But he ultimately rejected that in favor of encouraging voluntary supply agreements, saying ‘regulated access’ had little support in submissions from those who wanted more ‘larger interventions’ and that many of the concerns of the two supermarket chains seemed well-founded.

He warned that such regulation could reduce rather than improve price competition and could make the industry less efficient by introducing “significant additional costs”.

Clark said the government is on track to release its response to the commission’s report by the end of the month.

“I am not announcing the government’s response today.

“But I would report that I have asked my officials to consider a regulatory backstop as an option because I think it is something that has merit and could open up wholesale to a range of competitors. “, did he declare.

Countdown and Foodstuffs would be required to supply competing retailers with groceries on terms backed by regulations, under a proposal being considered by authorities.

MARTIN DE RUYTER/STUFF

Countdown and Foodstuffs would be required to supply competing retailers with groceries on terms backed by regulations, under a proposal being considered by authorities.

Clark gave no indication that the government had reason to expect a mandatory wholesale regime would be sufficient to attract a third supermarket chain to the market that could provide comparable competition to Countdown and Foodstuffs. .

But the government is believed to consider that it could exert downward pressure on supermarket prices, even if it only allowed existing competing retailers, including dairies, to improve their combination of price and convenience. .

“I think wholesale trade access is a key part of the Commerce Commission’s response. They put a lot of their energy into describing how that might happen,” Clark said.

“I wonder if we can go any further, so we’re sure it will happen.”

Clark would not explain why the government might come to a different conclusion from the commission, on the merits of a mandatory rather than voluntary scheme, saying it “didn’t want to get ahead of the process”.

Trade Minister David Clark said the government was on track to announce its response to the Trade Commission's recommendations for the grocery industry by the end of this month.

ROBERT KITCHIN/Stuff

Trade Minister David Clark said the government was on track to announce its response to the Trade Commission’s recommendations for the grocery industry by the end of this month.

Countdown spokesperson Kiri Hannifin said there are “many complexities around wholesale sourcing that need to be considered and resolved, but we are well aware of both the commission’s recommendations and government expectations.

Consumer NZ launched a petition on Tuesday calling on Clark to consider regulating access to wholesale supply or creating a “state-owned wholesaler”, although Clark ruled out the latter option.

“By regulating access to wholesale supply, a third or fourth player would have the ability and confidence to enter or grow in the market, thereby increasing competition and lowering prices for consumers,” said Consumer NZ chief executive Jon Duffy.

“Marginal retailers such as convenience stores, dairies and gas stations would also benefit from access to wholesale groceries on reasonable terms.”

Sarah Balle, founder of online supermarket Supie, said she supported the idea of ​​a wholesale regime or a state-backed wholesaler, saying she thought it would be “a huge help for the faulty sector”.

During the commission’s market investigation, she argued harder for the second option, suggesting that Supie could take on the role of government-backed wholesaler, an offer she repeated on Tuesday.

Edwards had requested during the commission’s market investigation that the government force Countdown and Foodstuffs to sell many of their stores to a new rival.

“Wholesale regulation will not solve the retail dominance that exists. My experience is that wholesale and retail market power needs to be limited, not just the wholesale market,” he said.

Competition lawyer Ernie Newman, former chief executive of the current Food and Grocery Council, said wholesale regulation would be only the “fourth best” option to improve competition in the sector.

The best option for consumers would be to demand that Countdown and Foodstuffs divest part of their stores, and the second best would be to demand the structural separation of supermarket wholesale and retail operations, he said.

Seven Sharp

When it comes to supermarket options, New Zealand has few and far between.

The third best option would be for the government to provide some kind of support to bring a new entrant into the market, he said.

There was a big gap after that “to a bit of regulatory tinkering,” Newman said.

Newman led the Telecommunications Users Association during the industry’s tumultuous period that saw the breakup of Telecom.

“Wholesale regulation worked in the telecom industry because you basically only had half a dozen products,” he said.

“When you have a small number of prices, it’s very easy for a regulator to figure out what they should be.”

But in the supermarket sector, where there were thousands of products, including perishables that varied in cost and quality every day, it would be “very difficult” to control a wholesale diet, he said. .

“My feeling is that it would work, but only if it was extraordinarily specific in terms of how it was done. The concept is great, but the execution is mind-blowing in this industry,” he said.

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