Foodstuffs and Woolworths still stifling competition in grocery sector - The Warehouse

By Nona Pelletier RNZ

The Warehouse says the supermarket duopoly of Foodstuffs and Woolworths continues to limit the expansion of its fresh food and grocery items despite regulatory and government measures to improve competition.

The retail group's first half net profit fell 61 percent, but was boosted by 34 percent growth in its pantry and chilled food products, which accounted for 22 percent of its total sales over the six months ended January.

Chief executive Nick Grayston said the company was keen to expand its grocery product lines, but it had been unable to secure a competitive wholesale arrangement with either of the two big supermarket chains, despite a recent ruling by the Commerce Commission aimed at increasing competition in the sector.

Woolworth's subsidiary Progressive operates Countdown supermarkets, while Foodstuffs operates New World, Pak'n'Save and others.

"The problem with that is the [wholesale] prices they're able to offer so far, have not been any better than what we're able to achieve on our own," Grayston said, adding that the two big supermarket operators received special discounted wholesale prices from major suppliers, which they were either unable or unwilling to pass on.

He said those special trade discounts gave the duopoly better profit margins than were available to their retail competitors.

"We have been engaged in conversations with both Foodstuffs and Progressive," Grayston said.

"As yet it does not look like that will be the solution to be able to get equitable pricing so that we can offer that value to New Zealanders.

"We believe that the policy needs to include suppliers as well as the wholesale part of the duopoly for it to be effective.

"So I don't think we're there yet. We will be very interested to see what the government does."

The government said last year it planned to introduce an industry regulator, a mandatory code of conduct, compulsory unit pricing and other measures to improve competition in the grocery sector.

Despite The Warehouse's difficult negotiations, organic grocer Huckleberry was able to strike a wholesale supply agreement with Woolworths, last year.

More recently, Foodstuffs said it had made a wholesale supply agreement with Kennerley Gourmet Grocery, which owns grocery delivery businesses The Meat Box and Paddock to Pantry and gifting businesses Celebration Box and The Wild Rose.