Sunday, April 21, 2024

Grocery watchdog unboxes sector hit list

New Zealand’s grocery watchdog, Pierre van Heerden, has today revealed the ‘Top 3’ on his current ‘fix-it’ list for New Zealand’s $25 billion supermarket sector.

Mr van Heerden (pictured) says the sector’s top three areas of concern are:

  • Pricing integrity – misleading or inaccurate pricing by retailers;
  • Supplier behaviour – undesirable behaviour from some influential suppliers; and 
  • Level playing field – barriers to entry and expansion by alternative players. 

Just over 100 days into his role as Grocery Commissioner, Mr van Heerden reiterated the importance of the new Grocery Industry Competition Act, which took effect in July 2023, as a “once in a generation opportunity to level the playing field in the grocery sector” to deliver sustainable benefits for New Zealand consumers over the long-term.

While the key opportunities and issues may change over time, Mr van Heerden says that the above three issues need attention right now.

Accurate pricing – a consumer right

One of his priorities is clear and accurate pricing, so that Kiwi consumers pay the correct amount at the checkout and are not misled. He says that, so far this year, supermarkets have been the most-complained-about sector to the Commerce Commission, with pricing issues being a common reason. 

“Consumers are entitled to accurate and clear pricing, and to trust that what is advertised is what they pay,” Mr van Heerden says. 

“The current level of pricing errors that Kiwi consumers are raising with the Commission is far too high and points to a real problem.”

Mr van Heerden noted that even if pricing errors only affected a very small proportion of total sales, the total overcharge paid by consumers could conceivably run to tens of millions of dollars every year.

“The errors that we are seeing through the complaints to the Commission likely only represent the tip of the iceberg.” 

“This is simply not acceptable, and I am calling on the supermarkets’ directors and management teams to make it an absolute priority – whether that’s through better pricing systems and scanning technology, or through staffing and training.” 

“Getting pricing right is the cornerstone of good business practice. It doesn’t need to be complicated, and we expect all businesses, including supermarkets, to have the processes in place to avoid mistakes.” 

Mr van Heerden says the Commission is exploring various avenues to get to the bottom of the issue, including enforcement options under the Fair Trading Act, and looking at best practice initiatives overseas which could be implemented in New Zealand. 

Suppliers supporting competition

Another priority at the top of the Grocery Commissioner’s fix-it list is to address undesirable behaviour from some suppliers that could negatively impact new and emerging retailers, consumer choice and prices consumers pay. 

“Suppliers play a vital role in the grocery sector, and there are many trusted and iconic brands in New Zealand who have considerable influence.  Consumers expect them to adhere to the spirit of the Grocery Industry Competition Act – to increase competition in the sector.”

“At the Food & Grocery Council Conference this week, I will be addressing suppliers with a simple message: that to be a trusted and favourite brand in the grocery sector, they have a responsibility to co-operate with the grocery regime and play fair in the system. Consumers expect this of them, as their brands are built on consumer trust.

“RGRs are now required to sell wholesale groceries to retail competitors, enabling alternative retailers to access more products at better prices, and better compete in the sector – whether that be using wholesalers or purchasing direct from the supplier. 

“We are aware that a number of influential suppliers appear to be opting out of the RGRs’ wholesale offers and insisting on supplying direct to smaller retailers but at much higher prices, which is having a negative impact on retail competition.” 

Mr van Heerden says he hopes more suppliers will come to the table and engage with this wholesale regime. 

“I will be keeping an eye on this behaviour and exploring possible options for action so that Kiwi consumers and the whole sector, including suppliers, can benefit from more supply options and more retail competition in the long term,” he said.

Level playing field for new entrants

The Grocery Commissioner says he would also like to see improving market conditions to help create more opportunities for new entrants in the sector. 

Mr van Heerden says while there have been encouraging moves by the major supermarket operators to lift land covenants, the Commission is continuing to actively monitor this space, to ensure that all existing prohibited covenants have been removed and no new covenants are created.

“The Commission’s market study into the grocery sector – completed in early 2022 – also recommended, among other things, making more land available for new grocery stores, and better enablement of alternative pathways and options for new entrants.”

Mr van Heerden says that improving the conditions to set up new stores in New Zealand is a critical part of addressing barriers to entry and in turn the level of competition in the market.

The Grocery Industry Competition Act came into force on 10 July 2023, and gives the Commerce Commission powers to monitor and regulate the grocery sector. The new function headed by the Grocery Commissioner oversees the Grocery Supply Code, which seeks to address the imbalance in power between retailers and suppliers.

The Grocery Industry Competition Act designates Foodstuffs North Island, Foodstuffs South Island, and Woolworths New Zealand as regulated grocery retailers (RGRs). It puts requirements on them to consider requests from other retailers for wholesale supply in good faith, and to follow the Grocery Supply Code in their dealings with suppliers. 

These changes are designed to bring more competition to the sector and more transparency to agreements between the RGRs and suppliers, benefiting New Zealand consumers over the long-term. This includes more convenient shopping, more choice and better prices. 

Link to more information about the Commission’s responsibilities in the sector here.

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