The answer, apparently, is yes. The answer was always going to be yes. If you pay someone to look for fairies, they will report finding fairies.
We have two large supermarket chains: Foodstuffs and Woolworths. Technically, there are three, with Foodstuffs being split into North and South Island cooperatives using the same brands: Pak’nSave, New World and Four Square.
Before we dive into grocery prices, let’s pause to review a recent decision of the Commerce Commission that, I think, will help readers understand the nature of the problem.
Foodstuffs wanted to merge their North and South Island cooperatives. Economies of scale make a merger obvious and, as the two entities operate in different markets, there is little risk of a reduction in competition.
The Commerce Commission said no, and the reasons are interesting.
Chair Dr John Small declared, “The proposed merger would reduce the number of major buyers of grocery products in New Zealand from three to two… As a consequence… the merged entity would likely be able to extract lower prices from suppliers and/or otherwise adversely impact suppliers in the relevant markets…”
If you want to understand how supermarkets can retail a can of fizzy drink for less than a dollar a can, it is because they have the market power to drive their suppliers to the wall.
This might seem terrible, and perhaps it is, but there is a direct correlation between what a supermarket pays for a good and what they sell it for.
Rather than acting to protect the consumer, the Commission is stopping the merger to protect suppliers, which will result in a higher prices for consumers.
There is an argument, made by the Commission, that increased buying power would damage suppliers’ ability to grow and, potentially, deprive consumers of a more competitive grocery market in the future. We are being told we need to pay more now so we might get a better deal later.
Thanks John.
The last government introduced, and this one is maintaining, a legislative and regulatory regime where Foodstuffs and Woolworths are being forced to offer wholesale services to smaller competitors. There is a grocery commissioner whose job it is to investigate and annoy supermarkets and, inevitably, increase the compliance costs.
The Green Party, who will be around the Cabinet table soon enough, want the supermarkets to be broken into their retail and wholesale components.
Pierre van Heerden, the Commissioner for Groceries, is on board: “I want to assure you all that we are doing everything in our power and at pace to get change done in the industry. However, this does take time, as we’ve seen in the telecommunications industry, it’s not something that gets fixed overnight.”
In case anyone missed the reference, the 2001 Telecommunications Act resulted in Telecom separating its network and retail operations and, it seems, there is a desire to do the same to the supermarkets.
But at the same time, Willis and van Heerden are touting the opportunities for a new entrant.
Willis promised there will not be a KiwiShop: “Instead, I’d like to see another competitor enter the supermarket scene to disrupt the major players, drive down prices and increase options for Kiwi shoppers.”
I mean, I’d like a pet Aardvark, but we need to understand what we are saying. While we are flashing a bit of commercial leg to attract new investment, we are clubbing the existing supermarkets with ever more creative regulations.
The premise of this harassment is “evidence” the sector would make $430 million less profit if it was more competitive, based on a dubious analysis of a return on capital.
However, in 2024 Woolworths New Zealand made $108 million; Foodstuffs, between the North and South Islands, retuned a little over fifty million between them. Foodstuffs is a cooperative, so the profits that the store owners themselves make would need to be added to this figure and maybe the accounting has been tweaked for tax reasons but there isn’t a missing $430 million floating around the sector.
Retail is hard work. You have labour laws that inhibit productivity, rising levels of theft and an education system that struggles to provide staff with the required levels of literacy and numeracy as well as reckless government policies causing prices to jump faster than your customers’ incomes.
Prices are not rising. Our income is falling in absolute terms which means we can afford less each year and rather than accept responsibility for the consequences of their actions politicians are blaming the supermarkets and punishing them accordingly......The full article is published HERE
Before we dive into grocery prices, let’s pause to review a recent decision of the Commerce Commission that, I think, will help readers understand the nature of the problem.
Foodstuffs wanted to merge their North and South Island cooperatives. Economies of scale make a merger obvious and, as the two entities operate in different markets, there is little risk of a reduction in competition.
The Commerce Commission said no, and the reasons are interesting.
Chair Dr John Small declared, “The proposed merger would reduce the number of major buyers of grocery products in New Zealand from three to two… As a consequence… the merged entity would likely be able to extract lower prices from suppliers and/or otherwise adversely impact suppliers in the relevant markets…”
If you want to understand how supermarkets can retail a can of fizzy drink for less than a dollar a can, it is because they have the market power to drive their suppliers to the wall.
This might seem terrible, and perhaps it is, but there is a direct correlation between what a supermarket pays for a good and what they sell it for.
