Breaking up the supermarket duopoly.

To post in this sub-forum you must have made 100 posts or have Trust status or have completed our ID Verification

Forums › Politics › Breaking up the supermarket duopoly.

1 | 2 | 3 | 4 | 5

893 posts

Ultimate Geek

ID Verified

Lifetime subscriber

#3076929 16-May-2023 21:04

Handle9: Why would the government pay compensation? They didn’t compensate telecoms shareholders for unbundling. If an organisation has undue market influence then it’s to be expected that they could
be forced to restructure.

No one would be forced to make their business worthless, they would be forced to break them up into smaller entities. If it happened there would be winners and losers but that’s how it goes. There is no compensation for consumers who have potentially been effected by anticompetitive behaviour nor should there be compensation for forced restructuring.

This ignores two core differences:

Foodstuffs is not a monopoly spun out of a government department that became an SOE.

Foodstuffs operates as a co-operative (with shareholders being 100% store owner-operators) as it has for 101 years from the original company formed in 1922. There is therefore nothing in common with the evolution of Telecom and the situation today with the duopoly in the groceries business.

The formation of a duopoly has eventuated from various takeovers and mergers of Foodstuffs competitors. There is a long story on this including Commerce Commission takeover decisions appealed to the Privy Council.

The issue of divestment remains and for Foodstuffs to be forced to divest any stores is unique to the structure of a co-operative - it does not own the stores and its share register is 100% store owners. Woolworths NZ is not a co-operative and there are stores that are company-owned so the issue therefore does not arise as long as the number of company-owned stores exceeds the number of stores it may be forced to divest.

--

OldGeek.

Voyager referral code: https://refer.voyager.nz/6XQR2QG9Q

Handle9

11387 posts

Uber Geek

Trusted

Lifetime subscriber

#3076934 16-May-2023 21:38

OldGeek:

Handle9: Why would the government pay compensation? They didn’t compensate telecoms shareholders for unbundling. If an organisation has undue market influence then it’s to be expected that they could
be forced to restructure.

No one would be forced to make their business worthless, they would be forced to break them up into smaller entities. If it happened there would be winners and losers but that’s how it goes. There is no compensation for consumers who have potentially been effected by anticompetitive behaviour nor should there be compensation for forced restructuring.

This ignores two core differences:

Foodstuffs is not a monopoly spun out of a government department that became an SOE.

Foodstuffs operates as a co-operative (with shareholders being 100% store owner-operators) as it has for 101 years from the original company formed in 1922. There is therefore nothing in common with the evolution of Telecom and the situation today with the duopoly in the groceries business.

The formation of a duopoly has eventuated from various takeovers and mergers of Foodstuffs competitors. There is a long story on this including Commerce Commission takeover decisions appealed to the Privy Council.

The issue of divestment remains and for Foodstuffs to be forced to divest any stores is unique to the structure of a co-operative - it does not own the stores and its share register is 100% store owners. Woolworths NZ is not a co-operative and there are stores that are company-owned so the issue therefore does not arise as long as the number of company-owned stores exceeds the number of stores it may be forced to divest.

The ownership structure has no relevance to their market position. Telecom was a publicly traded company when it broke up. Who owned it in the past was not relevant to their undue influence on the market.

Handle9

11387 posts

Uber Geek

Trusted

Lifetime subscriber

#3076936 16-May-2023 21:42

ezbee:

Thing is they will not be forced out penniless into the night, as they can join the new Supermarket operation.

The Skills, Sites, Infrastructure still being needed for the new entrant.

Skills and years of experience in running these operations especially, will be of great value.

They should have been building up considerable wealth and assets from the operation as well giving them some choices of what to do with that.

Similar things happened to industries and business when import licensing came off many goods.
Those that lived off the import restrictions and exclusive licenses moved onto other things with the money they made.
When we dropped car assembly etc.

Many manufacturing enterprises and all the downstream business contracting to them had to move on.

Some new and dynamic businesses took on the opportunity that freedom offered and the maybe the market landscape ended up richer.

That and the discussion is around a breakup, not closing them down. Separating various parts of the organisation is certainly doable.

The company I worked for restructured a couple of years ago with roughly a third of the company being spun off into a separate organisation. The new entity had roughly 90,000 employees and operates in over 100 countries. It's a serious effort to restructure a large organisation but hardly unusual. It happens all the time with M&A activities.

ezbee

2405 posts

Uber Geek

#3076937 16-May-2023 21:42

The Government directly hit the 'value' of a large number of businesses when import licensing was removed on many items.

