The Commerce Commission has unveiled a new move to challenge the dominance of major supermarket chains and large grocery suppliers, saying the current market structure is failing New Zealand consumers and stifling competition.
In a draft report released today, the Commission outlined changes to the Grocery Supply Code and initial findings from its ongoing inquiry into the wholesale market.
Grocery Commissioner Pierre van Heerden said too much power remains in the hands of a small group of industry giants.
“We know the current grocery market is not serving Kiwi consumers well. The status quo lets a few major players set the rules for the rest of the industry, which is negatively impacting consumers, new and expanding competitors, and small suppliers,” he said.
The three main supermarket operators, along with large national and multinational suppliers, collectively control around 82 percent of the grocery sector, accounting for more than $15 billion in purchases.
Van Heerden said this power imbalance is particularly harmful for smaller suppliers who are reluctant to challenge supermarket demands for fear of being shut out of shelf space.
“This leads to smaller suppliers taking on costs and risks that are best managed by the retailer,” he said.
The Commission is proposing changes that would restrict supermarkets from charging suppliers for standard retail activities such as stocking shelves and setting up displays. Supermarkets would also be required to keep records of charges to suppliers, particularly for promotional costs.
“We believe that setting these rules in place will help mitigate the power imbalance and allow suppliers to be more confident market participants so they can innovate and invest in better products and more choice for consumers,” van Heerden said.
The Commission is also concerned about the way promotional funding is used in the wholesale market.
It said major supermarkets receive around $5 billion annually in rebates, discounts, and promotional payments from suppliers, which allows them to offer fluctuating “on special” prices that competitors cannot match.
“Consumers lose out because prices jump around more. This can mean the average price is more expensive and it’s harder for consumers to assess the value of products,” van Heerden said.
He called on major supermarkets and large suppliers to reduce their reliance on high-low pricing strategies, which he said are used far more in New Zealand than in other countries.
“With less promotional funding, we’d expect suppliers to factor that saving into the price they charge retailers, which retailers would then pass onto consumers in the form of more stable and lower everyday prices,” he said.
Van Heerden said the Commission’s preference is for the industry to voluntarily change its practices.
“If they don’t, we’ll have to consider our other alternatives.”
