Following government pressure to increase competition in the grocery space, supermarkets are beginning to open up their distribution networks.
Foodstuffs owns Four Square, New World and Pak’nSave, as well as cash and carry brands Gilmours and Trents, owned by the North Island and South Island co-operatives respectively.
The other half of the supermarket duopoly is Woolworths, with the Countdown, Super Value and Fresh Choice brands.
The two big players also have their own wholesale distribution networks consisting of exclusive supply agreements and infrastructure including warehousing, cold storage and logistics capabilities.
Last year the Government began putting pressure on Countdown and Foodstuffs to open up that wholesale ability to other retailers.
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In June, Commerce Minister David Clark said the supermarkets would be “well advised” to organise supply agreements sooner, with the threat of compulsion hanging in the background.
Retailers like convenience stores not associated with the supermarkets had previously been faced with purchasing their products at full retail from supermarkets then marking it up further.
However, mainstay dairy brands like Coca-Cola and Bluebird Foods manage their own distribution.
The deals
Over the weekend Foodstuffs announced it had made its first wholesale delivery to a non-member retailer, Kennerley Gourmet Grocery.
Based in Karaka, a rural area in South Auckland, Kennerley operates a small grocery store Paddock to Pantry as well as grocery/gift delivery businesses The Meat Box, Celebration Box and The Wild Rose.
Kennerly is using the wholesale network to purchase items the company uses in large volumes to maintain a consistent supply.
In a statement, chief executive Wayne Kennerley said businesses like his had previously been faced with sourcing from supermarkets.
“Being able to tap into Foodstuffs’ wholesale network brings great opportunities. It will give us access to a broader range of goods, at better prices, and provide a more consistent supply network.”
He said he hoped to see more suppliers opting into the wholesale service, “This will be needed to support the service and ensure its success.”
Foodstuffs North Island chief executive Chris Quin said more work was needed to provide the best experience for all parties.
“We have several other retailers indicating interest in joining our new wholesale service and our dedicated team is working on the solutions for these retailers. A big part of the success of this service will depend upon suppliers opting in, so that we have the range of retail-ready groceries that non-member retailers will want to purchase from our wholesale service.”
Foodstuffs gets its grocery products from over 3,500 suppliers for their independently owned member stores to purchase, many coming from large global FMCG companies.
Reasons suppliers might not immediately opt into the wholesale channel include around half of all goods going directly to stores rather than through distribution hubs, while other distributors have their own distribution networks they would prefer to maintain.
Last week Woolworths announced it had entered into a wholesale agreement with Pamma Retail Group, the New Zealand master franchisee for the Circle K brand of convenience stores.
Woolworths’ wholesale business, New Zealand Grocery Wholesalers, operates separately from its consumer brands with a different buying team and different negotiations.
Its general manager Steve Sexton said while the business’ wholesale capacity was still growing, agreements with retailers like Circle K would create better outcomes for shoppers around Aotearoa and increase options in the grocery sector.
“We’ve worked hard over the past year to build an entirely new wholesale business at pace, and it’s been heartening to see such a positive response from the sector so far, including our supply partners and customers. We’re dedicated to helping to provide better options for Kiwi shoppers across the board, and our agreement with Circle K is another important step in making that a reality.”
The Circle K deal is New Zealand Grocery Wholesalers’ sixth customer.
Its first was organic food retailer Huckleberry. The other four are confidential.
Grocery prices
According to Canstar’s Consumer Pulse report released this morning, a quarter of New Zealanders say the price of groceries is their biggest financial worry and nearly a third of those over 40 said it was their biggest concern.
Two years ago the survey found just 11 percent were most concerned about grocery prices – about the same as rental costs (12 percent) and house prices (10 percent).
House prices dropped to 5 percent in this year’s survey, while the cost of rent dropped to 10 percent.
Will competition increase and prices decrease as wholesale opens up further?
Unsurprisingly, monopoly buster Tex Edwards thinks not, calling the supermarkets allowing competing retailers to access their wholesale powers “regulatory arbitrage” by the incumbents hoping to avoid more aggressive regulatory intrusion.
Edwards believes unbundling the supermarkets’ “portfolio of geographic monopolies” created with the merger of Countdown and Foodtown in 2007 is the only way to achieve competitive grocery prices.
“It [wholesale access] is a PR storm to try and circumvent unbundling at the last moment.”
