The Commerce Commission announced yesterday it had declined to give clearance for Foodstuffs North Island Ltd and Foodstuffs South Island Ltd to merge into a single national grocery entity.
The commission said the merger would have reduced competition and enabled Foodstuffs to extract lower prices from suppliers.
Foodstuffs South Island chief executive Mary Devine told the Otago Daily Times the proposed merger would have been about delivering better value for customers, which would have included opportunities for efficiency and lower prices.
They believed merging into a single entity would have been a key enabler of "significant" value to customers, she said.
In a statement yesterday, commission chairman Dr John Small said the merger would have resulted in a "permanent structural change to the New Zealand grocery industry".
"The proposed merger would reduce the number of major buyers of grocery products in New Zealand from three to two, reducing the number of buyers for many suppliers to supply their products to, and creating the largest acquirer of grocery products in New Zealand.
"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."
The merged entity would likely be able to extract lower prices from suppliers and could lead to reduced investment and innovation by suppliers, meaning reduced consumer choice and quality grocery products in the country, Dr Small said.
There was a "real chance" the merged entity’s buyer power would make it harder for other grocery retailers to compete and grow, potentially depriving consumers of a more competitive grocery industry in the future.
The commission was also concerned the reduction of major grocery retailers from three to two and the creation of a national Foodstuffs entity could make price co-ordination between it and Woolworths "more likely, complete or sustainable," he said.
Ms Devine said they "totally disagreed" with the commission’s commentary.
Foodstuffs major competitor in the market was a national player, and all they were looking at being was an "equivalent national player," she said.
"We don’t believe it would have changed the competitive landscape of how we operate today."
Ms Devine said Foodstuffs South Island was "very fortunate" with the number of smaller suppliers they had, some of whom operated at a regional level.
"We would have continued to protect those relationships and actually even, in fact, build on them from a national perspective."
A number of their South Island suppliers were having to deal with both co-ops separately, and dealing with one would have allowed them to be more efficient.
Small to medium-sized South Island-centric suppliers would also have had an easier opportunity to sell nationally, she said.
Foodstuffs success — either individually or nationally — was the importance of its partnerships with suppliers, Ms Devine said.
They would have continued to protect that relationship and respect what suppliers brought to the table.
"For Foodstuff South Island, we know we’ve got a responsibility to the South Island ... We continue to take our responsibility to customers and communities really seriously and we’ll continue to honour that on a daily basis — with or without the proposed merger."
