Commerce Commission Report on Grocery Sector

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#2754032 2-Aug-2021 20:28

mattwnz:

A part of Auckland could be getting Costco. But can't see people traveling specially to it just to get groceries. The problem when you allow a duopoly to continue to decades, is that it is almost impossible to rewind. NZers have paid a huge cost as a result IMO.

I do wonder why more money and resources isn't put into our competition watchdog, considering how important it is to ensure NZers are getting good value. Took them ages to sort out the telcos, and people must spend far more on food than telecommunications.

Costco is a destination shop, not somewhere you go for your milk and bread.

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#2754041 2-Aug-2021 20:43

With all of this reminiscing about The Warehouse's ill-fated foray into the grocery sector, if a large enough player thought they could make a go of it in New Zealand, they could always make a play to acquire The Warehouse Group (and potentially sell off most of the subsidiaries or exclude them from the acquisition) if they could stomach the current NZ$1.2B market cap (and obvious premium a full takeover would take, assuming they could get Stephen Tindall and the Norman family onboard). That would give them 90 large format stores to avoid the huge obstacle of finding suitable real estate. They could then utilize their own brand to minimize The Warehouse stereotype if they felt that was a better option for the grocery part of the stores.

The white elephant in the room being that the current duopoly could quickly try and acquire enough shares to block the compulsory acquisition, although maybe the ComCom might have more teeth to block them from doing so since they have both sold their stakes in recent years and were previously blocked from acquiring The Warehouse outright.

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#2754075 2-Aug-2021 21:03

empacher48:

Anyone who thinks there is going to be massive change in this space must be quite deluded.

If you want to see what is going to happen to the supermarket business, then take a look at what has changed in the Petrol market.

They were legislated to make sure that any body can purchase fuel from the same wholesalers at the same rate as the wholesalers charged themselves, this was to encourage more participants.

So far all I've seen is NPD appearing in South Auckland. But the prices of that fuel never changed, there wasn't a reduction in price in those areas where NPD appeared, in fact NPD just raised their prices to match Gull, which was the same price as was charged at the nearest Z, BP or Mobil site.

If the decision is made to separate the wholesalers from the retailers in the Grocery game, prices will go up. At the moment with the integrated vertical supply chains is that it doesn't matter if the wholesaler makes a profit, that profit will come from the retailer selling to the public. Separate the two and it means the wholesalers will be less likely to be accepting of running losses or small margins (the business still has to make a profit to survive and without the retailer providing a share of the profit from the public, they have to make it themselves selling to retailers). Those increases will just be passed onto the retailer, who will either have to accept a smaller profit or raise prices.

All that separating the wholesalers from the retailers will do is make it slightly cheaper for a new retailer to enter the market, or have more "mum and dad" dairies. But, that is what we were promised with the fuel companies. But yet, there hasn't been the huge increase in smaller independent fuel retailers.

You mistook the ComCom as being somebody who cares about consumers getting the best deal. They don't. All they care about it that the regulatory environment works in what they deem to be a competitive environment. This does not (and never has equated to) consumers getting the best deal.

The money wasted on the fuel inquiry has achieved precisely nothing for consumers. Some other retails chains are now paying more for fuel than they did previously due to terminal gate pricing, stupid loyalty discounts still offer extra discounts every week, and the margin between 91 and 95 has more than doubled in many areas. Consumers in some parts of the country are still cross subsidising others.

It's almost ironic now that after being told they're the ones ripping off consumers that in places like Lower Hutt, petrol is around 15cpl cheaper at New World and Pak n Save than nearby BP, Z or Mobil.

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#2754081 2-Aug-2021 21:10

Mahon:

I think most of NZ would agree that we are paying way too much for our shop. Something has to change. Not only did Comcom find this but they also found that we wernt getting the choices of products that is available in other countries. I assume they meant Australia mainly. Key issues seem to be in supply chain from producer to supermarket. Maybe too many getting click of the ticket.

