Sunday, April 14, 2024

Max Salmon: ComCom antics

Last week the Commerce Commission announced its concern with a proposed merger between Foodstuffs North Island and Foodstuffs South Island. Their concern is a decrease in competition in the market.

It sounds crazy when you first hear it, but it’s even weirder when you see what the Commerce Commission is actually worried about.

At first glance it’s ludicrous. It isn’t like there are vast numbers of inter-island shoppers, ferrying and flying between north and south to secure precious grocery bargains from the New World on the other side of the Strait. Price differences between Tauranga’s PAK’n’SAVE and Dunedin’s New World won’t lead to many shopping trips.

But that isn’t what the Commerce Commission is worried about. They worry instead that the combined entity will be too efficient. It will be able to purchase in bulk for both islands, passing some savings along to consumers, and making life harder for their suppliers.

And maybe, if suppliers are pushed too hard, maybe there could be harm to consumers down the track.

Now your first thought might be that the Commerce Commission is also the grocery regulator. One of its specific jobs is to enforce a Grocery Supply Code aimed at protecting suppliers against large retailers. The case for that Code is dubious to begin with. But concern about the merger is hardly a vote of confidence for the Code.

Let’s run with this new form of market harm and see where it takes us. Over the last several years New Zealand has experienced an influx of over 50 pharmacies from Australian juggernaut Chemist Warehouse. As a brand that sells itself on its low prices, the group utilises its combined purchasing power with suppliers to deliver quality goods, from pharmaceuticals to sunscreen, at low prices to Kiwi families.

However, according to the commission’s logic, this could well wind up hurting their suppliers. And really, that’s what competition policy is all about.

Therefore, it seems clear that we ought to split Chemist Warehouse into two separate entities for the North and South islands. Their costs will go up, and somehow consumers will benefit.

Maybe we should also break up Pharmac and have Pharmac North Island and Pharmac South Island. Isn’t it terrible how the merged Pharmac negotiates lower prices?

I think we can all be glad that this is the steady hand responsible for investigating commercial malpractice in New Zealand.

Max Salmon is a Research Intern at the New Zealand Initiative. He joins as a generalist, with interests in education, infrastructure, and energy. This article was first published HERE


Anonymous said...

Are savings actually passed onto consumers? Is this concern as ridiculous as you claim? What evidence have you provided for your argument. Could we please have fewer undeveloped arguments from Mr Salmon?

Anonymous said...

Foodstuffs have always been "the superior supermarket giant", even before they split into 2 separate management entities.

From there initial start up and the progressive spread from a solo supermarket operation to establishment of 4 Square then PAK'n'SAVE - they saw 'gaps in the market', which also saw the closing of those business that had a grocery operation alongside an part of the business (example Williams & Kettle Hawke's Bay, being a Stock & Station Agent, with a grocery arm alongside) - such businesses seeing that they could no longer compete so closed. Or even the 'historical small business' that sold grocery items, found they could no longer compete with a market that had mass product saturation.

Did anyone, then in Govt circles or elsewhere complain - NO.

Woolworths Australia, used a "cast off canoe" and sailed the Tasman to set up supermarkets in NZ - anyone complain- NO. An added note here re Woolworths, I see a recent 'news article', they are intending to set up more supermarkets across NZ - Hello Commerce Commission!

Many 'moons ago' the Warehouse 'attempted to establish supermarkets' within existing shops - 'the howl of protest from both Foodstuffs & Woolworths was 'deafening'. I see now they are re - attempting to establish a food stuffs isle/isles with limited commodities.

So, the question I would ask - "Does our NEW Grocery Commissioner have a nose in the wind on any of this"?