Fair Dealings in NZ Supermarkets
Today I presented at the Commerce Commission conference discussing ways to improve the transparency of business relationships and the treatment of suppliers within the New Zealand grocery market through the implementation of a Mandatory Grocery Code of Conduct. Here is my opening statement.
Opening address
Good morning, I am Katherine Rich, CEO of the New Zealand Food & Grocery Council. FGC is the industry association for suppliers to supermarkets. As CEO it is my job to aggregate and present positions best representing the overall interests of FGC members.
Thank you for the opportunity to speak and for the work put into producing the comprehensive, compelling draft report and supporting evidence.
Many FGC members wanted me to speak up earlier in the conference. I thought it more constructive to hear about retail competition. But I’ve yet to hear evidence that there are real substitutes for the supermarket duopoly for the “main shop” (or many other so-called missions).
From the supplier perspective the position is arguably starker. There is generally no substitute for supplying both major supermarkets. Due to New Zealand’s unique market structure the two are complements not substitutes from a supplier’s perspective. For suppliers each major effectively has a monopoly over its network, its marketplace.
We provided detailed submissions on this market power and the resulting conduct. For examaple the harmful procurement practices in paragraph 174 of our submission on the Preliminary Issues Paper to the detriment of suppliers and consumers alike. ?I won’t spend our limited time repeating that long list. (pasted below)
These issues are long-standing, but in summary over the past two decades there’s been a methodical shift in costs and business risk from retailer to supplier, and profit margin from supplier to retailer.
You have heard that heard marketing buzzwords saying that supermarkets “customer driven” and “customer focused”. But, like any businesses, supermarkets are profit-maximising entities. As such, and unconstrained by effective competition, they regularly make decisions to maximise profits which seem against the interests of consumers in terms of choice, availability of lower priced options and access to innovation.??
Supermarkets are not just operators of those marketplace monopolies or monopsonies. They are also competitors through private label and sponsored or controlled brands.?While private labels are ubiquitous in retail around the globe, it is important to take care to recognise harms that can arise with our unique market structure, particularly in terms of blocking lower-priced options for shoppers and discouraging innovation investment.
There is growing international concern about powerful marketplace operators who also compete with their suppliers in those marketplaces. Indeed the chair of the Federal Trade Commission is famous for her position. In 2019 for example she wrote in the Columbia Law Review on “The Separation of Platforms and Commerce” .[1] As Commissioner Kahn put it “For many merchants, “Not being on Amazon doesn’t feel like an option.”[2] It’s the same in NZ in relation to the supermarkets
Closer to home, the Commission’s merger clearances have long-recognised the “the countervailing power of supermarkets, including their ability to sponsor price fighters and expand their existing house brands.” [3] That comment is from 2004 where the Commission observed “Currently, Pams is New Zealand’s single largest grocery brand by turnover”[4] . And private label Pams seems set to be the major winner as Foodstuffs North Island rationalises categories, reduces choice on shelf for consumers at the same time apparently aiming to at least double trading margins from suppliers’ products that have survived the cull.
In a time of well-publicised delisting in NZ, private-label use is only expected to grow. There is ample support for this view:
In 2019 the Reserve Bank of Australia wrote about the trend of food and non-food retailers adjusting product mixes to incorporate more Own Brand or Private-Label.[5]
Supermarket news has reported about the growth in private label at the expense of branded products.[6]
It’s been reported that pre-Covid 13.8% of every dollar went private-label, but this value growth amplified during Covid with now 14.2% of every dollar spent on private-label.[7]
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IRI reports that by volume private-label has 18.7% market share
These are all averages, however. In some categories FGC members have reported private label reaching much higher levels and genuine choice for consumers is impacted.
Similarly the EY Future Consumer index on behaviour and sentiment is tracking a fundamental pivot away from brands to private labels.[8]
These concerns arise in markets where there is much greater competition than New Zealand.
Today’s first session is on the need for an independently produced and independently administered Mandatory Code of Conduct for supermarkets. I would add it must be principles based, include a Grocery Commissioner, genuine strong dispute resolution mechanisms, and relevant safeguards on Private labels, as well as the other headings found in both the Australian and United Kingdom codes.
We are fortunate to have former UK grocery code adjudicator Christine Tacon here. With the chair’s commission we request that she present on her experience.
[1] Columbia Law Review Vol 119 , No 4 https://columbialawreview.org/content/the-separation-of-platforms-and-commerce/ ?Lina M. Kahn, “The Separation of Platforms and Commerce,”?Columbia Law Review?119 (4) (2019): 985–986, available at?https://columbialawreview.org/content/the-separation-of-platforms-and-commerce/
[2] Above n1, Lina M. Kahn, “The Separation of Platforms and Commerce,” Columbia Law Review 119 (4) (2019): 985–986
[3] Commission clearance of Colgate-Palmolive/Campbell Bros (laundry related brands) Para 7
[4] Commission clearance of Colgate-Palmolive/Campbell Bros (laundry related brands) Para 60
[5] https://www.rba.gov.au/publications/bulletin/2019/jun/competition-and-profit-margins-in-the-retail-trade-sector.html
[6] https://supermarketnews.co.nz/news/iri-state-of-the-industry-2020/ & https://supermarketnews.co.nz/wp-content/uploads/2020/11/State-of-the-Industry-2020-FINAL-VERSION-FOR-EVENT.pdf
[8] https://www.ey.com/en_nz/consumer-products-retail/future-consumer-index--how-to-thrive-in-the-age-of-affordability
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Founder-The 4 Day Week Global, The Forbes Future of Work 50, chair of Give-A-Little, Wine business owner.
3 年Christine Tacon CBE, great to see you helping NZ with this pathway.
Quality Coordinator at Positive Impact Limited
3 年Too little too late... ??
Extended parental leave
3 年Thank you Katherine!! The comments you make in your presentation ring so true. It's been several years since my husband and I first joked that Pams was "the evil Empire"; it's long stopped being a joke. In honesty, I have one or two pretty good supermarket options near me; but it is far too dependent on the ethical standards of the individual owner. And even there, it feels that choice is becoming increasingly limited.
Chef/Founder at Yum Granola
3 年????Thank you Katherine Rich