Commerce Commission declines merger application of the two Foodstuffs co-operatives, citing concerns around the merged entities having ‘greater buyer power’ and shrinking NZ’s grocery competition further

The Commerce Commission is refusing to green light Foodstuffs North Island (FSNI) and Foodstuffs South Island (FSSI) becoming a single national grocery entity due to concerns around the impact on grocery competition.

The merger decision was announced on Tuesday morning with the Commission’s Chairman John Small saying the competition watchdog wasn’t satisfied the proposed merger would not “substantially” lessen competition in multiple acquisition and retail markets.

“The proposed merger would result in a permanent structural change to the New Zealand grocery industry. We are concerned about the impact this could have on competition and New Zealand consumers,” he said.

Small said on Tuesday the Foodstuffs merger would reduce the number of major buyers of grocery products in New Zealand from three to two – which would then reduce the number of buyers for many suppliers to supply their products to. This would also create the largest acquirer of grocery products in NZ.

“This would result in the merged entity having greater buyer power than Foodstuffs North Island and Foodstuffs South Island each do individually, which would harm the competitive process, and we consider is likely to substantially lessen competition in many acquisition markets,” he said.

“As a consequence of the substantial lessening of competition and the associated increase in buyer power, the merged entity would likely be able to extract lower prices from suppliers and/or otherwise adversely impact suppliers in the relevant markets. We are also concerned that the consolidation with the proposed merger would lead to reduced investment and innovation by suppliers, meaning reduced consumer choice and/or quality of grocery products in New Zealand for consumers.”

Small said there was a “real chance” that the merged buying power of the two Foodstuffs co-ops would make it harder for other grocery retailers to compete and grow, and this could potentially deprive consumers of a more competitive grocery industry in the future. 

“We consider that the proposed merger increases the risk of coordination between the merged entity and Woolworths. In particular, we are concerned that the reduction in the number of major grocery retailers from three to two and the creation of a national Foodstuffs entity could make price coordination between the merged entity and Woolworths more likely, complete or sustainable,” Small said.

Disappointed

In a statement, FSNI and FSSI said the two co-ops were disappointed by the decision. 

FSNI Chief Executive Chris Quin described the merger as a “once-in-a-generation” opportunity for the two co-ops to meet the challenges of a fast-evolving market.

“We remain convinced that merging is the right thing to do for our customers, our 500-plus members and for New Zealand,” he said.

FSSI Chief Executive Mary Devine said if approved, the merger would’ve helped the co-ops  – among other things – adapt quickly to disruptions and to improve how they partnered with their suppliers.

“Operating as one national business, like our main local and global competitors do, just makes a lot more sense,” she said.

FSNI is the larger co-operative of the two co-ops with 320 store owner-operators while FSSI has 199 store owner-operators. 

Members in the North Island co-op operate under grocery brands New World, PAK’nSAVE and Four Square while South Island co-op members operate under New World, PAK’nSAVE, Four Square and also Raeward Fresh and On the Spot.

According to Foodstuffs, approximately 5.4 million customer visit Foodstuffs operated shops in-store and online every week.

Concerns over how grocery competition in NZ would be affected by the North Island and South Island co-ops becoming one entity has been the focal point around the merger application ever since it was lodged by the two Foodstuffs co-ops in December 2023.

FSNI and FSSI had argued that there would be no threat to grocery competition if the two co-ops became one entity while other parties disagreed.

The Commission was meant to have made a decision on the merger in May earlier this year, but the deadline got pushed to June and then pushed out again to October because of unresolved issues. 

The Commission says it plans to publicly release its “full determination” of its decision on its Foodstuffs merger case register by the 23rd October.