Grocery Industry Completition Bill

Given recent media coverage on the increasing cost of living in New Zealand, and in particular the cost of groceries, the introduction in November 2022 of the Grocery Industry Competition Bill (Bill) will have struck a chord with many households as they face the ongoing challenge of putting food on the table.

The Bill has come in response to the Commerce Commission’s market study report (report) into New Zealand’s retail grocery sector.

The report described the sector as not working well for consumers, with the main grocery retailers Foodstuffs (includes Pak’n’Save, New World, Four Square) and Woolworths (Countdown, SuperValue, FreshChoice), operating as a duopoly. Key findings from the report include:

The report states, “If competition was more effective, the major grocery retailers would face stronger pressures to deliver the right prices, quality and range to satisfy a diverse range of consumer preferences”.

The Bill deals with the bulk of the Commission’s recommendations including the following.

Wholesale supply – The Commission reported that the main grocery retailers achieve significant cost advantages over other grocery retailers with respect to their vertically-integrated wholesale and distribution; which primarily supply their own operations. Consequently, other retailers are at a significant disadvantage in being able to secure products at prices that will enable them to be competitive. To address this, the Bill will require the major grocery retailers to facilitate the wholesale supply of groceries to other grocery retailers. Initially the onus has been put on the major retailers to do this voluntarily, however, a set of “backstop” regulations would be created that may be imposed if a “workably competitive” grocery wholesale market does not emerge.

Imbalance in bargaining power – The market study found that suppliers had few alternatives to the major grocery retailers to sell their products. The resulting imbalance of power has seen the major grocery retailers leverage this advantage; forcing suppliers to accept unfavourable terms of supply. To address this imbalance, the Bill would:

Grocery regulator – To oversee the industry, the Bill will appoint a Grocery Commissioner within the Commerce Commission. The Commission will have a key role in administering the Bill once passed; its regulatory powers would include:

Restrictive covenants ban – In addition to the items covered in the Bill, research from the market study showed that alongside price, convenience was one of the main drivers in determining where consumers do their grocery shop. It was revealed that the lack of available sites for new entrants to the market was being constrained by the major grocery retailers use of restrictive covenants on land and exclusivity covenants in leases. These covenants prevented potential competitors from opening grocery stores in close proximity, or in areas the major grocery retailers did not want them to get a foothold. In response, in June 2022 the Government passed into law the Commerce (Grocery Sector Covenants) Amendment Act 2022, which has banned these practices.

The Bill has passed its first reading and is before the Select Committee with its report due back by 23 March 2023. The Bill is expected to come into effect by mid-2023.