Define "choice of products".

The number of SKU's in stores here varies a lot by brand and store size. A typical New World store will carry very similar numbers of SKU's to comparable full service supermarkets overseas, whereas the whole business model of a Pak n Save store is a reduced range.

Globally supermarkets have been trying to cut the number of SKU's for much of the last decade, because carrying lots of dead stock simply doesn't make sense.

As for the supply chain from producer to supermarket it couldn't be simpler than what it is now. A company delivers a product to the Countdown or Foodstuffs DC and it's then delivered to stores. There are no people clipping the ticket except for Foodstuffs and Countdown themselves.

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#2754189 3-Aug-2021 07:25

mattwnz: I could never get over that they allowed the market to get into a duopoly situation. I wonder how much it has cost NZers as a result. I remember when TV3 used to do comparison shopping a good decade ago showing how much more we paid compared to other countries. I don't think they are going to be able to do too much now to solve it. Is similar to many things including the housing crisis. They have been left for too long without action.

Your probably right. The Telecom breakup and 2Degrees is quite a good example though. Especially as if the big two were to dispose of x number of locations, a new player can repaint the stores and setup shop, so logistically it could be relatively easy. Abuse of suppliers is the hard one

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#2754198 3-Aug-2021 08:01

tdgeek:

mattwnz: I could never get over that they allowed the market to get into a duopoly situation. I wonder how much it has cost NZers as a result. I remember when TV3 used to do comparison shopping a good decade ago showing how much more we paid compared to other countries. I don't think they are going to be able to do too much now to solve it. Is similar to many things including the housing crisis. They have been left for too long without action.

Your probably right. The Telecom breakup and 2Degrees is quite a good example though. Especially as if the big two were to dispose of x number of locations, a new player can repaint the stores and setup shop, so logistically it could be relatively easy. Abuse of suppliers is the hard one

I fail to see any real link between supermarkets and Telecom.

Telecom owned the copper infrastructure that connected 100% of premises in NZ. Supermarkets simply own premises and operate a business, they don't own the roads and charge other supermarket companies more to use the roads connecting the stores than they charge themselves.

Owning some stores is all great, but the difficult part is establishing the DCs and building a supply chain to service those DCs and stores. Without that you can't do anything.

One of the single biggest issues with grocery pricing here had been the historical move towards a Briscoes model of pricing that was being driven by both suppliers and chains. NZers have an obsession with only buying things on special that was driven by stores like Briscoes adopting that as their model, and it being followed by others.

People feel they're getting a bargain when something is 50% off, and that would drive sales. Suppliers would offer big rebates for specials all while pushing up normal cost prices in an attempt to average things out. This resulted in stupid situations for example where you'd see three brands of 6 pack yoghurt in a store and each week one would be $2.99 and then it'd go back to $6 for the next 2 weeks until it came on special again.

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#2754200 3-Aug-2021 08:10

A duopoly operate a business that is 92% of the grocery market, thus others cannot enter, and where competition does not exist, its not vastly that different.

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#2754217 3-Aug-2021 08:53

In a former life in banking, I had close contact with a number of Pak’nSave and New World owners and was privy their personal positions. The business profits and the incomes these guys make are massive - particularly in Pak’nSave. The businesses are expensive to buy into or establish - and require specific skills to operate well. However, even allowing for the scale of the businesses and the capital invested, the returns being made were outrageous.

Even to a banker who might be expected to worship the dollar and applaud profit, I found the money being harvested from these businesses almost repulsive. I am the opposite of a socialist and this is nothing to do with envy - but I really believe something is very wrong here.

Sometimes I just sit and think. Other times I just sit.

Mahon

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#2754350 3-Aug-2021 11:56

sbiddle:

Mahon:

I think most of NZ would agree that we are paying way too much for our shop. Something has to change. Not only did Comcom find this but they also found that we wernt getting the choices of products that is available in other countries. I assume they meant Australia mainly. Key issues seem to be in supply chain from producer to supermarket. Maybe too many getting click of the ticket.

