Adding one more seems bad if government has prioritised retail grocery competition.
Maybe we will be lucky, and potential entrants are not doing due diligence. If they are, New Zealand’s Grocery Commissioner would be giving them cause for concern.
We will come back to that regulatory risk.
If an international grocer wanted to set up shop here, land use planning would be a substantial barrier.
Chris Lynch reported last week that it has taken Woolworths four years to get planning permission for a supermarket in Halswell. Could a new entrant navigate across dozens of councils’ systems when even experienced incumbents have a rough time?
Town planning is formally prohibited from considering any negative effects of a new entrant on its competitors.
Nevertheless, the system creates sharply anticompetitive outcomes through different routes. Like allowing only one supermarket in an area because more than one might make other areas less vibrant. The restriction is anticompetitive, even if effects on competition were not considered by a hearings panel.
The government is developing a new planning system. But if it is in a hurry for a more open grocery market, there is an option.
My column in this paper two weeks ago made the case for a fast-track system for new supermarket entry. It would simultaneously handle plan changes and consenting for a new entrant proposing large-scale entry, overriding parts of district plans that otherwise amount to making it illegal to compete.
The government ought to be keen on making sure that kind of entry is possible. Even the threat of that entry can impose discipline on incumbents. A clear path for entry would help.
And government definitely should not be doing things that would make New Zealand seem risky, unpredictable, and generally hostile to retailers.
In last week’s Sunday Star Times, Grocery Commissioner van Heerden said that international food price comparisons that adjust for GST are ‘a bit sort of sneaky.’ Woolworths had put up a food price comparison for a bundle of groceries, claiming that if prices without GST were compared, New Zealand prices were competitive.
There are plenty of potential critiques of that kind of measure. It is hard to choose a fair bundle. And even if you did your best, there’s a deeper problem. People in different places put different things in their shopping carts depending on what’s locally cheap or expensive. The bundle that is relatively affordable and consequently popular here may be expensive elsewhere – and vice-versa.
But if you’re trying to get a handle on whether supermarkets’ prices are reasonable across different markets, which Woolworths was clearly trying to do, then accounting for GST is the opposite of sneaky. Other countries have weird sets of GST exemptions. Are the supermarkets to blame for the consequences of other countries’ tax system choices?
Should a potential new entrant worry about mentioning GST if its regulator demanded an explanation for price differences between its New Zealand and overseas stores?
A perhaps-throwaway line in a newspaper interview is one thing.
The Grocery Commissioner’s draft review of the grocery supply code is more worrying.
The next time you go out to a supermarket, pay a bit of attention to who is stocking the shelves. Sometimes, it is a store employee. Other times, the supplier’s representative does the work.
Imagine you were a grocery retailer trying figure out which suppliers could do a better job than you could in distribution and restocking. It’s an important problem.
For products with high turnover, it can make a lot of sense for the product’s supplier to deliver direct to each store and stock the shelves. For products with much lower turnover, it likely makes more sense for the retailer to handle distribution and stocking. But you don’t really know what sorts of things are easy for which of your suppliers.
Merchandising fees can help sort out whether the retailer or the supplier should do the job. The retailer can offer to do the work at a fee that reflects their own cost and see whether their suppliers opt to do the work themselves instead.
These sorts of fees help lower the overall cost of getting groceries to consumers. If benefit to consumers is the final metric, they should be encouraged. The academic literature also strongly suggests consumer benefits of these kinds of contracts.
Because they make sense, they are common in other markets too.
The draft review proposes banning these fees outright, on rather scanty justification.
I still hope the government sets fast-track planning approval for new supermarket entry. But unpredictable regulations give potential entrants one more reason to give New Zealand a miss.
Dr Eric Crampton is Chief Economist at the New Zealand Initiative. This article was first published HERE
We will come back to that regulatory risk.
If an international grocer wanted to set up shop here, land use planning would be a substantial barrier.
Chris Lynch reported last week that it has taken Woolworths four years to get planning permission for a supermarket in Halswell. Could a new entrant navigate across dozens of councils’ systems when even experienced incumbents have a rough time?
Town planning is formally prohibited from considering any negative effects of a new entrant on its competitors.
Nevertheless, the system creates sharply anticompetitive outcomes through different routes. Like allowing only one supermarket in an area because more than one might make other areas less vibrant. The restriction is anticompetitive, even if effects on competition were not considered by a hearings panel.
The government is developing a new planning system. But if it is in a hurry for a more open grocery market, there is an option.
My column in this paper two weeks ago made the case for a fast-track system for new supermarket entry. It would simultaneously handle plan changes and consenting for a new entrant proposing large-scale entry, overriding parts of district plans that otherwise amount to making it illegal to compete.
The government ought to be keen on making sure that kind of entry is possible. Even the threat of that entry can impose discipline on incumbents. A clear path for entry would help.
And government definitely should not be doing things that would make New Zealand seem risky, unpredictable, and generally hostile to retailers.
In last week’s Sunday Star Times, Grocery Commissioner van Heerden said that international food price comparisons that adjust for GST are ‘a bit sort of sneaky.’ Woolworths had put up a food price comparison for a bundle of groceries, claiming that if prices without GST were compared, New Zealand prices were competitive.
There are plenty of potential critiques of that kind of measure. It is hard to choose a fair bundle. And even if you did your best, there’s a deeper problem. People in different places put different things in their shopping carts depending on what’s locally cheap or expensive. The bundle that is relatively affordable and consequently popular here may be expensive elsewhere – and vice-versa.
But if you’re trying to get a handle on whether supermarkets’ prices are reasonable across different markets, which Woolworths was clearly trying to do, then accounting for GST is the opposite of sneaky. Other countries have weird sets of GST exemptions. Are the supermarkets to blame for the consequences of other countries’ tax system choices?
Should a potential new entrant worry about mentioning GST if its regulator demanded an explanation for price differences between its New Zealand and overseas stores?
A perhaps-throwaway line in a newspaper interview is one thing.
The Grocery Commissioner’s draft review of the grocery supply code is more worrying.
The next time you go out to a supermarket, pay a bit of attention to who is stocking the shelves. Sometimes, it is a store employee. Other times, the supplier’s representative does the work.
Imagine you were a grocery retailer trying figure out which suppliers could do a better job than you could in distribution and restocking. It’s an important problem.
For products with high turnover, it can make a lot of sense for the product’s supplier to deliver direct to each store and stock the shelves. For products with much lower turnover, it likely makes more sense for the retailer to handle distribution and stocking. But you don’t really know what sorts of things are easy for which of your suppliers.
Merchandising fees can help sort out whether the retailer or the supplier should do the job. The retailer can offer to do the work at a fee that reflects their own cost and see whether their suppliers opt to do the work themselves instead.
These sorts of fees help lower the overall cost of getting groceries to consumers. If benefit to consumers is the final metric, they should be encouraged. The academic literature also strongly suggests consumer benefits of these kinds of contracts.
Because they make sense, they are common in other markets too.
The draft review proposes banning these fees outright, on rather scanty justification.
I still hope the government sets fast-track planning approval for new supermarket entry. But unpredictable regulations give potential entrants one more reason to give New Zealand a miss.
Dr Eric Crampton is Chief Economist at the New Zealand Initiative. This article was first published HERE
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