Families are being promised more competitive food prices as three existing retailers prepare to expand their groceries sections.
The Government has announced it will impose regulations to ensure competing grocery stores and online sellers have access to the Foodstuffs and Woolworths wholesale ranges, at “a fair price”. And a mandatory code of conduct is intended to protect suppliers who have told of being “bullied” and threatened with deletion by the two big supermarket chains.
To manage down the price of carrots, Newsroom understands the Government will wield a big stick: a bill, to be introduced later this year, will provide for “meaningful” civil penalties – including penalties based on a percentage of a store or supermarket chain’s turnover.
The bill will also provide competitors and suppliers with remedies including injunctions, and other financial damages for failure to comply with the obligations imposed under the new regulatory regime.
Newsroom has spoken with three retailers that are already preparing to expand. Commerce Minister David Clark, who announced the Government’s response to the Commerce Commission competition inquiry this week, says he is pleased to see The Warehouse, Night ‘n Day, Supie and other competition stepping up.
“I think the supermarkets are on notice,” he says, in an interview with Newsroom. “They understand that the opportunity is before them right now, to reach agreements for wholesale access on the basis of good faith negotiations. They can get on with it now. If they don’t, we will help them to make good on their promise.”
International brands such as Costco and Aldi have also welcomed changes such as an end to exclusive land covenants, he says. “It’s not the silver bullet, it’s about having a degree of certainty that competition is going to be something they can rely on, that it’s going to be real. Once they know that the conditions are there, they’ll all look a lot more closely.
“The sense I get from The Warehouse is that they are doing their due diligence. They appear to be doing the preparatory work to make a wider play in the market.”
► The Warehouse Group has been trialling bigger food sections in flagship stores at Albany and Ormiston, and has a future food strategy based on a lower price point for household staples. It dipped its toe in the water this year by advertising blocks of Tararua butter for $4.
The listed company is cautious about what it’s saying publicly, after the two supermarket chains shut down its previous attempt to enter the grocery market.
Chief executive Nick Grayston welcomes the Government’s intervention in the grocery market, saying New Zealanders “deserve better value than they’re currently receiving”.
“We’re encouraged by the direction the Government is taking as wholesale access to supply at fair commercial terms is key to a more competitive grocery industry and ultimately lowering prices,” he says.
“While little changes in the short term for other players like us to enter the grocery market in a bigger way, we are very focused on supporting Kiwi families and remain committed to offering New Zealanders greater value on grocery and pantry items.”
In 2008 The Warehouse canned its Warehouse Extra grocery stores at a cost of $12m, after the two supermarket chains each bought a 10 percent stake in the big red stores, then used their clout on the board to change the company’s strategy.
► This week online grocery retailer Supie launches a $5m capital raise on the Snowball Effect investment platform. It promises to use the money to disrupt the $25b retail grocery market.
According to its promotional message to potential investors, New Zealand supermarkets have not evolved or innovated, and they lack competition. “There are only two dominant players in the market, known as the duopoly,” it says.
“Supie brings a new model of grocery shopping online, replacing in-store habits with digital experiences for consumers while delivering honest and transparent supply chains, game-changing differentiation for suppliers and reducing food waste.”
Founder Sarah Balle says the company has quickly gained thousands of customers since it launched last year, delivered tens of thousands of orders, and hit an annualised revenue of $6.5m.
It has direct supply deals with 300 producers, offering shoppers 6000 individual products to choose from – almost as large a range as Pak’nSave’s 7000 products.
Balle had wanted the Government to open up to a new wholesaler, so she is unhappy that instead it has essentially strengthened the two existing supermarket chains by asking them to supply the country’s 5000 corner dairies, albeit at a fair price. She doesn’t believe that breaks open their stranglehold on wholesale.
She is, however, supportive of the mandatory supplier code of conduct – she says she’s heard terrible stories from her suppliers, of how they have been treated by the two big chains. She cites an asparagus farmer who had an entire shipment rejected, because the stalks were 1cm too long.
The expansion of Supie, The Warehouse, Night ‘n Day and smaller retailers is “putting pressure on the duopoly”, she says. “It comes down to consumers to shop outside of the duopoly. It’s important for consumers to continue to back the smaller retailers so that we can keep growing and we can actually provide that additional competition.”
