ANALYSIS: The Government has been filling up its trolley announcing new measures to improve competition in the supermarket industry.
But it has yet to reach to the meat department and decide whether to throw in that whole leg of lamb.
In October, Commerce Minister David Clark is due to brief his fellow ministers on whether he thinks they should consult the public on forcing Countdown and Foodstuffs to sell some of their stores or chains to make way for a third competitor.
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Two months can be a long time in politics.
In the unlikely scenario that Stats NZ were to report in October that there was a rise in inflation in the September quarter, or if there was some new turn of events that sent the cost-of-living spiralling, then the temptation to move much further on supermarket competition could become overwhelming.
But as of now, hints suggest that whether or not the Government decides to proceed to the stage of public consultations, it is not planning to actually take a supermarket break-up to the check-out.
STUFF / Connor Scott
Prime Minister Jacinda Ardern and Commerce Minister David Clark discuss supermarket reforms.
On Wednesday, Clark said he saw the Government’s decision to legislate a “wholesale backstop” for the industry (more on exactly what that means later) as “a centrepiece of the Government’s response to addressing competition”.
But if the Government were to order Countdown and Foodstuffs to sell off dozens of their stores or perhaps Foodstuffs’ Four Square chain, then that would be the true centrepiece of its reforms. Foodstuffs also owns the Pak ‘n Save and New World supermarket brands.
Clark suggested that the Government’s reform package could have more than one centrepiece but, strictly speaking, then there wouldn’t be a centrepiece.
No decision had been made on forced divestments, he said, but in what seems another sign of its current thinking, he added that “the Commerce Commission highlighted that you need to work through very carefully across the benefits of going down that route”.
Countdown managing director Spencer Sonn says he thinks “sanity will prevail” when ministers consider the issue in October, arguing a forced break-up of its business would be “unprecedented worldwide”.
But then the Government might argue that New Zealand’s supermarket duopoly is not that common either.
Countdown’s Australian owner, Woolworths, appears sufficiently confident that it hasn’t deemed it necessary to disclose the regulatory risk of a break-up to its shareholders through the ASX under its continuous disclose obligations.
Assuming the Government has finished shopping for reforms, it’s got three main items in the trolley or already packed.
One is a law change outlawing the supermarket groups from using land covenants and lease agreements to stop competitors opening up near their stores.
Competition advocate and Monopoly Watch spokesman Tex Edwards has argued that’s a case of shutting the door after the horse has bolted.
Veteran consultant Ernie Newman, who was a key figure in the break-up of Telecom, forecasts it will take “a couple of decades” for the benefits of that change to start to come through.
The second is a new industry code that will give supermarket suppliers a leg up in their negotiations with Countdown and Foodstuffs by protecting them from their market power.
The commission pointed out that could have mixed implications for the prices consumers need to pay for groceries.
Ross Giblin/Stuff
Veteran consultant Ernie Newman believes meaningful changes could flow from the Government’s interventions in the groceries industry in the next 10 years
The Government appears to have maxed-out on its third major reform, which is its planned wholesale backstop.
That will come into law whether or not Countdown and Foodstuffs make their own voluntary arrangements to wholesale groceries to rival retailers, as they have signalled they will do.
The Government’s yet-to-be appointed new grocery Ccommissioner and the Government itself will then have broad powers to pick and choose from a suite of interventions if it is not satisfied.
It could require the supermarket groups supply the likes of dairies, convenience store chains, speciality stores and any other bigger rivals on the same terms or prices that they supply their own stores.
It could even simply move straight to dictating the prices and terms on which those supplies had to be made.
And it could take those steps if it assessed the wholesale offers that Countdown and Foodstuffs were providing were not consistent with “what might be expected in a workably competitive wholesale market”, without appearing to need to give more of a justification.
It would simply need to be able to defend that assessment in court if challenged.
A snag is that in an absence of the sudden arrival of a new, national entrant in the industry, no retailers are likely to be able to quickly undercut the supermarkets in most towns and cities even once Countdown and Foodstuffs do have to “unlock their stockroom doors”.
Newman would still like the leg of lamb, saying he’d love to see New World separated from Pak ‘n Save.
But if wholesale is done well, “I think there will be new investment in the next decade or so”, he says.
“To me, far and away the best outcome would be Countdown and Foodstuffs voluntarily opening up their wholesale in a realistic and commercial way. A regulated solution is going to be terribly painful.”
It’s taken 40 years to “get into this mess” and it is going to take time to get out of it, too, he says.
If he’s correct, then only time – and quite a lot of it – will tell if the Government has gathered together enough ingredients to cobble together something palatable to consumers in the slow cooker.
