ComCom was worried about the possible impacts on competition and consumers, writes Stewart Sowman-Lund in today’s extract from The Bulletin.

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Foodstuffs merger declined

Yesterday morning, reported The Post’s Tom Pullar-Strecker, it was confirmed that the Commerce Commission had declined the application for Foodstuffs’ North and South Island branches to merge into one entity. In comments yesterday, the commission said it was worried that Foodstuffs’ proposal would have had impacts on competition and consumers. “The proposed merger would result in a permanent structural change to the New Zealand grocery industry,” said commission chairperson John Small.

That’s similar to how smaller players in the market felt, reported Aimee Shaw. The New Zealand Food and Grocery Council said that the commission’s decision recognised “the very real concerns of both suppliers and consumers that have been clearly articulated and supported by evidence in the three rounds of submissions and cross-submissions”.

Is this the end of the road?

Foodstuffs has consistently maintained that its merger would not have dampened competition and claimed instead it would have meant cheaper prices at the checkout. “What would change is the way we’re governed and operated,” Foodstuffs’ South Island chairperson Russell McKenzie previously claimed. Shareholders – that being store owners – agreed, and voted in favour of the merger. But it was always going to need to pass the hurdle that is Commerce Commission approval.

The watchdog has, under the Commerce Act, the power to enable or reject proposed business mergers based on whether it will “substantially lessen” competition in a market. In an interesting (paywalled) piece for Newsroom Pro, Andrew Bevin looks at how the commission’s latest decision diverges from prior merger rulings by focusing on the “upstream” effects – namely the companies that supply groceries to Foodstuffs.

Foodstuffs is now weighing up its next move and will consider appealing the commission’s ruling, reported Will Mace for the NBR (paywalled). In analysis for the Herald (paywalled), Kate MacNamara argued that it would be surprising if Foodstuffs walked away quietly. “The companies have been hatching the merger plan for several years, and their respective boards have given it considerable time and effort, as has [Foodstuffs North Island chief executive Chris] Quin, who has promoted it as an effort to wring greater efficiencies from the businesses and improve food and grocery prices for customers,” she noted.

Quin said the commission’s decision yesterday amounted to a “press release” and Foodstuffs would be waiting for the full detail to be made public on October 23.

It’s part of a bigger picture

It was always going to be an uphill battle in the current environment. Against the backdrop of the proposed merger, Foodstuffs and its main rival, Woolworths, have been fighting a number of fires on the competition front. Earlier in the week, the North Island branch of Foodstuffs was fined $3.25m for anti-competitive land covenants imposed to try and hinder rivals from opening or expanding stores, reported the Herald’s Anne Gibson. Meanwhile, a few weeks ago, the first annual report into competition in the grocery sector painted a “concerning picture”, explained Stuff’s Brianna McIlraith, finding ongoing dominance by the two large players.

But while Foodstuffs appears unlikely to give up the battle, another suggestion has been floated from an Australian academic following the saga. In comments to the NBR (paywalled), Sydney University researcher Lisa Asher said that Foodstuffs should consider divesting some of the brands operated by the business to encourage locally owned competition in the wider market. Some in Australia have also recently suggested Woolworths sell its New Zealand arm, though that’s less about competition on our shores and more about the brand’s performance across the ditch.

What is the government’s role here?

The Spinoff’s Toby Manhire recently summarised several areas that it appears the coalition parties in government have diverging views on. One that could be added to the list is supermarket competition. Both the PM and National commerce minister Andrew Bayly were quick to welcome the grocery commissioner’s recent report and, reported The Post, appeared in favour of the need for further regulation. But Act’s David Seymour disagreed, reported RNZ’s Craig McCulloch. “It’s pretty clear what Act’s position is: we need less regulation and more competition.” It has echoes of the recent decision by the government to allow buy now, pay later schemes to avoid certain regulation, with the Herald’s Jenée Tibshraeny (paywalled) floating the possibility that Seymour could try and get his way with supermarkets too.