Kerre Woodham: What's it going to take to get supermarket competition?

Kerre Woodham Mornings Podcast

We're going a little bit back to the future today because the annual report card into the grocery industry came out yesterday, and we were overrun with health talk. So we'll go back to that report and look at the ramifications for the industry, for the suppliers, and for us, the consumers.

So according to the report, we are paying higher prices, specials are confusing, and loyalty schemes aren't delivering overly significant rewards. Paying $10,500 for a glass container isn't really enough in terms of loyalty (if you're collecting the stickers from New World, you'll know what I mean). According to the ComCom’s first annual grocery report all major supermarkets experienced an increase in price cost margins, which means retail prices were increasing faster than the cost of the goods. Those wanting to enter the market are not finding it easy. Despite 150,000 members signing up to Costco by March, Costco still suffered a $20 million loss. Restrictive land covenants were hampering new entry for new players and existing ones. The Commission has already prosecuted Foodstuffs North Island for historical abuses, grabbing land and holding on to it so nobody else can build there.

We also saw alternative grocery shopping places like Huckleberry shut down – that's been around forever and that's been placed into liquidation. Online retailer Supie failed, Bin Inn closed 5 stores, so it's tough, it's a tough market out there. And it's tough for Foodstuffs and Woolworths too, I'm sure. They've had to pay increased costs, and security guards, and thefts and the like, it has not been easy for them. They've had to look after their staff, who face relentless barrages of abuse, and probably this report card won't help.

So, it's not an easy industry to be in right now. It's a much, much tougher one to get into if you want to. While the number of covenants around land had decreased, the Commission has expressed concern at the more than 100 properties currently owned by major retailers that are not being used for stores, with no immediate plans to put a supermarket there. The Commissioner said, well, yes, I suppose some of these properties could be used for car parks or storage, but they certainly included potential expansion sites when properties held for more than 20 years were considered. Sue Chetwin from the Grocery Action Group, told Ryan Bridge on Early Edition that the government needs to show its teeth if we want to see any significant change to the market.

“All of the rules that they've put in place, all very well meaning, but have not worked. They have really just tinkered around the edge, so unless you make some structural change to encourage competition or to allow competition to happen, then we're just going to get more of the same.”

Yeah, and that's the thing. There was a Commerce Commission report, there were some prosecutions, the duopoly of Foodstuffs and Woolworths were put on notice, and nothing happened. If anything, it's got slightly worse. So the government is interested in turning up the heat, Commerce and Consumer Affairs Minister Andrew Bayly says he plans to seek advice on the sites currently being land banked, alongside broader regulatory reviews that could lead to potential change, including the Overseas Investment Act and the Fair Trading Act.

What about the concerns of suppliers? We've looked at consumers and said, yep, you're paying more than you need to for food, even taking into account seasonal fluctuations, even taking into account everything's more expensive, what the report says is that the increase in price cost margins has given them a greater profit than they needed to have. The report says a monthly index of suppliers prices produced by Informetrics for Foodstuffs North Island and pumped out to the media —in fact it was referred to in the press release following the release of the ComCom report yesterday— has consistently failed to include the impact of so-called trade spend, the impact of rebates, discounts, and payments that run to billions of dollars annually on the prices supermarkets actually pay to their suppliers. The report stopped short of calling this lying, Business Desk said let's settle for embarrassing.

So what does this all mean? We are a very small country. We're not even as big as most cities in the United States, so anybody who's interested in coming here from overseas has to know that they'll make a profit. Even if the government arranged for a prime piece of real estate in the middle of Auckland, New Zealand's biggest city, and earmarked it for an overseas player and said come, haere mai, haere mai, this land is yours, put your supermarket up there, fill your boots. I'm not entirely sure they'd make a profit. It’s a huge investment. It's a huge investment in building up relationships that cannot happen overnight with suppliers. It takes time, and the reason that Foodstuffs and Woolworths are so successful is that they are old companies. They're very old. Certainly with Foodstuffs when you trace their whakapa back, they are part of the landscape back to the 60s. So this has taken time to build, to get into this position of strength. And while there might be huge players overseas, they don't have that network of contacts, that history, that the others do here. It's got to be worth their while. They've got to know that they're going to make money if they up sticks and invest here. How likely is that?

Is there any real likelihood of a third player? What's it going to take to get real competition? Is it going to take a coalition government that really doesn't like regulation? Are they going to have to swallow a dead mouse and say we'll have to regulate this industry because they're not doing it themselves?

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