Major supermarkets to be forced to sell groceries to competitors at set prices if fair deal not offered

The Government has announced New Zealand's two main supermarket chains will be forced to sell groceries to competitors at set prices if they don't open up their wholesale offerings to other retailers adequately.

"No ifs or buts, greater competition, a wider range and cheaper products will be provided to New Zealanders through these changes," Commerce and Consumer Affairs Minister David Clark says.

In its report on competition within the grocery sector earlier this year, the Commerce Commission said one way to support smaller retailers entering the market or to expand is for major grocery chains to "consider requests for wholesale supply in good faith". 

But the Government responded by saying a voluntary wholesale access regime didn't go far enough. Clark said in May that as the supermarket duopoly - Woolworths NZ and Foodstuffs - have wholesale arms, they should open these up to potential competitors at a fair price. He signalled regulation would be developed before the end of the year.

In what is being described as an "unprecedented shake-up of the grocery sector", the minister announced on Wednesday the major chains will be required to open their wholesale operations up to smaller retailers. This is intended to "give a leg up to the likes of smaller retailers and new market entrants".

"It means other retailers will now be able to source and sell a wider range of groceries at better prices," Clark said.

"Under these changes the existing duopoly will be required to negotiate wholesale offerings to their competitors on commercial terms. However if those prices are not what we would expect in a competitive wholesale market the new Grocery Commissioner will be able to impose additional regulation to force fairer prices."

The new market interventions could include selling at set prices and on certain terms.

"Supermarkets are well advised to lock in good-faith wholeale arrangements on their own terms, or we will have no problem stepping in to make it happen," said Clark.

"The grocery sector needs to change, so that competing retailers – whether they are independent dairies, smaller chains, or a new entrant – can offer a wider selection of products at competitive prices."

Legislation creating the new scheme will be introduced to the House later this year. But it's expected major chains will come to deals with retailers to avoid regulatory interventions being made.

Spencer Sonn, Woolworths New Zealand's managing director, said in a statement that the chain was "already actively working to open up a wholesale channel and have nearly signed up our first multi-store wholesale customer which we hope to confirm soon".

"A backstop should be there to use if the industry doesn't take active steps to make wholesale happen.  It's our view that we are best to get on and do it, and that’s what we're doing."

A new wholesale business unit is talking to more than 50 small retailers who have "expressed interest in becoming wholesale customers of ours".

"We're working to establish the required systems for wholesale and importantly, talking with our top 50 suppliers around terms of wholesale trade and supply.  Future wholesale supply will only be successful if suppliers give their support around price, range and volumes available to wholesale customers."

Sonn said "unnecessary and overly complex regulation will not solve" cost of living issues, which are largely driven by global factors. He said it could make the crisis worse.

A Foodstuffs spokesperson said inflation "is out of our control" and listed what it is doing to combat high prices.

With regards to the Government's announcement, it said "there isn't another market we're aware of where access to wholesale groceries is regulated – so it's useful to today see the principles of the proposed regulatory backstop to provide some clarity".

"We will now take time to review this in detail and continue working with MBIE."

It wants to find a "commercial solution to provide wholesale access to retailers who aren't members of our co-operative, and we announced back in May that we're setting up a new service to do that and have been progressing this every week since".

"Wholesaling groceries to retailers who aren't members of our co-op isn't as simple as opening the doors of our distribution centres and letting trucks roll up.  Our co-op's operations have been built over 100 years to serve our members' 521 locally owned and operated stores.

"Providing retail-ready wholesale groceries to non-members means setting up a new service for retailers who are not integrated into our co-operatives."

The Commerce Commission report found the grocery sector is "not working well for New Zealand consumers" and competition "is muted". Supermarkets are earning $1 million a day in excess profits due to the lack of competition in the market, the commission said.

The Government agreed to take up 12 of the commission's 14 recommendations, only rejecting two that it didn't believe went far enough.

Its already passed legation to prohibit restrictive and exclusive covenants over land and leases that limited competitors' ability to enter the market. A Grocery Commissioner will also be established with the power to issue warnings and fines if retailers don't adhere to a new code of conduct with suppliers. The Government's also looking at mandatory unit pricing to ensure easy price comparisons can be made.

Clark hasn't ruled out the idea of forcing some chains from selling their stores to allow for a third major retailer to enter the market.

The minister said on Wednesday that alongside the improvements to wholesale access the Government's "also building flexibility into its approach to a collective bargaining exemption for grocery suppliers".

"Many suppliers, particularly small ones, are unable to effectively negotiate terms of supply with the major grocery retailers on their own. This exemption will allow greater scope for them to do this collectively, helping to address imbalances in bargaining power."

StatsNZ said last month that food prices rose 7.4 percent in the year to July 2022, with grocery food prices up 7.5 percent.

"Increasing prices for cheddar cheese, standard two-litre milk, and yoghurt were the largest contributors within grocery food," StatsNZ consumer prices manager Fiona Smillie said.