Photo: Getty Images

Price check: Government investigates high food prices at supermarkets

The Commerce Commission is undertaking a year-long study of supermarkets to see whether consumers are getting a fair deal, but it seems even the prime minister knows the answer will be an emphatic no, Justin Giovannetti reports.

There might be something rotten with New Zealand’s supermarkets. Food prices are high and increasing, producers are being squeezed, and there is little open competition between the two companies that control nearly the entire country’s food supply.

Speaking yesterday morning at the launch of the Commerce Commission’s year-long probe into food prices, consumer affairs minister David Clark made it clear that a lot of unflattering stories are reaching him about the country’s supermarket duopoly. Even his boss admitted a few hours later that consumers aren’t getting a fair deal.

“We often hear stories,” said prime minister Jacinda Ardern about suppliers and consumers not being treated well by Foodstuffs and Woolworths. The study will help things, she added. “This allows us to give some confidence to consumers that both them and our producers are getting a fair deal.”

The prime minister promised that after the study concludes, the government will ensure the country has a “competitive environment” for groceries. Both she and Clark today made it clear that the current situation is far from competitive.

Supermarkets are a powerful presence in the everyday lives of most New Zealanders. They control what brands shoppers see and the price of food. They constantly demand discounts and speedy deliveries from suppliers, in an unequal relationship where the all-powerful supermarket often then turns around and, according to Clark, delays payment as part of a negotiation over prices that never really ends.

New Zealand has one of the most concentrated grocery sectors in the world. In Australia, Canada, the US and UK, the top two grocers control about half of the market. In New Zealand, it’s about 99%. The final bill at the till reflects that.

“One of the things I’ve been really mindful of, and I know there will be a range of reasons for this, is that when we were able to travel into Australia and experience what it was to be a consumer at their supermarkets, there was a significant price differential,” said Ardern.

Australia’s consumer commission found in 2008 that prices in that country’s supermarkets began falling when German discounter Aldi moved in. Even though most people still shop at the established supermarkets, they’re paying lower bills. A similar change happened in Canada when Walmart moved into a grocery space that had previously lacked competition.

Aldi customers Hannah Walker and Mike Weekes in Sydney, Australia, 19 July 2015. (Photo by Frank Walker/picture alliance via Getty Images)

About 17% of a New Zealander’s weekly expenses go to the grocery bill. Labour made a promise during the election campaign to order a market study and make changes if necessary. That changes are coming seems a foregone conclusion.

“This study is the way of proving, one way or the other, whether there are anti-competitive practices. Certainly, there are indicators which show that markets have become more concentrated over time and they point to a lack of competition in the sector,” said Clark.

The Commerce Commission will have a wide mandate in its investigation. Once limited to looking into proposed mergers, the commission’s job was expanded in 2018 to looking into whether markets are functioning as they should. The first study concluded earlier this year and found that the petrol market needed a substantial overhaul to increase transparency.

Market studies can only be initiated if the government believes it would be in the public’s interest. A no-brainer in this case, said Clark.

According to the minister, the commission will look into whether the supermarket duopoly has been abusing its bargaining power through a number of tactics, including delaying payments to suppliers. There will be a bullseye on discounting practices and how some prices always seem to be marked “special”. The two companies have also been accused of land banking – snapping up all the useful land for supermarkets and sitting on it to keep out any new competition.

“There are stories around the static nature of the industry which might suggest a comfort with the status quo,” said Clark. The government will have “softer and harder” mechanisms to fix the market, he added. A lot of it will depend on whether the companies are willing to cede market power.

A code of conduct, like the one that exists in Australia and the UK, could put a stop to behaviour that isn’t illegal but drives up prices, said Consumer NZ chief executive Jon Duffy.

“We’ve long held concerns that there’s something not quite right in the supermarket sector. New Zealand has one of the most concentrated supermarket sectors in the world and the behaviour we’ve seen and the complaints we’ve received from consumers about supermarket conduct suggests that the market might not be functioning competitively,” he said.

One of the problems in New Zealand is what Duffy called “the Briscoes effect,” where an item is on special for so long that the marked-down price is really the regular price.

In an investigation, Consumer found that certain specials just aren’t. Pak’nSave kept its “extra-low price” on Nature’s Fresh bread for all 12 weeks that the probe was underway, while New World had a special on Vogel’s bread for 11 of the 12 weeks. Something can’t be on special for three months.

Some specials also changed over time. Pak’nSave had an “extra-low” tag on Persil laundry powder for all 12 weeks, but during that time the price varied between $8.88 and $11.99. Not helping things, most of the country’s groceries don’t show the regular price of an item beside the special tag.

In statements to The Spinoff, the two big grocery companies made it clear what they’ll be arguing over the next year: New Zealand has lots of competition for food.

“We’re proud to be a part of such a vibrant and ever-changing eco-system that makes such a difference to New Zealanders lives. The New Zealand retail grocery landscape is a busy, competitive market,” said Antoinette Laird, the head of corporate affairs for Foodstuffs, which owns Pak’nSave, New World and Four Square.

The competition includes butchers, discount stores, online startups like Hello Fresh, Asian supermarkets, as well as Uber Eats and other delivery services.

A spokesman for Woolworths, which owns Countdown, SuperValue and FreshChoice, provided a similar list of competitors in what she called an “intensely competitive” market. “We welcome the opportunity to demonstrate this in an open and transparent way, and will cooperate fully with the commerce commission,” she wrote.




The Spinoff is made possible by the generous support of the following organisations.
Please help us by supporting them.