Do we pay too much for groceries? Govt orders supermarket probe

Author
Jason Walls, NZ Herald,
Publish Date
Tue, 17 Nov 2020, 2:39PM
(Photo / File)
(Photo / File)

Do we pay too much for groceries? Govt orders supermarket probe

Author
Jason Walls, NZ Herald,
Publish Date
Tue, 17 Nov 2020, 2:39PM

The Government is ordering the country's competition regulator to probe the supermarket industry to ensure Kiwis aren't paying too much for their 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.

Kiwis were "genuinely concerned" about the price of groceries in this country.

The investigation is similar to the one the commission did on the petrol market last year – that investigation led to a more transparent pricing strategy, which required fuel prices to be displayed on forecourt price boards.

After the market study was announced, petrol companies almost immediately lowered the price at the pump.

Clark hopes the probe into supermarkets will have the same effect.

"New Zealand has one of the most concentrated retail grocery markets in the world and there are indicators that competition in the sector has weakened over time," he said.

"Groceries are one of our most regular expenses, so we want to make sure pricing is fair."

The study means the Commerce Commission will have the power to demand information from the supermarket giants. Clark said he expected the two companies to cooperate.

"They're not going to be surprised by this."

Countdown promptly responded, saying the company would cooperate fully with the Commerce Commission.

"We work hard every day to make food as affordable as we can for our customers," a spokesperson said.

"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."

Probe will take a year

Clark said the average Kiwi household spent roughly 17 per cent of their weekly expenses on food and this has been increasing each year.

The study will take a year to complete and the Commerce Commission will report back to Clark on November 23 next year.

The aim of the market study is to look into how competitive the supermarket space is in New Zealand.

The outcome of this could lead to recommendations which could ensure the weekly shop is cheaper, Clark said.

There are two dominant supermarket chains in New Zealand: Australian-owned Progressive and Foodstuffs. Progressive is the owner of Countdown while Foodstuffs owns New World, Pak'n Save and the smaller Four Square.

Clark said that some of the big supermarket chains have said there is already a healthy degree of competition in the sector – "we want to test whether that is the case".

"If issues affecting competition are identified in the study into supermarkets, the Government will consider the necessary changes to bring about better outcomes for consumers."

Clark noted that Labour had promised the supermarket study during the election and the Government was now "cracking on".

The market study will, according to Clark, give the Government the "power to act".

"This study could make a real difference for Kiwis."

Clark said the study would be used to help regulate the sector.

What the Commerce Commission will investigate

  • The structure of the grocery industry at the wholesale and retail levels
  • The nature of competition at the wholesale and retail levels of the grocery industry
  • The pricing practices of the major grocery retailers
  • The grocery procurement practices of the major grocery retailers
  • The price, quality, product range and service offerings for retail customers

Consumer NZ welcomes inquiry

Consumer NZ is welcoming the Government's announcement the supermarket industry will be investigated in a market study, which will be undertaken by the Commerce Commission.

Consumer NZ chief executive Jon Duffy says it's good news for Kiwi shoppers.

"New Zealand has one of the most concentrated supermarket industries in the world, dominated by two players," he says.

"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."

In September, Consumer NZ made a complaint to the commission asking it to use its market study powers to investigate levels of competition in the supermarket industry. They also asked them to investigate supermarket price promotions.

Despite the high degree of concentration, the supermarket industry hasn't been subject to any significant scrutiny from regulators, Duffy says.

"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."

The first market study undertaken by the commission looked into the fuel industry.

That investigation led to a more transparent pricing strategy, which required fuel prices to be displayed on forecourt price boards.

In late 2018, Prime Minister Jacinda Ardern announced the probe and said she believed consumers were "being fleeced".

After a year of looking into the market, the Commerce Commission said that the fuel market was "not as competitive as it could be".

"What the draft report says is that if competition was working well in these markets, we may well expect consumers to pay less for petrol than they are currently paying," Commerce Commission chairwoman Anna Rawlings said at the time.

Although Rawlings wouldn't use the word "fleeced," Ardern doubled down on the comments she had made a year prior.

"You will remember our instinct was that New Zealanders were being fleeced at the pump – now the Commerce Commission has confirmed that that is true."

The petrol market probe was the first of its kind and was launched after Ardern prioritised the passing of the Commerce Amendment Bill – legislation which enabled the commission to undertake these market studies.

The probes take roughly a year and the commission only has the budget to do one a year.