► Night ‘n Day has expanded to more than 50 convenience stores nationwide, despite supermarket-sponsored liquor licensing restrictions that mean its stores can’t sell wine and beer because they can’t source a sufficient range of grocery products to be designated grocery stores. And it plans to expand further.
Matthew Lane, the general manager of the family-owned chain, say they have been largely reliant on the two big supermarket chains for their wholesale groceries. But when they expanded to the North Island, Foodstuffs cut their supplies.
Last year, Night ‘n Day’s price research on a standard shopping basket of household goods showed that prices at Foodstuffs-owned wholesalers Trents and Gilmours were 42 percent higher than retail prices in the chain’s supermarkets.
At the same time in the past two years of the pandemic, Woolworths has repeatedly told stores it can’t supply them because it has to supply its own stores first. On the Thursday before Easter, the manager of the Dunedin stores was forced to run around the nearest supermarket with a shopping trolley, to pick up supplies at retail prices. The same happened again just yesterday, at another South Island Night ‘n Day store.
Just this year, it’s opened a new store near Oamaru that is able to offer a full range of groceries, by establishing direct supply chains with producers. Lane says that as more producers have spoken out at the time of the Commerce Commission inquiry, others have gained confidence to disregard pressure from the supermarket chains, and sell their goods to competitors such as Night ‘n Day.
“We’ve implemented a cheaper price model at that store, where we’re trialing a supermarket offer that includes full meat, fruit and veg. We’ve actively purchased that to venture into grocery and supermarket-based offerings, and our prices are reflected lower than what they have been to really see if we can build on this market space.”
Lane will be closely watching longer term work by the Ministry for Business and Innovation, on requiring the supermarket chains to divest some of their stores or their brands.
Night ‘n Day would consider acquiring more stores. “We’ve purchased Four Squares in the past, we’ve purchased other convenience stores brands, we’re on a growth cycle and we wouldn’t rule it out. But our primary focus was getting to a point of being able to obtain wholesale supply to be competitive.
“We’d like to see divestment. At the moment you’ve got the big companies’ banners making up 90 percent market share. It would be nice if Tex Edwards or The Warehouse or the like got a springboard into the market, because to try and break down 90 percent of the market is a very hard challenge for any competitor.”
Will the supermarkets play ball?
Newsroom asked the supermarket chains whether they would comply with the Government’s request that it open up its wholesaling to would-be competitors at a fair price, and what a fair price would look like. Matthew Lane argues the starting point for setting a “fair price” should be a similar price to the supermarket chains’ own stores pay,
Australiab-owned Woolworths, which owns brands including Countdown, FreshChoice and SuperValue, has not responded to those questions. Neither has it answered questions about whether it could work cooperatively with Govt on divesting some of its stores or banners.
Foodstuffs, however, has been more responsive, promising to work constructively on the mandatory code of conduct, wholesale access and engaging on a civil penalties regime.
Managing director Chris Quin says the company was providing monthly updates to the minister on its progress towards consistent unit pricing, getting rid of land covenants and an agreed code of conduct.
“We have indicated our support for a set of principles that we believe will make a difference in providing clarity, certainty, fairness, meaningful consequences, and opportunities for redress when the Code is not honoured,” he says.
“These include broad coverage, so all interactions with suppliers are covered by the Code, ‘good faith’ underpinning every interaction, certainty of contractual terms, publication of ranging and shelf allocation principles, engagement on suppliers’ requests for price increases and robust dispute resolution provisions.”
Foodstuffs supports the Government’s request that it participate in an active wholesale market, he says. “What is key now is understanding the demand landscape and ensuring that suppliers work with us and our wholesale customers to enable those customers to access wholesale groceries at competitive prices.”
He highlights the company’s Price Rollback initiative, with New World, Pak’nSave and Four Square stores nationwide cutting prices on more than 110 of the most shopped grocery items. “Our data is showing that customers are using the rollback to save money on their weekly shop, in the two weeks the Price Rollback has been running, Foodstuffs customers have purchased 4.7 million products that have been rolled back to prices they were a year ago.”
► Update: Woolworths NZ managing director Spencer Sonn has posted a short statement on the company’s website, saying it’s a privilege to be part of communities right across Aotearoa, and Woolworths is trying to provide food and groceries at the lowest prices it can.
“We don’t yet have the capability to offer large scale wholesale supply, however we are already in the process of planning how we achieve this. We’re committed to working with the government to meet their expectations and with our supply partners who will play an important part in this.”
