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The Government has indicated it might consider being more prescriptive with controlling supermarket prices than was recently recommended by the Commerce Commission

Business / news
The Government has indicated it might consider being more prescriptive with controlling supermarket prices than was recently recommended by the Commerce Commission
supermarket-aisle

Ahead of the release of monthly food price figures later this week, the Government's coming under increasing pressure to rein in the supermarket operators.

After annual food price inflation hit 7.6% in March - the highest level in 11 years - Commerce and Consumer Affairs Minister David Clark then immediately put out a pro-active press release, obviously designed to head off public outcry, in which he said the Government was "committed to taking action to pave the way for additional players to enter the New Zealand grocery market in order to increase competition".

Referring to the recent Commerce Commission inquiry into the supermarket sector, Clark said then: “Given the importance of healthy levels of competition in our retail grocery sector I have not ruled out going further than the options that the Commission tabled in its final report.”

In that report the commission recommended a series of tweaks to the operation of the supermarket sector, but stopped well short of some of the tough measures it earlier contemplated.

Some of the tough measures that had been mooted included making market participants structurally separate their wholesale and retail businesses, or even being forced to divest some of their brands.

Instead, in the final report, much emphasis was placed on things such as easy availability of land for development of new supermarkets. The commission is recommending that both a grocery sector regulator and a dispute resolution scheme be established.

"A sector-specific regulator could have responsibility for general oversight of the retail grocery sector. This could include monitoring and reporting on its performance, both publicly and to government," the commission said.

The commission is proposing another review after three years. The Government is due to give its response to the commission's report this month.

Statistics NZ is due to release the monthly Food Price Index figures for April on Thursday (May 12). And the figures are sure to be viewed with rather more interest than is usually the case. They follow on from release last month of figures that showed NZ's annual rate of inflation to March 2022 as measured by the Consumers Price Index hit its highest level in more than 30 years of 6.9%. 

Now independent watchdog Consumer NZ has amped up the pressure by launching a petition, asking Minister Clark to "put consumers first" and go beyond the Commerce Commission’s recommendatons.

“Every day the supermarkets are taking more than $1 million in excess profits from our collective back pockets," Consumer NZ chief executive Jon Duffy said.

"These profits are twice what they should be. We need more competition to drive down prices and give New Zealanders a fairer price at the checkout."

No-one was going to start up a competing supermarket without reliable access to wholesale groceries, Duffy said, "but currently the duopoly dominates access to wholesale supply".

The commission's recommendation that the supermarkets consider supplying other retailers "is unrealistic to expect from an entrenched duopoly used to calling the shots".

"That is why we’re launching a petition."

Consumer is asking Minister Clark to consider regulating access to wholesale supply or setting up a state-owned wholesaler. The details of Consumer's request has been outlined in an open letter to the minister. 

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56 Comments

The split of the wholesale and retail arms, and hard action to end land banking and the use of covenants are key here.

In the mean time, Govt should simply say to the duopoly "Here is the list of things we put in the CPI basket - with their respective weightings - make sure these goods do not add anything to the CPI for the next 12 months".

   

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Oh, peachy.  Price Controls, on entities which typically run between 10-30k SKU's on their shelves, is gonna take a lotta Gubmint Drones to administer.  Still, glass half full, it will keep unemployment down.  Same for the suggestion of a State Wholesaler.  This, from the bozos who could not order enough 'vaccines', organize priority application to vulnerable population segments when the jabs finally dribbled in, pay health staff enough to keep them onshore....Plenty of examples.

The mind boggles....

Oh, pooh.  There's a stock-out on boggles....

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10

Not price controls at all - and zero extra public servants required. What you would be doing is saying is "If the food component of CPI continues to go up like crazy, we will take this as evidence that we need to take firmer and quicker action to break things up". Leave it up to the supermarkets to work out how they do that.

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2

The political optics scream 'price controls'.  Opposition parties will glom onto this in 3, 2, 1.....

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The US used this approach in the 60s - they called it 'pricing guidelines' - things that they would keep an eye on to assess whether companies where abusing their market power (not dissimilar to the data we collect on margin price of fuel at the ports).

When Marilyn Monroe sang 'Happy Birthday' to President Kennedy, she included the immortal line '... the way you deal with US Steel' - she was referring to how Kennedy had got the CEO into his office for a hard word about price gouging. 

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Price controls on peoples essentials to survive? Ab-so-bloody-lutely. 

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I understand they outlawed the land banking in Oz. I don't know why we are so far behind in NZ, and yet we are losing $1 million dollars a day from our wallets in extra spending.

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This government will bend over for any movie producer with a dream. Do something really useful. Send an MBIE delegation to Australia to meet with ALDI management and find out how much it will cost to get them to come to NZ and set up at least one store in Auckland, Wellington and Christchurch. Then pay it. Also offer them brownfields government land to build on.

