Commerce Commission Report on Grocery Sector

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#2754596 3-Aug-2021 17:16

tdgeek:

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.

None of my local supermarkets are really busy (comparison with supermarkets in cities in Aus) except at a few peak times. Apart from the 3:00pm school run and Saturday afternoons which I try to avoid, I never seem to end up in a queue waiting for manned or self-checkouts. This in Chch - maybe it's different in other centres - where others mention problems with consents for planned supermarkets.

So maybe we're at close to or over ideal capacity, hence IIRC one of the CommComm recommendations was to split the duopoly by forcing sale of supermarkets to a third chain.

If new supermarkets were opened then they'll be parasitic on sales at existing nearby supermarkets, not increase sales in the sector. If fixed costs remain constant, then prices would have to go up to cover lower sales per supermarket, overall nobody is going to win.

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#2754612 3-Aug-2021 18:07

Fred99:

tdgeek:

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

None of my local supermarkets are really busy (comparison with supermarkets in cities in Aus) except at a few peak times. Apart from the 3:00pm school run and Saturday afternoons which I try to avoid, I never seem to end up in a queue waiting for manned or self-checkouts. This in Chch - maybe it's different in other centres - where others mention problems with consents for planned supermarkets.

So maybe we're at close to or over ideal capacity, hence IIRC one of the CommComm recommendations was to split the duopoly by forcing sale of supermarkets to a third chain.

If new supermarkets were opened then they'll be parasitic on sales at existing nearby supermarkets, not increase sales in the sector. If fixed costs remain constant, then prices would have to go up to cover lower sales per supermarket, overall nobody is going to win.

In my area, there are multiple brands, but still two main operators. So there maybe 4 different supermarket stores and brands, but operated by two companies. So I suspect that some of those additional branded stores would consolidate if there was a third of fourth new entrant in the market. So you actually have 3 or 4 different super market companies operating in the city, one for each of the stores

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#2754829 3-Aug-2021 22:00

My strong suspicion is that a lot of hot air will be produced and then this will settle back down to BAU.

If the government wants to "do something" it can remove 15% tax off food by the end of the week. It won't - it does very nicely out of the high prices the supermarkets charge because the higher the prices are, the bigger their 15% slice of them is.

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#2754880 4-Aug-2021 07:20

Geektastic:

My strong suspicion is that a lot of hot air will be produced and then this will settle back down to BAU.

If the government wants to "do something" it can remove 15% tax off food by the end of the week. It won't - it does very nicely out of the high prices the supermarkets charge because the higher the prices are, the bigger their 15% slice of them is.

If they did that, thats not dealing with the core problem, anti competitiveness. Consumer prices are the result. Its like seeing an oil leak and just adding oil to solve the oil level problem. Plus, would prices drop 13%? if they dropped 9%. there goes more cream, the Govt thus has funded from our taxes, a rebate for my groceries and also to the chain's bottom lines.

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#2754895 4-Aug-2021 08:16

Geektastic:

My strong suspicion is that a lot of hot air will be produced and then this will settle back down to BAU.

If the government wants to "do something" it can remove 15% tax off food by the end of the week. It won't - it does very nicely out of the high prices the supermarkets charge because the higher the prices are, the bigger their 15% slice of them is.

The beauty of our GST implementation is that there are zero exceptions. This makes it the perfect consumption tax in many ways, and avoids all the pitfalls of countries like Australia who have complex systems where some food is included and some isn't.

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#2755229 4-Aug-2021 18:47

sbiddle:
Geektastic:

My strong suspicion is that a lot of hot air will be produced and then this will settle back down to BAU.

If the government wants to "do something" it can remove 15% tax off food by the end of the week. It won't - it does very nicely out of the high prices the supermarkets charge because the higher the prices are, the bigger their 15% slice of them is.

The beauty of our GST implementation is that there are zero exceptions. This makes it the perfect consumption tax in many ways, and avoids all the pitfalls of countries like Australia who have complex systems where some food is included and some isn't.

I suppose whether you think that is beautiful depends upon whether you think taxing food is appropriate.

Geektastic

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#2755230 4-Aug-2021 18:49

tdgeek:
Geektastic:

My strong suspicion is that a lot of hot air will be produced and then this will settle back down to BAU.

If the government wants to "do something" it can remove 15% tax off food by the end of the week. It won't - it does very nicely out of the high prices the supermarkets charge because the higher the prices are, the bigger their 15% slice of them is.

If they did that, thats not dealing with the core problem, anti competitiveness. Consumer prices are the result. Its like seeing an oil leak and just adding oil to solve the oil level problem. Plus, would prices drop 13%? if they dropped 9%. there goes more cream, the Govt thus has funded from our taxes, a rebate for my groceries and also to the chain's bottom lines.

They won't do it and neither did I expect them to when they have a vested interest in not doing anything to lower prices regardless of what that might be.

AliExpress

Shop now on AliExpress (affiliate link).

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#2755272 4-Aug-2021 20:37

Geektastic:

I suppose whether you think that is beautiful depends upon whether you think taxing food is appropriate.

You could stop tax on food, then GST has to increase to cover that. What about GST on salmon? GST on nappies? They are more important than salmon. It gets very sticky when food is anything from staples to luxuries.

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#2755402 5-Aug-2021 07:55

tdgeek:

Geektastic:

I suppose whether you think that is beautiful depends upon whether you think taxing food is appropriate.

You could stop tax on food, then GST has to increase to cover that. What about GST on salmon? GST on nappies? They are more important than salmon. It gets very sticky when food is anything from staples to luxuries.

