Countdown supermarket scandal

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#994015 25-Feb-2014 11:58

scuwp:

...and you believe that just because they are NZ owned they won't use every trick in the book to wrangle better prices out of their suppliers to increase market share and profit? Naive much?

There's quite a big difference because Foodstuffs (New World, Pak n Save) is a cooperative, remember stores are owner operated, suppliers can negotiate with individual stores and or regions.

With Progressive (Countdown) the supplier must do one nationwide deal with head office.

Progressive obviously have a stronger bargaining position.

gzt

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#994049 25-Feb-2014 12:28

It seems there something similar is kicking off in Australia recently:

http://www.afr.com/p/business/companies/it_just_competition_woolworths_Bn9hRlPplaSB3jmRjo9pNL

Getting back to the NZ commerce commission - the question for them is whether this behavior is anti-competitive or will lead to less competition in the market. Just because a supplier has one major customer and that customer is a very demanding one does not make this an anticompetitive situation or abuse of market power. Imho at the end of the day the best the CC might do is issue a vaguely sympathetic warning statement to keep some politicians happy on both sides but make it clear it is not really an issue for the CC.

KiwiNZ: studied the "Woolworths" method and in particular its affect on Ralta

I'm not familiar with that situation and did not find any links. If it was a similar situation, how would you address this situation in practice?

Ragnor

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#994056 25-Feb-2014 12:37

It's a shame The Warehouse's experiment in retailing food didn't pan out, would have been great to have a sizeable third player.

Hopefully Aldi comes over here.

jonathan18

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#994096 25-Feb-2014 13:28

Ragnor:
scuwp:

...and you believe that just because they are NZ owned they won't use every trick in the book to wrangle better prices out of their suppliers to increase market share and profit? Naive much?

There's quite a big difference because Foodstuffs (New World, Pak n Save) is a cooperative, remember stores are owner operated, suppliers can negotiate with individual stores and or regions.

With Progressive (Countdown) the supplier must do one nationwide deal with head office.

Progressive obviously have a stronger bargaining position.

To back up earlier comments re these kinds of issues being not limited to Progressive - I queried the booze guy at my local Pak 'n' Slave as to the recent demise of a really signficant range of beers from the store (I'm talking mainstream stuff like Montetihs and Macs dozens - only two varietites of the former, none of the latter). He said that, as a result of a merger between the two NI Foodstuffs (Wellington-and Auckland-based), they were now getting direct orders from Auckland HQ to drop large numbers of items from their shelves. It was hundreds of items being deleted in alcohol, and he said this was being replicated across the whole store (and PnS has already gone through such reduction in stock variety before). So, yes Foodstuffs may operate as a cooperative, but if what I've been told is correct clearly there is a high degree of central control as to what stores stock, leading to less consumer choice.

mattwnz

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#994117 25-Feb-2014 13:31

jonathan18:
Ragnor:
scuwp:

...and you believe that just because they are NZ owned they won't use every trick in the book to wrangle better prices out of their suppliers to increase market share and profit? Naive much?

There's quite a big difference because Foodstuffs (New World, Pak n Save) is a cooperative, remember stores are owner operated, suppliers can negotiate with individual stores and or regions.

With Progressive (Countdown) the supplier must do one nationwide deal with head office.

Progressive obviously have a stronger bargaining position.

To back up earlier comments re these kinds of issues being not limited to Progressive - I queried the booze guy at my local Pak 'n' Slave as to the recent demise of a really signficant range of beers from the store (I'm talking mainstream stuff like Montetihs and Macs dozens - only two varietites of the former, none of the latter). He said that, as a result of a merger between the two NI Foodstuffs (Wellington-and Auckland-based), they were now getting direct orders from Auckland HQ to drop large numbers of items from their shelves. It was hundreds of items being deleted in alcohol, and he said this waso being replicated across the whole store (and PnS has already gone through such reduction in stock variety before). So, yes Foodstuffs may operate as a cooperative, but if what I've been told is correct clearly there is a high degree of central control as to what stores stock, leading to less consumer choice.

Yeah, the range at pns is very poor, which is why people shop at countdown. It is a pity there isn't real competition anymore on this area of the ns market, but it isn't unique.

Fred99

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#994124 25-Feb-2014 13:47

Ragnor:

Hopefully Aldi comes over here.

It looked promising a few years ago - Aldi even had a NZ website back in the mid '00s, with messages about opening sometime.
Still registered, but now just a redirect to aldi.com.au

There's no incentive for new players to invest in the NZ supermarket business. NZ Commerce Commission has repeatedly demonstrated that they don't care about monopoly power in the NZ market, and don't prosecute predatory business practice.
The recent monopolization of practically the whole NZ insurance industry is one example, another was the predatory differential pricing by Telecom of phone/line rental charges, sharply dropping prices - but only to customers who were in the areas where Saturn were planning to offer services.

This kind of situation (ie one insurer having a massive and dominant market share - "disguised" by having operating units selling under different "brands", or predatory pricing as in the case of Telecom/Saturn) would likely be opposed by competition regulators / consumer protection legislation in most of NZ's first world trading partner nations.