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16

Nah, that sounds like a lot of hard work. Let's just tax working New Zealanders harder and dish out those dollars as indirect handouts to the duopoly.

The Labour-National consortium could always open the floodgates and let more workers in to share the tax burden.

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3

Send an MBIE delegation to Australia to meet with ALDI management and find out how much it will cost to get them to come to NZ and set up at least one store in Auckland, Wellington and Christchurch

Aldi will not do business in NZ. Not enough mkt scale or supply chain efficiencies. Shelf prices will reflect that. For your reference, Lidl pulled out of Australia as the size of prize was not big enough.  

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4

Make it efficient. One giant store near Auckland motorway junction. Retail in the font. Warehouse and cold storage in the back with enough storage for 1 months stock. Daily dry and reefer containers from the Australian distribution center direct to the store from the ports. All products pre approved by Customs, MPI, MPI Food. That failed Nido site in Henderson would have been ideal but it is probably covenanted. 

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Make it efficient. One giant store near Auckland motorway junction. Retail in the font. Warehouse and cold storage in the back with enough storage for 1 months stock. Daily dry and reefer containers from the Australian distribution center direct to the store from the ports. All products pre approved by Customs, MPI, MPI Food. That failed Nido site in Henderson would have been ideal but it is probably covenanted. 

You'll have to pitch that idea to Aldi. Their business model is not really a hypermarket. 

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Don't even need ALDI, The Warehouse is keen if they can sort the wholesale supply.

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A good reference Nzdano, explains the situation clearly. Don't hold your breath on effective government action on the Countdown/Foodstuffs situation. Neither Red nor Blue is capable of organising a booze up in a brewery.

If there is so much money to be made, someone,...(perhaps The Warehouse might try again,) will make a move.

The main issue for gummit is to organise satisfactory "restraint of trade" legislation...and enforce same across our entire small market. But don't hold your breath on even this small action! Parliament is far too busy looking after it's own comfort.

One even despairs about the ability of consumers to shop with discernment ....look at the numbers of folk who moan about the "Aussie" banks ripping us off and yet ignore using the many quality local banks available. What on earth is hard about shopping at farmers markets and the small independents, eg greengrocer? Okay, means walking a few yards from shop to shop rather than do the one shop at the mega store.

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Supermarket gouging is a cancer. If it were me (I'm too sane to want to be a politician though), I would be on the phone to Aldi giving them whatever they required to come here. Aldi are widely credited with bringing competition to the Australian market.

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7

There's certainly room for competition.  While we have a duopoly, how many supermarket outlets do we have?  

  • Foodstuffs:  Pak n Save, New World, Four Square
  • Woolworths:  Countdown, Fresh Choice, Super Value

Illusion of a saturated market.   

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3

Aldi would be a disenfectant sterilising the cosy duopoly. What is not so well known is that the quality of their products is great, they frequently win blind taste tests. They just don't have the breadth of choice or name brands.

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Agreed. Call up Aldi (or any other credible competition who wants a go) and give them what is needed to get them into the market. Tell them they can have a guaranteed 15 years of 0% tax on their profits, or whatever it takes within reason as the continued trend of excessively high food prices are a vastly worse alternative.

I'd much rather see a few more $ go offshore than people going hungry because they can't afford to feed themselves. 

The duopoly will kick and scream, and they can be told to shove it.

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Unfortunately there is zero political will to do the right thing. Labour-Greens are happy to keep the "worst-affected demographic" or, as they call them, loyal voters, hooked on welfare payments.

National-ACT don't want to upset their wealthy voters with effective market reforms and rather propose cutting GST and PAYE. Their working class hardline supporters don't understand that, in the absence of market reforms, the duopoly will likely gobble up much of the extra margins from a GST cut, and pass on a tiny sliver to the consumer; leaving the taxpayer worse off.

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Supermarket gouging is a cancer. If it were me (I'm too sane to want to be a politician though), I would be on the phone to Aldi giving them whatever they required to come here. Aldi are widely credited with bringing competition to the Australian market.

See my comment above. The reason why NZ does not have a diverse retail sector with quality discounters is that the market profile is not attactive enough. We are not Japan. 

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The Warehouse was expanding into groceries pre-pandemic, but Labour forbid them from opening during the lockdowns and forced us all to shop at the duopoly.  

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Who likes high prices, blame the supermarts, if you like. But then will a decent loaf of bread , sliced, sell for $3.50. Or washed white potatoes sell for under $4 per kg. 

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Indeed. If supermarkets are squeezed they'll squeeze their suppliers, who by many reports are price takers because of the lack of competition. If the supermarkets pay fair prices to their suppliers and continue to take excessive profits prices will go up even more. So the fair return may need to be regulated such as for power companies.

Would readers be happy paying current prices if it means suppliers get a fair return?

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That's why we need a 3rd major chain (Aldi preferably). They operate on slimmer margins which means better prices for both local suppliers and consumers.