Businesses had to restructure, many closed and moved onto other things, but others took on new opportunities.
Manufacturing in particular was greatly hollowed out , but...
No compensation was offered, beyond the promise of more vital economy and extra 'different' business opportunities.

In this case Supermarkets people are not going to stop eating, washing, etc so those business opportunities will still exist.
So these operators are even better off as there is the demand there and their store will still be operating.

How rich are New Zealand's supermarket owners?
Melanie Carroll
05:00, Jul 31 2022
https://www.stuff.co.nz/business/industries/129403663/how-rich-are-new-zealands-supermarket-owners

""
Foodstuffs only allows the ownership of one supermarket at a time.
The co-op holds onto the land and buildings, while the franchisee owns everything inside and pays rent.
Foodstuffs also guaranteed loans for members, totalling about $650m across both North Island and South Island co-ops.
""
""
The Commerce Commission found that the two supermarket giants could be making $430 million a year in excess profits, following its investigation into the $22 billion groceries industry.
""
""
No-one from Countdown has made the rich list.
Australian owner Woolworths keeps ownership of the Countdown supermarkets, but it does franchise out the SuperValue and FreshChoice supermarkets.
""

quickymart

13933 posts

Uber Geek

ID Verified

#3153696 30-Oct-2023 13:30

A competitor bites the dust: https://www.stuff.co.nz/business/133202256/supie-goes-into-voluntary-administration-owing-3m

networkn

Networkn
32350 posts

Uber Geek

ID Verified

Trusted

Lifetime subscriber

#3154193 31-Oct-2023 19:25

Today I heard it mentioned on the radio, it's estimated you'd need $1.2B to enter the NZ Market. With no guarantee to get a return, private equity wouldn't be particularly interested. It would also almost certainly require the Government to force the sale of a number of supermarket sites to the new competitor along with the food distribution centres that go with it. It more or less goes against Nationals general position of letting the market decide things (which in many instances I agree with), however, I can't see us getting the competition required without said enforced action. Neither action, nor inaction, are ideal options. Forcing an operation to split up feels pretty heavy handed, but even if the Government was to loan a new entity half the funds, without sites and distribution, it wouldn't be an option.

On the balance, it probably feels like it's something that should happen, it would boost popularity in the populace at least, and is firm forward going action, but I can imagine the business community being somewhat concerned/unimpressed.

OldGeek

893 posts

Ultimate Geek

ID Verified

Lifetime subscriber

#3154201 31-Oct-2023 19:55

The reality that is that a new Supermarket chain is unlikely to happen for reasons well covered. That leaves the options for small players to collectively scale up over time. Supie would have been ideal being an online-only model. So are the Market operators (including Farmers markets) alond with independent retailers (fruit&vege, butchers etc). Collectively these could chip away at Supermarket dominance. I already do this - buying at Supermarkets only as a last resort.

--

OldGeek.

Voyager referral code: https://refer.voyager.nz/6XQR2QG9Q

Tradepub

Free professional, reference and technical white papers (affiliate link).

ezbee

2405 posts

Uber Geek

#3154209 31-Oct-2023 20:27

Our commerce commission probably flush with Libertarian market ideals allowed this to all happen.
Only having 2 competitors is just as good as having 3 according to said experts. :-)
Market will correct itself by Adam Smiths invisible hand.

That hand may just be a handshake to not compete too hard and the money train leaves the station.

Building supplies are also getting caught in this trap.

While some may eat away at the edges even 'The Warehouse' which crushed so many had to bow to power these had amassed.

I'm not sure what Adam Smith would make of a recent tale where a startup offering a highly competitive product was told by a supermarket.
Greatly increase your price to make the product more in line with similar products.
The $ turnover would then be more attractive to them.

Selling a lower priced product hurt their raw GP$, vs selling the established brands higher priced product.
The invisible hand of competition somewhat invisible.

There are also some funny goings on between farmgate and supermarket in large producer boards where competition is lacking.

ezbee

2405 posts

Uber Geek

#3156852 7-Nov-2023 08:59

Supermarket and Building Supply Duopoly power in action, on our dollar.

Lobbying and communications firm Senate's 'wildly inappropriate' contracts at Commerce Commission revealed
https://www.rnz.co.nz/news/lobbying/501838/lobbying-and-communications-firm-senate-s-wildly-inappropriate-contracts-at-commerce-commission-revealed

""
Staff from the Wellington consultancy SenateSHJ worked in the physical offices of the competition watchdog and were given Commerce Commission email addresses and devices.