You can't *not* tax food. There is nowhere in the world I'm aware of that doesn't have a consumption tax on food.

What is different is how different countries approach this, and many do have exemptions for some foodstuffs typically around processed and unprocessed foods. It's these exemptions that are crazy, and out approach of simply taxing everything is so much simpler.

How crazy is it in Australia that baked pita chips are GST free but fried pita chips are taxable? A chilled samosa in a deli is GST free but the second you put it in a warmer to sell that same product hot it now needs to include GST. A whole chicken is GST free when sold raw - when that same chicken is then cooked it has to include GST, but if it's not sold and then sold as cold chicken pieces or a whole cold cooked chicken the GST it does not include GST again.

GST is one of the reasons food is more expensive here (and that reason is overlooked by so many people, and especially people who love comparing prices grocery prices between countries), but the simplicity of our system where there are no loopholes or exceptions makes enforcement very easy.

I don't have a current figure (and a quick Google search isn't helping) but my recollection of Australia around 10 years ago when I was working in the industry was that at that point about 60% of food sold in supermarkets was non taxable and about 40% taxable. I don't know how that compared today, but if you're to took at the size of the NZ supermarket business at around $22 billion (GST excl) we are paying a huge amount in GST to the government in food, but removing GST would also be a massive hit in revenue that the govt would have to find elsewhere probably by simply raising income taxes.

Fred99

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#2755546 5-Aug-2021 11:19

One of the reasons why food and other essentials weren't excluded from GST when it was introduced in 1986 don't apply so much now.

Back then bar code scanning was new, checkout operators manually entered prices from price stickers, memory, or list by the till, the cash register roll probably used to tally up the daily take against cash cheques and eftpos or manual credit card slips in the till.

Most countries seem to be able to manage not applying (or at a reduced rate) GST/VAT to basic items and foodstuffs these days without it being a "problem" let alone a disaster. I really don't think the "simplicity" factor is such a strong argument for universal GST any more.

What some people might object to is that if any change was to be revenue neutral, then the rate of GST would have to be increased on everything else, or income taxes etc would have to be increased.

Fred99

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#2755551 5-Aug-2021 11:32

tdgeek:

You could stop tax on food, then GST has to increase to cover that. What about GST on salmon? GST on nappies? They are more important than salmon. It gets very sticky when food is anything from staples to luxuries.

OT but maybe there should be a question as to why salmon or other fish should be a "luxury" food anyway.

Maybe I have rose tinted spectacles on, but when I was a kid living in small town NZ, snapper was a staple in our single not very high income house with 3 kids. It was cheap food, probably not eaten widely except perhaps in Catholic households on Friday - as used to be a thing and possibly still is according to my local fishmonger - Friday is still by far the busiest day for him. Paua patties were budget tucker at the local F&C shop. Chicken was luxury food.

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#2755579 5-Aug-2021 12:39

Clearly none of you who are wanting GST excluded have never had to work in a business that takes GST exempt items and produces products that have GST need to be collected on. You cant claim it back if its not paid, you have to apportion the GST around between products cost prices etc. Pain in the .... .

Also you cant claim GST back on the input costs for the output being free of GST, so what about the advertising costs? How do you decide how much was for the different products? Again, right pain.

Do you expect the little dairy that sells veges to be able to comply and produce legit invoices that are correct? They cant even handle their current exempt products they sell which are nice cut and dry simple things.

The price on the shelf is set by what people will pay. Take off GST and the price will not change, only what the govt collects.

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Fred99

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#2755635 5-Aug-2021 12:59

So how's that managed in the vast majority of other countries - that have zero or reduced rate VAT on food/essential items?

GV27

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#2755640 5-Aug-2021 13:07

Fred99:

So how's that managed in the vast majority of other countries - that have zero or reduced rate VAT on food/essential items?

I know in the case of Australia they initially held our model up as the ideal solution for sheer simplicity of administration. The concessions on food and other items were purely politically-based.

Supposedly it led to some stuff like basic food items like bread being exempt but filled rolls not being exempt. I'm not familiar enough with their rules to confirm whether this is actually true or not but it was the example I remember hearing most about.

I remain unconvinced about whether it is worth doing or not here. Partially because our system is so simple and already in place, but also because the Heart Foundation suggested that the main beneficiaries of exempting 'healthy food' (once defined) would primarily benefit higher income households because it makes up a higher portion of their total food spend.

However given we can't agree on a food labeling standard and our health star ratings are barely worth the ink they're printed with, I'm not sure I entirely trust our legislature to define what is and isn't healthy food in the first place.

Fred99

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#2755653 5-Aug-2021 13:30

GV27:

I remain unconvinced about whether it is worth doing or not here. Partially because our system is so simple and already in place, but also because the Heart Foundation suggested that the main beneficiaries of exempting 'healthy food' (once defined) would primarily benefit higher income households because it makes up a higher portion of their total food spend.

Well I guess the intention would be to try to change that by making healthy food cheaper for less wealthy people. Probably won't work anyway.

I'm unconvinced too, but it's interesting that NZ has one of the highest returns from VAT/GST expressed as % of GDP PPP per capita. Some consider GST a "flat tax" others consider it regressive, and I do not buy into the argument posted by someone else above that if GST was removed from food that supermarkets would absorb the 15% as profit and not pass it on to consumers. That could only happen if there was no competition at all, a rather worse situation than the inadequate competition the CC suggest. I've heard that argued before with fresh produce used as an example which is possibly more plausible, but I still don't believe it.

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