Once the 2 now start to lose suppliers they lose market share and relevance. Game theory 101.

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4

Farmers need to band together and form a trading company...?

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Labour will propose that the supermarkets operate under a co-governance model.

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13

If this Govt or any other Govt  start messing around with prices there will be a loser,the public once again.

Let them mess around here and where will it stop.

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Another crisis thats should have been sorted out before it became a crisis. Still waiting for that action promised by Labour in the cost of Petrol but everyone has already forgotton about that. When Petrol hits $4.00 a litre there will be much panic and more hot air about the gas stations fleecing us. Not to worry a change of government next year is now guaranteed.

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Petrol will be a fun one. one more month till the tax comes back...or is there?

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In Oz they are keeping it for at least 6 months. So IMO it won't come back in until after the next election, as it will cause a spike to inflation numbers. Petrol is already higher now (minus the tax) than it was when it was removed. So reintroducing it will be a lot worse than before. 

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Yes Carlos..Labour controls the world oil market..dib dib

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too late -- we already had all the fanfare and virtue signaling smiley face nodding head publicity ----  which as with everything else that looked a good initiative -- ended up with nothing actually happening

Still at least the sheeple public knows -- that its all talk and no action again -- starting to see the pattern

 

Kiwi $ at 63.4 cents ........ thats another 10% of pain on its way  for food , good s and fuel 

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You want zero carbon and an ETS, then these are the consequences. NZ has to suck it up.

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I hate this term ‘excess profits’, in excess of what?

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Zero.  What else could possibly be 'fair'?

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I'll never forget during 2021 when only major supermarkets (Countdown and New World in my area) were allowed to be open, while my local outdoor vegetable market was forced to not operate for months. It never made sense to my from a Covid or business perspective, my partner and I enjoyed doing all our fruit and vege shopping outdoors at the market - I would estimate saving 30%+ each week whilst being outdoors. 

Instead we had to line up like everyone else and pay a premium to shop at one of the duopoly stores. 

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10

Think the silly supermarkets only rule was decided early in the pandemic under Minister of Health David "mtb" Clark, the very same.

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And one wonders about the kickbacks received for such a move...

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How about splitting the wholesale and retail arms or both the major Duopoly companies by forced  sale.  As per Telecom = Spark + Chorus

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Isn't funny how it was palatable to break up a private company's assets because the internet and telephone were too expensive, but a grocery duopoly is not an issue.  

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The government is not even prepared to split our Gentailers up given the similar outcome on our electricity market. So it won't happen.

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With the number of people calling for price controls it's starting to sound like a call to bring back Muldoon. Speaking of price controls , just had my house insurance bill , now there is a good case for control approx 25% increase. What a rort .

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4

The rebuild price has probably gone up 25%...

But get an online quote from Initio.co.nz if you want to keep them honest, they seem quite competitive.

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So once inflation arrives the supermarkets have suddenly started price gouging, just for the hell of it.

Great PR.

But when prices were reasonably stable 2-3 years ago ?

Heaven help us if the Govt get involved, most of the current problems are of already of their making, we just don't seem to be able to learn from history. 

 

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5

Bottom line - there is no real competition in NZ. the market is too small and too many of the big suppliers manipulate it.

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They should overhaul the food star rating at the same time.

Smoked Salmon 1.5/5 stars.

Nutri Grain cereal 4/5 stars rating.

 

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Looking at my empty packet of Doritos on my desk.  2/5 Stars. 

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Get Nutri Grain.

It'll be twice as good for you.

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Ban special supermarket treatment by wholesalers, just because of bulk purchases. Let small retailers get product at the same price and we'll see who is more efficient!

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Well they ain't making any money from butter ,cheese and milk.

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The absurdity is that ComCom allowed the duopoly in the first place.

The government must:

a) Amend the rules ComCom works under to ensure greater weight is put on competition in decisions.  It takes 6 to 7 market players with equal market share to have perfect competition (HHI Index). We are a long way from that with a duopoly.

b) Go beyond ComCom's recommendations and force the retail split of the supermarkets

c) Fix the wholesale access issue

 

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And it was the ComCom that allowed Woolworths to be bought out by Progressives in 2002, handing them 45% of the market. NZ can support 3 chains, it did in the past. 

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There is no accountability though. Think about how much richer NZ would be if that $1 million a day being sucked out of NZers pockets, was put into infrastructure and businesses to increase productivity. It could be  about 7 billion dollars  over the last 20 years that has been sucked out of NZers pockets. Everyone needs to sign the consumer petition.  

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There are votes in this. Just wait...the Govt will act.

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Oh god, I almost fell off my chair laughing so hard about the last 4 words. They have proved time and again that if they act, its almost universally in the wrong direction.  What's the bet they will say supermarkets have to start stocking building supplies as well. HA! They will think they are fixing two birds with one stone (yes the misuse of the saying is intentional).

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