Rather than acting to protect the consumer, the Commission is stopping the merger to protect suppliers, which will result in a higher prices for consumers.
There is an argument, made by the Commission, that increased buying power would damage suppliers’ ability to grow and, potentially, deprive consumers of a more competitive grocery market in the future. We are being told we need to pay more now so we might get a better deal later.
Thanks John.
The last government introduced, and this one is maintaining, a legislative and regulatory regime where Foodstuffs and Woolworths are being forced to offer wholesale services to smaller competitors. There is a grocery commissioner whose job it is to investigate and annoy supermarkets and, inevitably, increase the compliance costs.
The Green Party, who will be around the Cabinet table soon enough, want the supermarkets to be broken into their retail and wholesale components.
Pierre van Heerden, the Commissioner for Groceries, is on board: “I want to assure you all that we are doing everything in our power and at pace to get change done in the industry. However, this does take time, as we’ve seen in the telecommunications industry, it’s not something that gets fixed overnight.”
In case anyone missed the reference, the 2001 Telecommunications Act resulted in Telecom separating its network and retail operations and, it seems, there is a desire to do the same to the supermarkets.
But at the same time, Willis and van Heerden are touting the opportunities for a new entrant.
Willis promised there will not be a KiwiShop: “Instead, I’d like to see another competitor enter the supermarket scene to disrupt the major players, drive down prices and increase options for Kiwi shoppers.”
I mean, I’d like a pet Aardvark, but we need to understand what we are saying. While we are flashing a bit of commercial leg to attract new investment, we are clubbing the existing supermarkets with ever more creative regulations.
The premise of this harassment is “evidence” the sector would make $430 million less profit if it was more competitive, based on a dubious analysis of a return on capital.
However, in 2024 Woolworths New Zealand made $108 million; Foodstuffs, between the North and South Islands, retuned a little over fifty million between them. Foodstuffs is a cooperative, so the profits that the store owners themselves make would need to be added to this figure and maybe the accounting has been tweaked for tax reasons but there isn’t a missing $430 million floating around the sector.
Retail is hard work. You have labour laws that inhibit productivity, rising levels of theft and an education system that struggles to provide staff with the required levels of literacy and numeracy as well as reckless government policies causing prices to jump faster than your customers’ incomes.
Prices are not rising. Our income is falling in absolute terms which means we can afford less each year and rather than accept responsibility for the consequences of their actions politicians are blaming the supermarkets and punishing them accordingly......The full article is published HERE
Damien Grant is an Auckland business owner, a member of the Taxpayers’ Union and a regular opinion contributor for Stuff, writing from a libertarian perspective
1 comment:
By using the ComCom to be the agency explaining/dealing with food price levels, the Labour Govt let people who know nothing about the food industry beyond what they learned for $30 million from holding an enquiry that rejected most industry evidence. We should have an industry study as Aussie did in 2008. It would show we export top quality protein to a first world with higher incomes than us, while we of course have to pay the same price domestically. From 2001 when Aldi entered Oz, for the next 20 years our food price index rose less than it did in Oz. Aldi lowers food prices in all supermarkets within 5km of an Aldi, but not the rate of change. Aldi has a 13% market share after 24 years.
As Damien says, the supermarkets are said to be inefficient, while suppliers, who are always grizzling about them holding down prices are a bigger part of the food industry and uniformly want to raise their prices! Our small market in a country half the size of France costs a packet to service - for everything we buy, not just food. Our food producers are small with limited economies of scale. We don't have warm growing climates for non-seasonal stuff we love to eat and complain is expensive, unlike food industries in large continents.
The ComCom produced no useful public evidence about sales/sqshelfmtre, wages per turnover etc, because they got the info by promising not to reveal it in a duopoly. They know how bad (and costly) this kind of metric is here vs the rest of the world, for reasons I have listed and many other like NZ disadvantages for any business here. But it has not suited their purpose, so they have gladly avoided revealing the real reasons why our food price level (not rate of rise) is just at the bottom of the top quartile of OECD countries. Their data on this are a gross misunderstanding and misuse of OECD price information - they used it in a way that OECD expressly says it cannot be used. I'm a 'general' economist and I despair at the poor work of ComCom on retail food trade (supermarkets) and the misinformation that has flowed from it for years now. Neither Govt is willing to pay for a study for the truth about where our food costs come from by component, for a cost less than 10% of that given to Comcom and which would give us a workable roadmap for a range of achievable actions and a sober recognition of where and why we have our high food costs.
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