12 Feb 2023

Supermarkets shaping the food price story

From Mediawatch, 9:10 am on 12 February 2023

Recent media reports have blamed rising grocery prices on supermarket suppliers and even shoplifters. One business journalist is calling on the media to focus on the market power of our supermarket duopoly, now facing a law change to improve competition and lower prices.

Pak n Save on Moorhouse Avenue in Christchurch on Wednesday.

Photo: RNZ / Kim Moodie

A recent The Otago Daily Times headline was definitive about the cause of the skyrocketing cost of food in New Zealand: Supplier cost still driving supermarket prices.

Reports from Stuff, the Herald, Newshub and RNZ made the same point, based on the monthly Grocery Supplier Cost Index produced by the economic consultancy Infometrics.

News reports of the findings of last August’s Index credited supermarkets with putting up their prices by only 6.1 percent – well below an 8.7 percent increase in their suppliers’ charges.

But while most of the reports note the Index is a Foodstuffs-Infometrics collaboration, few treat the fact that it’s paid for by a supermarket giant as a red flag or reason for caution over its findings. 

Neither do they mention the big two supermarket chains have for years kept a tight lid on suppliers' charges. They enjoy a combined 90 percent share of the market for grocery shopping in New Zealand.

Supermarket suppliers aren't the only ones getting the blame for rising food costs in the media.

A Newshub story this week featured a startling video of an attempted Countdown theft and claimed "the illegal practice is hitting shoppers in the pocket."       

"There seems to be a lot of people who feel they can load up trolleys and walk out of stores with impunity. It's costing households hundreds of dollars," Retail NZ's Greg Harford told Newshub.

Last year Harford told Stuff that retail crime cost every household $800 a year, and 2017 reports put the cost of retail crime at $1.2 billion a year

But only a portion of that would affect supermarkets, and the recent story from Newshub contained no hard data on how much theft is really costing those outlets or their customers.

Consumer NZ has a different opinion on the root cause of the high and rising prices. It says the big retailers' own commercial practices are at the heart of the issue, and is campaigning for changes

"Every day, the major supermarkets are making more than $1 million in excess profits" because of "high prices, high profits and high barriers to enter the market," it says. 

The Commerce Commission last year estimated supermarkets were making about $430 million a year in excess profits. 

But it's disputed by the duopoly.

 "We don't make excessive profits. The claim that is based on is an incorrect assumption," Foodstuffs chief executive Chris Quinn told the New Zealand Herald at the time. The Herald story didn't elaborate.    

Running the numbers

Consumer NZ has demanded monitoring of prices and stores’ margins to keep supermarkets under scrutiny - something media can play a role in.

Among reporters who have cast a sceptical eye on prices - and how they're reported - is NBR senior reporter Dita De Boni. 

De Boni believes data in the Grocery Supplier Cost Index paints the supermarket giants in a favourable light because it doesn't account for all the charges borne by suppliers - including promotion, placement and warehousing. 

"None of those, which are different across stores and across regions, are included. That data is just a top-line price that says 'We pay the supplier x'. That is not the true price in my view. There is just so much variation that you can't do that comparison," she told Mediawatch. 

She has also spoken to suppliers about what it’s like to deal with the supermarket giants and entrepreneurs keen to break the duopoly's dominance. 

In a recent NBR story, 2Degrees founder Tex Edwards - who wants to break into the grocery trade - said Woolworths NZ is projected to raise its margins from 4.4 percent to 5.3 percent over the next three years. He said this is only possible in a low-competition environment.

De Boni believes supermarkets are trying to neutralise critics in the media that are accusing them of profiteering.

Shoplifting and even recent supplier cost increases are minor issues compared to the conditions which allow them to increase their margins without losing market share, she said.

"Shoplifting is the mosquito on the ankle of the supermarket duopoly," she said.  

"Tex Edwards talks about net profit margins. Walmart, Tesco, Sainsbury, all theirs are around 1 to 2 percent. Woolworths NZ has 4.4 percent margins this year climbing to 5 percent over. Something is badly out of whack here," she said. 

The Grocery Industry Competition Bill currently before Parliament includes a new code of conduct for dealings with suppliers and a requirement for the big chains to wholesale products to rivals.

The government hopes this will increase competition and peg back the prices we pay, but the big supermarket chains here are pushing back at claims their scale skews the market. 

The supermarket chains appeared at the latest Select Committee hearings recently, but there was little coverage

"There were few politicians putting the supermarkets' feet to the fire. And where is the media reporting?" asked De Boni.

"When Foodstuffs appeared, they brought three or four people including lawyers to submit . . . and they got no real questioning or pushback.

"Food is such an essential part of people's lives this should be really front and centre of the coverage."

De Boni believes part of the reason supermarkets seem to get favourable or often uncritical coverage is they have huge communications teams and large legal budgets - and they're also big advertisers for many media companies.

"The other thing is the lack of business reporting in the general media. It tends to be ghettoised, but it cuts to the heart of this story," she said.

"You do come up against time pressures and resources-starved newsrooms . . . but there has to be an understanding of the context if you're covering these industries - and people need to go at the supermarkets with knowledge," she said.