Action against high prices at the checkout is being taken by Consumer NZ. The organization launched a last night petition with a plan to deliver it to David Clark, Minister of Commerce and Consumer Affairs.
The petition will call on the minister to go beyond the Commerce Commission’s recommendations in it’s report on the grocery sector in order to bring about stronger competition.
According to the Commerce Commission report the two big supermarket operators, Foodstuffs and Woolworths, are making over $1 million of excess profit every single day. Both operators refute this point, saying their profits are not excessive and point out that the report also said profit margins were in line with other global retailers.
They say the largest component of shelf prices go to suppliers, and that supplier costs have recently accelerated.
But Consumer NZ say the profit levels are unacceptable at a time when many factors are causing grocery prices to rise.
“People are really concerned, they’re struggling to make ends meet,” says Gemma Rasmussen from Consumer NZ.
She adds that it’s reasonable for supermarkets to make a profit, but that current levels are excessive and mean that households are paying $1,000 to $1200 more than necessary on grocery shopping each year. Consumer NZ also says the current duopoly is so entrenched that other potential operators are unable to break into the market to provide serious competition.
Rasmussen acknowledges that the Commerce Commission recommendations addressed an end to land banking, that’s the ability of supermarkets to put clauses on property contracts so that others can’t buy space for new stores in the same locality.
This has been happening for some time, despite being ruled illegal in Australia for 15 years. Foodstuffs says it will no longer include these clauses in future transactions and is removing them from some historical sales. Woolworths also says it’s open to ways of freeing up land for competitors.
Consumer NZ welcomes these moves but says the key problem is the control that Foodstuffs and Woolworths have over wholesale supplies, meaning access to bulk low-cost goods.
The Commerce Commission report recommended the two main retailers consider improving access to wholesale for others, whereas Consumer NZ believes this has to be regulated by the Government to ensure it happens. An alternative suggestion is for the Government to set up its own wholesale supplier.
On this point, Foodstuffs says it’s happy to further develop its wholesale supply to suit other retailers, while Woolworths points out that it’s not currently set up to change how it works with wholesalers but that this is being worked on.
Tex Edwards from Monopoly Watch is another critic that agrees with Consumer NZ that actual regulation is required to enable more competition.
He was responsible for breaking up the mobile phone duopoly with his company 2Degrees, so has experience in this area. He says the current grocery duopoly is impenetrable.
As well as ensuring greater access to wholesale supplies, he’d like the Government to “break down the market power” by requiring Woolworths and Foodstuffs to sell some of their stores. His view is that the number of supermarket properties isn’t a problem, it’s the fact that they are nearly all owned by just two players.
Both of those players believe the market is already opening up with more online competition and the likes of Farro investing in more stores. But Edwards disagrees, saying current competitors are all boutique operators and don’t provide the scale needed to impact on pricing.
How this plays out from here is now in the hands of consumers. If they agree the current Commerce Commission recommendations don’t go far enough to increase competition they can go to www.consumer.org.nz to sign Consumer NZ’s petition.