Grocery Commissioner Pierre van Heerden says he wants to stamp out “old-style handshake supply agreements” amongst New Zealand’s supermarket duopoly and suppliers.
In an open letter to the grocery sector on Tuesday, van Heerden said the country’s $25 billion grocery sector “touches every consumer in New Zealand” and needs to be more competitive.
Increasing competition won’t just benefit consumers in NZ but also drive more effective bargaining power between the supermarket giants and their suppliers, he said.
The Grocery Supply Code, which came into full effect last month, will start addressing the “historical power imbalance and pressure tactics” between major retailers and their thousands of goods and produce suppliers. Van Heerden said it's crucial in levelling the playing field and “stamping out” the power imbalances.
“A handshake or verbal agreement is no longer good enough, and suppliers should not feel pressured into signing an agreement without the chance to negotiate the terms with a supermarket first,” van Heerden said.
“As one of the largest sectors in New Zealand, Kiwi shoppers should trust they are getting a fair deal at the check-out… and that suppliers of their trusted products are being treated fairly and transparently by supermarkets.”
The Grocery Supply Code is contained in the Grocery Industry Competition Regulations 2023, which came into force under the previous government last July.
The Grocery Supply Code was then released in September 2023 and acts as a supplier code of conduct.
The Government introduced the Code because the Commission’s 2022 Market Study showed suppliers rely heavily on big retailers, while retailers can pass costs and risks onto suppliers, cramping their ability to invest and innovate – which in turn limits choices for consumers.
In its Code factsheet, the Commerce Commission lays out a set of rules about the agreements and conduct between regulated grocery retailers (RGRs) and grocery suppliers.
Major supermarkets have had six months to ensure agreements were compliant with the Code and had a grace period which ended on 28th March.
Van Heerden said in his letter that each RGR had confirmed to the Commission they would be offering new agreements to all existing suppliers during the grace period.
The Commerce Commission had then completed a preliminary assessment and provided feedback to each RGR, “suggesting the need for various changes to aspects of their agreements to better align with the purpose of the new regulatory regime,” van Heerden said.
“I have been encouraged that the RGRs have considered our feedback and in response, have recently made amendments to their proposed agreements.”
He said he understood this may have created “some uncertainty” for suppliers who received and may have already signed a contract before the RGRs’ latest amendments.
“My understanding from the RGRs is that, if you have already signed a contract during the 'grace period' a new amended agreement will be offered to you for consideration,” he said.
“I acknowledge that this has been a particularly busy time for both RGRs and grocery suppliers and I recognise the significant administrative effort required on both parties. It is, however, in the long-term interest of the industry that this is done right.”
He added that there isn’t a deadline for suppliers to have signed any agreements with retailers and encouraged suppliers to take the time to review the terms and seek legal advice or clarification from retailers if needed.
The open letter also highlights the Commission’s expectation that what is offered to suppliers complies with the Code.
The Commission said it’ll be monitoring compliance with the Grocery Supply Code closely and wants suppliers to come forward with concerns of non-compliance or “potential unfair treatment from major supermarkets”.
They can contact the Commerce Commission directly, or through the Commission’s anonymous reporting tool on its website here.
Competition on competition
The Commerce Commission doesn’t just have its hands full wrestling with competition in NZ’s grocery industry at large, this year it’s also having to tackle the potential merger of two supermarket giants that make up half of the country's duopoly.
Foodstuffs North Island (FSNI) and Foodstuffs South Island (FSSI) – which currently run as separate co-operatives under the umbrella of the Foodstuffs Group – are seeking clearance to merge together.
The Commerce Commission released a Statement of Issues earlier in April around “possible competition issues” with the merger.
The competition watchdog said its primary concerns regarding the proposed merger involved the possibility that combining the two entities’ purchasing influence could lead to both independent and coordinated impacts in the “upstream market(s)” for grocery acquisition.
“We are continuing to explore the possible competitive effects of the proposed merger in these markets, but are currently not satisfied that the proposed merger would not substantially lessen competition,” the Commerce Commission said.
The Commission has agreed with FSNI and FSSI to extend the period in which it will make a decision on the merger until the 31st May.
6 Comments
Supermarket prices rise while their service plummets. At least, that's the reality in my neck of the woods. Often-times I see large gaps in the shelves where products either haven't been available(?) & are being rationed(?) or staff numbers are such that things don't quite line up in their JIT processes(?) Things get worse as the day progresses it seems. Sometimes it's just pure luck - good or not.
We've lost purchasing power for imports via currency value, wages have increased and peoples discretionary income has dropped due to price increases and interest rate increases so the supermarkets response will always be drop the quality and range, but maintain the margins.
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