Jas777

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#994143 25-Feb-2014 14:19

Fred99,

Or maybe ALDI or even a COSTCO type supermarket chain realise that the sell a lot for a low margin model doesn't work in small population country like NZ with high transport and distribution costs.

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mattwnz

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#994144 25-Feb-2014 14:25

Fred99:
Ragnor:

Hopefully Aldi comes over here.

It looked promising a few years ago - Aldi even had a NZ website back in the mid '00s, with messages about opening sometime.
Still registered, but now just a redirect to aldi.com.au

There's no incentive for new players to invest in the NZ supermarket business. NZ Commerce Commission has repeatedly demonstrated that they don't care about monopoly power in the NZ market, and don't prosecute predatory business practice.
The recent monopolization of practically the whole NZ insurance industry is one example, another was the predatory differential pricing by Telecom of phone/line rental charges, sharply dropping prices - but only to customers who were in the areas where Saturn were planning to offer services.

This kind of situation (ie one insurer having a massive and dominant market share - "disguised" by having operating units selling under different "brands", or predatory pricing as in the case of Telecom/Saturn) would likely be opposed by competition regulators / consumer protection legislation in most of NZ's first world trading partner nations.

Yes some industries lack any regulation, while others are overly regulated, to such an etent that it affects share value to shareholders, who see NZ as a bit like the wild west to invest in. The NZ building sector is one area that is in urgent need of regulation of some type, as in many parts of the building materials sector companies largely have monopolies, and NZers are paying more than they should, which means less money to spend in the rest of the economy. Some materials have multiple brands, but if you track them back to who owns them, many are owned by the same overseas parent company.

Kyanar

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#994183 25-Feb-2014 15:16

jonathan18:
To back up earlier comments re these kinds of issues being not limited to Progressive - I queried the booze guy at my local Pak 'n' Save as to the recent demise of a really signficant range of beers from the store (I'm talking mainstream stuff like Montetihs and Macs dozens - only two varietites of the former, none of the latter). He said that, as a result of a merger between the two NI Foodstuffs (Wellington-and Auckland-based), they were now getting direct orders from Auckland HQ to drop large numbers of items from their shelves. It was hundreds of items being deleted in alcohol, and he said this was being replicated across the whole store (and PnS has already gone through such reduction in stock variety before). So, yes Foodstuffs may operate as a cooperative, but if what I've been told is correct clearly there is a high degree of central control as to what stores stock, leading to less consumer choice.

That's to do with the purchasing model. Foodstuffs can claim cheaper prices as they purchase in massive quantities (much larger than what Progressive does) but maintain a much smaller range. Basically, they make up for less choice with more sheer quantity. This means they can browbeat suppliers into charging them less as massive volume is on the line, and can essentially set the terms (much as Walmart in America do).

Side note, I'd remind you that the FUG prohibit referring to companies by derogatory names, and I'd suggest editing your post before a moderator does.

Fred99

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#994217 25-Feb-2014 15:59

mattwnz:
Fred99:
Ragnor:

Hopefully Aldi comes over here.

It looked promising a few years ago - Aldi even had a NZ website back in the mid '00s, with messages about opening sometime.
Still registered, but now just a redirect to aldi.com.au

There's no incentive for new players to invest in the NZ supermarket business. NZ Commerce Commission has repeatedly demonstrated that they don't care about monopoly power in the NZ market, and don't prosecute predatory business practice.
The recent monopolization of practically the whole NZ insurance industry is one example, another was the predatory differential pricing by Telecom of phone/line rental charges, sharply dropping prices - but only to customers who were in the areas where Saturn were planning to offer services.

This kind of situation (ie one insurer having a massive and dominant market share - "disguised" by having operating units selling under different "brands", or predatory pricing as in the case of Telecom/Saturn) would likely be opposed by competition regulators / consumer protection legislation in most of NZ's first world trading partner nations.

Yes some industries lack any regulation, while others are overly regulated, to such an etent that it affects share value to shareholders, who see NZ as a bit like the wild west to invest in. The NZ building sector is one area that is in urgent need of regulation of some type, as in many parts of the building materials sector companies largely have monopolies, and NZers are paying more than they should, which means less money to spend in the rest of the economy. Some materials have multiple brands, but if you track them back to who owns them, many are owned by the same overseas parent company.

Yes - that's about right IMO.
Media pressure and political expediency seems to determine what gets investigated - and what doesn't.
On the building material supply side, there's been a bit of publicity about it lately, and what do you know, there was a recent prosecution of one of the hardware chains for price fixing (they got dobbed in by the competitor also involved in price fixing - offered immunity for getting in first). Slap with a wet bus ticket - then back to business as usual. Doesn't explain why prices in NZ are double (ie drywall) to 4x (ie framing timber) the price for the same or equivalent materials in the US. Doesn't explain why NZ sawmills seem to be going bust despite high prices. Some difference can be explained by economies of scale, but not to that extent - and not for basic standard commodity products which turn over relatively quickly.

