30 May 2022

Watch: Govt reveals clampdown on supermarket sector

3:52 pm on 30 May 2022

The government's clampdown on the supermarket sector will include a new industry regulator, compulsory unit pricing and a mandatory code of conduct.

Watch here:

Commerce and Consumer Affairs Minister David Clark is announcing the government's response to the Commerce Commission's findings on the sector after this afternoon's weekly Cabinet meeting, alongside Deputy Prime Minister Grant Robertson.

The steps taken by the government will match 12 of the Commission's 14 recommendations, and go further than the other two recommendations suggested.

They include:

  • Introducing an independent industry regulator, with the Commerce Commission taking on this role until this is designed and implemented
  • A mandatory code of conduct for grocery retailers' dealings with suppliers, with an independent dispute resolution scheme
  • Yearly reviews of the sector using information collected from retailers - more frequent than the three-yearly reviews recommended by the Commission
  • A wholesale grocery access regime, with a mandatory approach providing a 'backstop' for the voluntary scheme recommended by the Commission
  • New transparency requirements for loyalty schemes, on data collection and use
  • Pricing on groceries must be displayed, in a consistent manner that is yet to be laid out
  • Grocery suppliers will be allowed to collectively bargain, with an exemption from the Commerce Act provisions which currently prevent it

The government has already been progressing legislation curbing the use of restrictive land covenants which prevent new competitors getting a foothold. The bill is now at select committee.

The Ministry of Business, Innovation and Employment is also expected to do further research on structural options like retail divestment, and the costs and benefits of this.

Clark said the clear message to supermarket retailers was to be prepared to change quickly to increase competition, and be ready for regulation.

"The duopoly needs to change, and we are preparing the necessary legislation to do that."

The Commerce Commission's report had found supermarkets were making $1 million a day in excess profits, and given recent cost of living increases the government could not delay further, he said.

The $365m in excess profits per year was among the commission's most conservative estimates of profits, Clark said.

"I spoke with both supermarket companies this afternoon to make this very clear. They know what is expected from them and the length of time we are prepared to give them to change before regulation kicks in.

"Our supermarkets know they're in the spotlight, and we've recently seen some posturing around price rollbacks. However, it doesn't fix the systemic problem at large - which is a lack of genuine competition in the sector."

The supermarkets would need to open up their wholesale arms to competitors at a fair price, he said, and if they fell short a mandatory regime would force them to.

"Our regulatory measures will make it happen for them. We are not afraid to unlock the stockroom door to ensure a competitive market."

Compulsory unit pricing would help shoppers compare prices more easily, he said.

Clark said consultation on how to enact the compulsory unit pricing would begin from today, and consultation on the mandatory code of conduct would begin next month.

Suppliers were in support of the code of conduct and it was something that had been in demand for a long time, Clark said.

The watchdog entity would keep pressure on the sector by providing annual reviews, and bring in a resolution scheme for disputes between retailers and suppliers, he said.

"The momentum for change is already with us. Supermarkets voluntarily ditched some of their covenants and the temporary price rollbacks indicate they know the tide is turning. None of this was happening before the market study."

Grant Robertson, left, and David Clark

Grant Robertson, left, and David Clark Photo: RNZ

The bulk of the reforms would be included in the Grocery Industry Competition Bill, which Clark said he intended to introduce later this year.

Asked if he could guarantee the changes would reduce costs, Clark said there were some prices lowered by the duopoly, "because they recognise that we are in a position where the findings from the Commerce Commission have been so clear, where consumers and the public demand to see cheaper prices".

"And we know that if we get further competition coming into the sector, that consumers will pay a fairer price at the checkout."

The mandatory backstop - the details of which would be finalised by the end of the year - would ensure the duopoly was incentivised to look at a voluntary wholesaler regime, Clark said.

"I want to be sure that if access is not granted to competitors - would-be competitors coming into the market - on fair terms, that a mechanism is in place for a mandatory backstop regime."

Most of the changes had no significant costs to taxpayers attached to them, he said.

Clark said his communications with the supermarkets was "robust and frequent", and it was fair to say they understood the need for change.

"I'm guessing that's why they have signalled that they want to get rid of covenants and have started that process themselves, why they've signed up to a mandatory code of conduct - they've never done that before - why they've accepted that there needs to be a grocery regulator, why they're issuing price rollback commitments for a temporary period of time."

The pros and cons of divestment were still being worked through and it was currently unclear whether it was better to have existing small retailers expand in the market.

"What really matters is access to wholesale ... without that access to wholesale divestment won't mean anything."

He said the changes would have an effect.

"This will make an impact for Kiwis, there's no doubt that having a competitive market has altered the landscape in Australia - and not arguing that Australia's the most competitive in the world but we know that having bigger players come into their market has changed the landscape."

A fair deal at the checkout - Robertson

Robertson said these steps would ensure New Zealanders got a fair deal at the checkout.

"The Commerce Commission market study we ordered into the retail grocery sector in November 2020 delivered what we know to be true: Competition was not working and change was needed," he said.

"It found New Zealanders pay the fifth-highest prices out of 38 OECD countries. and that major grocery retailers earn excess profits around a million dollars a day - more than double what the commission considered to be a normal rate of return."

The wider sector was taking notice and more options were emerging - with retailers like the Warehouse's grocery sales and Costco setting up shop, and supermarkets freezing prices on some items - but "it won't fix the problem, and so we move to our next steps", Robertson said.

Robertson also noted that the costs of developing an independent regulator were "more than outweighed by the benefits that consumers will get".

"Whatever small costs the government has to pay in the meantime pale in comparison to the benefits."

It was a long-term hold that the duopoly had and it would take time to unwind it, Robertson said.

"The other thing that's also happening is that competitors are now seeing that there is room here."

The bill to ensure access to land for prospective competitors was already having an impact, and supermarkets were making changes because they could see the government was taking the issue seriously, he said.

Fair access to land and the wholesale market were the two critical elements to making sure New Zealanders paid less for their groceries, Robertson said.

Potential for iwi involvement

Clark said there was an opportunity for iwi to be involved in moving into the market.

He said he was aware that conversations "are happening" among some, that Māori were very involved in the food production sector, and he would welcome any new competitors into the market no matter who they were.

"I'm excited to hear that some iwi are considering a potential role there."

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