The Commerce Commission’s long-awaited final report into competition in the retail grocery sector is more doorstopper than showstopper.
The 609-page report has not unveiled plans for a major shake-up of the supermarket duopoly that many may have hoped for after last year’s draft report delivered the unsurprising news that a lack of competition is not working well for consumers.
There is no proposal for introducing a government backed Kiwibank-style player into the market or requiring the big players to separate their wholesale businesses from their retail ones. The commission was persuaded that there are significant efficiencies with having integrated retail and wholesale grocery operations and it would be impractical and too costly to separate them.
Instead, it recommended the two big chains, which have 80% of the trade, offer wholesale supply to other grocery retailers on a voluntary basis, subject to some limited regulatory measures including an obligation to consider requests for wholesale supply in good faith.
Shoppers already struggling with the impact of inflation will find it difficult to understand when and how anything which is proposed might be reflected in less pain in the pocket at the checkout.
This sector is big business, with us spending $22 billion a year on grocery products in a market which has the fifth-highest prices in the Organisation for Economic Co-operation and Development (OECD) countries, according to 2017 estimates.
Although the Commerce Commission has walked back the estimates on profits made by the big two supermarket chains, Woolworths and Foodstuffs, of more than 20% which it claimed in the draft report last year, it still reckons the 12.9% return on capital enjoyed between 2015 and 2019 is 7.4% too high.
A more reasonable 5.5% return would mean their combined profits would fall by $430 million a year.
It is difficult to see how the recommendations from the commission will dent that profit.
Plans to improve the availability of sites for new stores by prohibiting covenants limiting grocery store development, and monitoring land banking by the big two sound impressive, but without a new player lining up to offer a similar service to the existing chains, how useful will that be?
Suppliers, particularly small ones which have often been treated appallingly, will be pleased at the long overdue proposal for a mandatory code of conduct to govern the relationships between the major retailers and them. There is also a possibility that smaller suppliers could be allowed to band together for collective bargaining with retailers, although that proposal seems woolly at this point.
The establishment of a new grocery sector regulator and dispute resolution scheme are also welcome developments.
Anyone who has ever struggled to work out what the best buy is at the supermarket shelf because the price per unit is often absent will appreciate the recommendation to introduce mandatory unit pricing. Ensuring shoppers are given proper information about what happens to the data collected in loyalty programmes is something which should have been done long ago.
The commission recommends there is a review of the state of competition after three years and "if competition is still not working as well as it could", whatever that means, the review could consider whether other initiatives are required. It has indicated these could involve options which would directly stimulate retail competition by offering consumers more one-stop shopping options. These would include government sponsorship of a new entrant or requiring the big two to sell some of their stores.
Last year Commerce and Consumer Affairs Minister David Clark said the Government would do "whatever it takes to make sure New Zealanders get a fair deal at the check-outs".
Shoppers will take some convincing that the threat of the big stick in three years’ time will be enough to fulfil that promise.