With a senior Senate staffer charging himself out at $420 an hour, and junior staff at $195-$230 an hour, the Commerce Commission wracked up a bill of more than $300,000 between July 2020 and September 2022.
""
""
"It's completely inappropriate. It's wildly, wildly inappropriate," said Max Rashbrooke, an academic and author who has written extensively on lobbying and democracy.

Author, academic, and journalist Max RushbrookeMax Rashbrooke Photo: RNZ / Angus Dreaver
"If you've got a lobbying firm - whose job it is to get government decisions changed in favour of its clients - embedded right in the heart of government, then I think that's totally inappropriate," he said.
""

quickymart

13933 posts

Uber Geek

ID Verified

#3156858 7-Nov-2023 09:18

Jeez, I'm in the wrong line of work - that's some real good money to be made right there.

quickymart

13933 posts

Uber Geek

ID Verified

#3157043 7-Nov-2023 15:51

https://www.nzherald.co.nz/business/supermarket-heavyweight-foodstuffs-plans-consolidation-into-one-national-entity-strong-reaction-expected/OQFOFXQZKBHGPGABSIP5XRUUQY/

Would this be a good thing or a bad thing for competition? (I think bad).

Kyanar

4089 posts

Uber Geek

ID Verified

Trusted

#3157436 8-Nov-2023 21:55

What I find interesting is that Aldi Stores Ltd, owned entirely by Aldi Sud KG, has been on the NZ companies register's books for ... 23 years. Still active. Still registered. They file all their documents on time. Clearly they have intentions in NZ, but why haven't they made their move? Aldi has done a lot to keep the Aussie supermarkets if not honest, but a little less gougey.

Could be those nasty land covenants preventing use as a supermarket that Foodstuffs and Woolworths/Progressive kept leaving everywhere they went.

quickymart

13933 posts

Uber Geek

ID Verified

#3157441 8-Nov-2023 22:24

I find it kind of strange when I hear comments like "oh NZ is just too small a market" for another chain. Yet before all the mergers around 1999 weren't there several nationwide chains? Foodtown, Countdown, Woolworths, 3 Guys, New World, Pak'N'Save, etc.

Weren't they all independent back then, and doing reasonably well? I'm fairly sure our population in 1999 was a lot less than today, too.

Then some clown at the Commerce Commission thought it would be a great idea to let a number of the above brands merge, until eventually we ended up with the cosy duopoly we have today.

https://www.consumer.org.nz/articles/supermarkets-the-high-cost-of-food-in-new-zealand

Handle9

11387 posts

Uber Geek

Trusted

Lifetime subscriber

#3157457 9-Nov-2023 06:35

Kyanar:

What I find interesting is that Aldi Stores Ltd, owned entirely by Aldi Sud KG, has been on the NZ companies register's books for ... 23 years. Still active. Still registered. They file all their documents on time. Clearly they have intentions in NZ, but why haven't they made their move? Aldi has done a lot to keep the Aussie supermarkets if not honest, but a little less gougey.

Could be those nasty land covenants preventing use as a supermarket that Foodstuffs and Woolworths/Progressive kept leaving everywhere they went.

It's a $100 holding company. It may exist just for trademark protection.

Handle9

11387 posts

Uber Geek

Trusted

Lifetime subscriber

#3157459 9-Nov-2023 06:47

quickymart:

I find it kind of strange when I hear comments like "oh NZ is just too small a market" for another chain. Yet before all the mergers around 1999 weren't there several nationwide chains? Foodtown, Countdown, Woolworths, 3 Guys, New World, Pak'N'Save, etc.

Weren't they all independent back then, and doing reasonably well? I'm fairly sure our population in 1999 was a lot less than today, too.

Then some clown at the Commerce Commission thought it would be a great idea to let a number of the above brands merge, until eventually we ended up with the cosy duopoly we have today.

https://www.consumer.org.nz/articles/supermarkets-the-high-cost-of-food-in-new-zealand

The Foodstuffs brands (4 square, New World, Pak n Save) have always been Foodstuffs brands owned by their various cooperatives.

Progressive (Countdown, Foodtown, Price Chopper, 3 Guys, Big Fresh etc) aquired Woolworths in 2005. There haven't been independent supermarkets for a long time outside some specialty supermarkets like ethnic supermarkets.

Supermarkets are a scale business. The capital costs for aquiring sites, building distribution centres and working capital are very very large. Unless you get to scale you can't cover your fixed costs and tank money. Once you get past your fixed costs scale works in your favour and you print money as your operating margin effectively becomes net profit.

New Zealand has a small population and a large area. It's really not that attractive to enter unless there is some incentive. Most businesses could make more money entering other markets with lower barriers to entry and greater rewards.

1 | 2 | 3 | 4 | 5