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#997616 2-Mar-2014 16:40

Ragnor: It's a shame The Warehouse's experiment in retailing food didn't pan out, would have been great to have a sizeable third player.

Hopefully Aldi comes over here.

It's entirely plausible that Aldi does. For the last decade or so, Aldi Stores Limited has remained dutifully registered with the Companies Office by some folks in Sydney, filing their annual returns via their agents at KPMG... Noone retains KPMG and keeps doing the paperwork for a company that will never actually trade.

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#997701 2-Mar-2014 18:38

Kyanar:
jonathan18:
To back up earlier comments re these kinds of issues being not limited to Progressive - I queried the booze guy at my local Pak 'n' Save as to the recent demise of a really signficant range of beers from the store (I'm talking mainstream stuff like Montetihs and Macs dozens - only two varietites of the former, none of the latter). He said that, as a result of a merger between the two NI Foodstuffs (Wellington-and Auckland-based), they were now getting direct orders from Auckland HQ to drop large numbers of items from their shelves. It was hundreds of items being deleted in alcohol, and he said this was being replicated across the whole store (and PnS has already gone through such reduction in stock variety before). So, yes Foodstuffs may operate as a cooperative, but if what I've been told is correct clearly there is a high degree of central control as to what stores stock, leading to less consumer choice.

That's to do with the purchasing model. Foodstuffs can claim cheaper prices as they purchase in massive quantities (much larger than what Progressive does) but maintain a much smaller range. Basically, they make up for less choice with more sheer quantity. This means they can browbeat suppliers into charging them less as massive volume is on the line, and can essentially set the terms (much as Walmart in America do).

Side note, I'd remind you that the FUG prohibit referring to companies by derogatory names, and I'd suggest editing your post before a moderator does.

Foodstuffs don't buy in larger quantities.

They were 3 different Co-operative societies that had very little to do with each other. Compare this to Progressive that were one entity buying for the entire country. This is one of the main reasons Foodstuffs Wellington and Auckland merged - so they could gain leverage to compete with Progressive.

Foodstuffs also stock significantly greater SKUs than Countdown stores as many individual stores carry local products, whereas Countdown have to buy everything through their distribution centres.

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#997713 2-Mar-2014 18:52

Ragnor: It's a shame The Warehouse's experiment in retailing food didn't pan out, would have been great to have a sizeable third player.

Hopefully Aldi comes over here.

The Warehouse simply couldn't be competitive and couldn't drive volume. You only need to look at their food pricing now to realise how expensive they were (and still are) - basic things such as chippies, biscuits and soft drinks are all far higher than you'll pay at a Foodstuffs or Progressive store.

JimmyH

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#997732 2-Mar-2014 19:26

mattwnz:

Yes some industries lack any regulation, while others are overly regulated, to such an etent that it affects share value to shareholders, who see NZ as a bit like the wild west to invest in. The NZ building sector is one area that is in urgent need of regulation of some type, as in many parts of the building materials sector companies largely have monopolies, and NZers are paying more than they should, which means less money to spend in the rest of the economy. Some materials have multiple brands, but if you track them back to who owns them, many are owned by the same overseas parent company.

We don't need more regulation, and we aren't a wild west. In many ways we are regulated to death already. The issue here is that there are a couple of key sectors of the economy (supermarkets, building materials) where there is excessive concentration of market power, that lets the incumbents extract monopoly/monopsony rents. What is needed is for the Commerce Commission to do its job and actually enforce the Commerce Act. The three supermarket chains should never have been allowed to merge down to two, and IMO there is a strong case for forcing a break-up. Same with the building supplies industry.

In a number of cases (eg cellphones) it's already obvious what going from two, to three or more, providers can accomplish. They loose a substantial amount of their market power, have to compete much harder on price and value, and see their margins come back down to more normal levels. The consumer wins. Big time.

Forcing the two existing big supermarket players to split into 3-4 competing companies would accomplish much more than any wet-bus-ticket regulation, supervision or risible codes of conduct.

Edit: grammar

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#997764 2-Mar-2014 20:23

JimmyH:
Forcing the two existing big supermarket players to split into 3-4 competing companies would accomplish much more than any wet-bus-ticket regulation, supervision or risible codes of conduct.

What do you think it will accomplish? Competition between both players is incredibly intense, and anybody who hasn't been involved in the industry won't have a clue in the world intense things really are.

Supermarkets are a low margin high volume business. This is very different to the case we had with 2 mobile players who were a high margin high volume business.

I can't give exact figures because I'd have to look them up again but Progressive have spent somewhere in the vicinity of 50% of profits over the past ~4 years in store modernisation and new stores. Foodstuffs Wellington has merged with Foodstuffs Auckland because it made financial sense to do that to try and compete with Progressive.

Yes there is money to be made in supermarkets but I can't emphasise enough how intense things actually are. This is not a duopoly that may exist in other markets with only two players, it's basically a full on war between both players.

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