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Wellington, May 30, 2022
The government’s clampdown on the supermarket sector will include a new industry regulator, compulsory unit pricing and a mandatory code of conduct.
Commerce Commission recommendations
The steps taken by the government will match 12 of the 14 recommendations of the Commerce Commission and go further than the other two recommendations suggested.
They include (a) Introducing an independent industry regulator, with the Commerce Commission taking on this role until this is designed and implemented (b) A mandatory code of conduct for grocery retailers’ dealings with suppliers, with an independent dispute resolution scheme (c) Yearly reviews of the sector using information collected from retailers – more frequent than the three-yearly reviews recommended by the Commission (d) A wholesale grocery access regime, with a mandatory approach providing a ‘backstop’ for the voluntary scheme recommended by the Commission and (e) New transparency requirements for loyalty schemes, on data collection and use.
Pricing on groceries must be displayed, in a consistent manner that is yet to be laid out. Grocery suppliers will be allowed to collectively bargain, with an exemption from the Commerce Act provisions which currently prevent it
The government has already been progressing legislation curbing the use of restrictive land covenants which prevent new competitors getting a foothold. The bill is now at Select Committee. The Ministry of Business, Innovation and Employment is also expected to do further research on structural options like retail divestment, and the costs and benefits of this.
Message to Retailers
Commerce and Consumer Affairs Minister Dr David Clark said that the clear message to supermarket retailers was to be prepared to change quickly to increase competition and be ready for regulation.
“The duopoly needs to change, and we are preparing the necessary legislation to do that.”
The Commerce Commission’s report had found supermarkets were making $1 million a day in excess profits and given recent cost of living increases the government could not delay further, he said. The $365 million in excess profits per year was among the commission’s most conservative estimates of profits, Dr Clark said.
“I spoke with both supermarket companies to make this very clear. They know what is expected and the length of time we are prepared to give them to change before regulation kicks in. Our supermarkets know that they are under the spotlight, and we have recently seen some posturing around price rollbacks. However, it doesn’t fix the systemic problem at large – which is a lack of genuine competition in the sector,” Dr Clark said.
The supermarkets would need to open up their wholesale arms to competitors at a fair price, he said, and if they fell short a mandatory regime would force them to do so.
“Our regulatory measures will make it happen for them. We are not afraid to unlock the stockroom door to ensure a competitive market.”
Compulsory Unit Pricing
Compulsory unit pricing would help shoppers compare prices more easily, he said.
Dr Clark said consultation on how to enact the compulsory unit pricing would begin from today, and consultation on the mandatory code of conduct would begin next month.
Suppliers were in support of the code of conduct, and it was something that had been in demand for a long time, Dr Clark said.
The watchdog entity would keep pressure on the sector by providing annual reviews and bring in a resolution scheme for disputes between retailers and suppliers, he said.
“The momentum for change is already with us. Supermarkets voluntarily ditched some of their covenants and the temporary price rollbacks indicate they know the tide is turning. None of this was happening before the market study.”
The bulk of the reforms would be included in the Grocery Industry Competition Bill, which Dr Clark intends to introduce later this year.
Asked if he could guarantee the changes would reduce costs, Dr Clark said that there were some prices lowered by the duopoly, “because they recognise that we are in a position where the findings from the Commerce Commission have been so clear, where consumers and the public demand to see cheaper prices. And we know that if we get further competition coming into the sector, that consumers will pay a fairer price at the checkout.”
The mandatory backstop – the details of which would be finalised by the end of the year – would ensure the duopoly was incentivised to look at a voluntary wholesaler regime, Dr Clark said.
-Published under a Special Agreement with www.rnz.co.nz
