The Warehouse Group says it can’t see how the Commerce Commission ‘can be satisfied’ with Foodstuffs merger on the table

The Warehouse Group (TWG) says if the proposed Foodstuffs merger goes through, it won't benefit consumers in New Zealand in terms of affordable groceries.

The red sheds retailer has told the Commerce Commission in a new cross-submission published on Monday that it has serious concerns the proposed merger will “accentuate” competition issues in NZ’s grocery sector.

At the end of last year, Foodstuffs North Island (FSNI) and Foodstuffs South Island (FSSI) – which currently operate as separate co-operatives – announced they had lodged an application with the Commerce Commission to merge into one co-op.

The two co-ops have said the proposed merger won’t decrease competition while opposing parties like The Warehouse, the Food and Grocery Council and the Grocery Action Group think the opposite.

TWG said it couldn’t see “how the Commission can be satisfied” that there wouldn’t be a significant decrease in competition if the proposed merger was to go ahead.

“Preventing rivals from entry and expansion due to the merged entity having high bargaining power will not provide long term pro-competitive outcomes for consumers,” the group wrote.

TWG also stated that FSNI and FSSI hadn’t provided “sufficient evidence” to support the proposition that benefits expected from the proposed merger would be passed on to consumers.

The Warehouse dipped its toes back into the grocery game in 2021 after a previous attempt back in 2006 fizzled out after a couple of years.

Since 2021, it has been attempting to chip away at NZ’s supermarket sector and the duopoly made up of Foodstuffs and Woolworths.

TWG said in its submission that the merger could also lead to Foodstuffs boosting their private label lineup, which could potentially sideline other brands and reduce product variety.

“This would have negative outcomes for suppliers who would be squeezed out of supplying products under their own brands, and also for customers who would have reduced product choice,” TWG wrote.

‘No material change’

The Commission also shared a new cross-submission response from Foodstuffs North Island and Foodstuffs South Island on Monday. It addressed concerns raised by the Food and Grocery Council and the Grocery Action Group who oppose the merger.

The Food and Grocery Council (FGC) represents manufacturers and suppliers behind food, beverage, and grocery brands.

The Grocery Action Group (GAG) – chaired by ex-Consumer NZ chief executive Sue Chetwin – was created at the beginning of the year because of concerns around market failure in the grocery distribution industry.

The two groups argued in their April submissions that if the merger went ahead, it would reduce competition in the NZ grocery market space.

In GAG’s submission, the group said that approving the merger would eliminate any chance of competition between the two Foodstuffs co-ops while FGC submitted that the Foodstuffs merger proposal would likely decrease competition in relevant markets.

FSNI and FSSI replied in its cross-submission response that the proposed merger “would not be capable of giving rise to a systematic or material change in bargaining power that would be capable of giving rise to a lessening of competition”.

“The Proposed Transaction would not result in any material change to competition in retail grocery markets, and it is competition in retail grocery markets that is the purpose of the Parties (and the Merged Entity) acquiring grocery products,” they wrote.

“There would be no consolidation or change, as the Parties do not compete with each other and there is not a real chance they would do so in any counterfactual. So, as the Merged Entity, the Parties can be expected to seek to compete as they do currently.”

The co-ops added that in order to compete effectively in retail markets, they “rely on competitive supplier markets” and this wouldn't change as a result of the proposed merger going ahead.

“As well as there being no change in downstream incentives, and there being absolutely no reason why the Parties would want to cut across their own commercial self-interest by lessening competition in acquisition markets, the Proposed Transaction would not materially improve the Parties’ bargaining position,” they said.

The Commission is still investigating the proposed merger and plans to reach a decision before May 31st, though this deadline could change.