Define "choice of products".

The number of SKU's in stores here varies a lot by brand and store size. A typical New World store will carry very similar numbers of SKU's to comparable full service supermarkets overseas, whereas the whole business model of a Pak n Save store is a reduced range.

Globally supermarkets have been trying to cut the number of SKU's for much of the last decade, because carrying lots of dead stock simply doesn't make sense.

As for the supply chain from producer to supermarket it couldn't be simpler than what it is now. A company delivers a product to the Countdown or Foodstuffs DC and it's then delivered to stores. There are no people clipping the ticket except for Foodstuffs and Countdown themselves.

I was just repeating what the Comcom report stated.

tchart

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#2754424 3-Aug-2021 13:59

Target/Walmart in the US have reasonable grocery sections. I don't see why the warehouse couldn't do something similar especially if it's non perishable stuffs. I do occasionally but milk from the warehouse if I'm there and it saves a trip to countdown.

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#2754426 3-Aug-2021 14:04

tchart: Target/Walmart in the US have reasonable grocery sections. I don't see why the warehouse couldn't do something similar especially if it's non perishable stuffs. I do occasionally but milk from the warehouse if I'm there and it saves a trip to countdown.

They would need to establish trading links with suppliers, that may be an issue?

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#2754482 3-Aug-2021 14:16

tdgeek:

tchart: Target/Walmart in the US have reasonable grocery sections. I don't see why the warehouse couldn't do something similar especially if it's non perishable stuffs. I do occasionally but milk from the warehouse if I'm there and it saves a trip to countdown.

They would need to establish trading links with suppliers, that may be an issue?

The whole thing in NZ seems really complex. Just finding building sites for a new supermarket competitor would be difficult in many areas due to the lack of consented and zoned land. The warehouse stores would likely need to increase a lot in size to sell in the scale needed, and many would be landlocked. It is a very difficult thing. I suspect a similar separation for ISPs from the infrastructure may occur, with retailers and the supply chain. NZ seems to be a difficult country for new entrants in certain areas of the market

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#2754500 3-Aug-2021 14:38

Also comparing this to the petrol thing, it was in the govts interest to keep fuel prices going up to drive EV sales to meet their other needs. Not the case with supermarkets.

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tdgeek

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#2754509 3-Aug-2021 14:45

mattwnz:

The whole thing in NZ seems really complex. Just finding building sites for a new supermarket competitor would be difficult in many areas due to the lack of consented and zoned land. The warehouse stores would likely need to increase a lot in size to sell in the scale needed, and many would be landlocked. It is a very difficult thing. I suspect a similar separation for ISPs from the infrastructure may occur, with retailers and the supply chain. NZ seems to be a difficult country for new entrants in certain areas of the market

I imagine they would need to divest some sites, so that's sites taken care of. Team up with Warehouse, etc, be innovative.

GV27

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#2754510 3-Aug-2021 14:47

mattwnz:

The whole thing in NZ seems really complex. Just finding building sites for a new supermarket competitor would be difficult in many areas due to the lack of consented and zoned land. The warehouse stores would likely need to increase a lot in size to sell in the scale needed, and many would be landlocked. It is a very difficult thing. I suspect a similar separation for ISPs from the infrastructure may occur, with retailers and the supply chain. NZ seems to be a difficult country for new entrants in certain areas of the market

I'm not sure how the supply chain being separate from retail addresses the land cost issue though.

There seems to be an unwritten rule in this country that you do not ever contemplate the effect of higher land prices on living costs and do not intervene in any way, or even question it.

If it affects houses (my 1970s built standard issue Westie three bedder which is worth nothing but the land underneath it has rocketed in price) then it's logical to assume it affects big-box retail and commercial.

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