'Substantive, potentially systemic' supermarket concerns raised by Commerce Commission

The Commerce Commission says it is concerned about the billions of dollars worth of rebates, discounts and payments being offered by suppliers to New Zealand's big supermarket chains.

It is closing its inquiry into the wholesale supply of groceries, which it started in 2024 over concerns that retailers' wholesale offers to business customers were not delivering improved access or more competition.

In 2022, the supermarkets were directed to open their wholesale arms to would-be competitors at a fair price.

The Commerce Commission said Woolworths New Zealand had taken the most comprehensive approach to strengthening its wholesale offer, including establishing a dedicated wholesale business and implementing initiatives to improve access and customer support.

Foodstuffs North Island has made more incremental improvements, while Foodstuffs South Island has been slower to act, it said.

It said wholesale customers had mostly seen improvements in things like delivery arrangements or minimum order requirements, or expanded product range.

But it said information it had received led it to conclude that competition was still weak in pricing, range and access.

"This means wholesale offerings are not consistent with the offerings in a competitive wholesale market. Wholesale pricing is the primary barrier, with limited access to rebates, discounts and payments constraining wholesale customers' ability to obtain competitive prices.

"Range and access issues persist include gaps in key products, constrained private label access and availability limitations."

The commission said it was particularly concerned about the rebates, discounts and payments being offered to supermarkets by grocery suppliers.

These are often paid to secure specific supermarket promotions.

The commission said many suppliers felt pressure to pay.

It said it had identified over 50 different types of these payments, which benefited supermarkets by about $6 billion a year, making up 26 percent of combined supermarket retail sales revenue.

Grocery Commissioner Pierre van Heerden said many small suppliers were confused by the system.

"There's the component where the supermarkets ask for it and then there's the other component where suppliers provide money in order to reduce the price and fund specials. There are two different things at play. Our market structure makes it really difficult for competitors to get into the market because the big two have really tied things up in such a way that the smaller players don't get these benefits.

"Part of the Grocery Industry Competition Act is to ensure those volume discounts can be passed on to other competitors as well."

The commission said the rebates, discounts and payments allowed the supermarket duopoly to reduce retail prices, which helped shoppers, but did not help competing retailers.

"This directly affects the price at which wholesale customers can access products and is a major contributor to wholesale pricing not being set at competitive levels.

"We consider that improving wholesale pricing should be the immediate priority over range and other access issues. This is because, even if an ideal range of products was on offer through the wholesale market, this won't drive retail competition if those products are not competitively priced."

The commission said it would prioritise a targeted assessment of compliance with the Grocery Supply Code regarding how those benefits were being passed through to wholesale customers.

"These issues raise substantive and potentially systemic compliance concerns. In parallel, we are progressing guidance to support compliance."

It said it wanted to ensure that promotional payments were reasonable with clear benefits to the supplier.

There was likely to be scope to simplify and make clear what the payments were for, and reduce the overall number and value, it said.

"We consider there is likely to be scope to create efficiencies through the reduction in and simplification of the [payments] which would lead to savings for [supermarkets], suppliers and consumers…at the same time we want to ensure that [supermarkets] are not unlawfully preventing or restricting wholesale customers from receiving the [payments] which are compliant with the Grocery Supply Code.

The commission said if the supermarkets could not make arrangements that allowed wholesale customers to receive the scale and efficiency benefits of promotional funding then it should be reduced or discounted.

"Promotional funding could then be replaced with simpler and more transparent pricing structures and greater investment in non-promotional pricing - that is, lower everyday prices that flow through to consumers. A shift towards lower, more consistent pricing that reduces reliance on complex promotional arrangements would be positive."

It said it was not recommending additional regulation at the moment but could recommence work on it in the future. For now, it is focusing on ensuring compliance with the law and Grocery Supply Code.

"We could have run the inquiry to conclusion and potentially come up with a different way that there's more legislation needed or a framework or a code of conduct but to put that in place would take another 18 months. And then you can only really start implementing it. So we believe it's a much quicker way to get to the bottom of some of these things, by closing the inquiry now and going straight into honing in on the various [payments]," Van Heerden said

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