Commerce Commission Report on Grocery Sector

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CruciasNZ

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#288875 29-Jul-2021 09:54

For those who want to read the Executive Summary of the CC report, it's ~ 18 pages once you discard Table of Contents, Blanks, Covers etc. Skim read hasn't produced anything I didn't expect, but I intend to read it fully over the next few days. Not sure if I'll make a public submission on the report, but it's important enough to me to consider it if I find anything.

https://comcom.govt.nz/__data/assets/pdf_file/0024/260376/Market-study-into-the-retail-grocery-sector-Draft-report-Executive-summary-29-July-2021.pdf

PS: Couldn't see a thread on this already even when searching, so apologies if I am not first.

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#2751667 29-Jul-2021 10:02

Bring in Aldi please.

tdgeek

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#2751671 29-Jul-2021 10:07

Its a difficult one. Duopoly means psuedo price fixing by maintaining prices and margins and not competing with those. Suppliers are held by the short and curlies

If these options were not feasible, had proved ineffective, or did not appear likely to improve retail competition within the desired timeframe, another potential option was to directly stimulate retail competition by creating a further major grocery retailer

That would work, but hard to see a Govt creating that from scratch unless they headhunted skilled operators from the duopoly. Better to support a new entrant who can mop up suppliers here "supply us and feel free to supply the other two as well if you wish"

All it needs is competing on price which we don't have here in NZ

floydbloke

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#2751674 29-Jul-2021 10:09

I've seen the (rather predictable) media headlines...........wouldn't be surprising if this thread gets moved to the Finance & Wealth Management topic 😜.

Did Eric Clapton really think she looked wonderful...or was it after the 15th outfit she tried on and he just wanted to get to the party and get a drink?

tdgeek

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#2751680 29-Jul-2021 10:17

floydbloke:

I've seen the (rather predictable) media headlines...........wouldn't be surprising if this thread gets moved to the Finance & Wealth Management topic 😜.

Or the topic for great ideas that won't see the light of day. It keeps the public happy to read what we are doing to sort these issues, but thats all that will happen, media articles

CruciasNZ

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#2751681 29-Jul-2021 10:17

Eva888: Bring in Aldi please.

I saw an article the other day saying Aldi wasn't going to setup shop here because costs to establish would be too high. HOWEVER, if the CC makes existing players sell "feature complete" existing stores (like how Z were forced to sell service stations, they just repainted them) then that would eliminate that constraint.

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tdgeek

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#2751684 29-Jul-2021 10:24

CruciasNZ:

Eva888: Bring in Aldi please.

I saw an article the other day saying Aldi wasn't going to setup shop here because costs to establish would be too high. HOWEVER, if the CC makes existing players sell "feature complete" existing stores (like how Z were forced to sell service stations, they just repainted them) then that would eliminate that constraint.

Seems rather draconian to force a business to reduce its size, to the easily allow a competitor in with a few cans of Resene, but if it happened with Z, maybe its a case of a desperate situation requires desperate measures.

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#2751689 29-Jul-2021 10:35

Basic summary here
https://www.nzherald.co.nz/business/commerce-commission-supermarket-competition-inquiry-draft-findings-released-today/WRYTRPKMEFD7RFJXPNAHSUGDYE/

Duopoly , no competition, 2 major players dont seem to compete with each other in prices ,
profits "consistently and materially above what we would expect in a workably competitive market" , "returns on capital in excess of 20 per cent"
All some mention of how they treat suppliers .

I Could also add how existing supermarkets use/abuse NZ's consenting processes to block/delay building of competing supermarkets nearby ( as happened where I live )
If its going to take years of red tape before you can even start a build, why would a possible 3rd player even bother trying ?

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MikeB4

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#2751690 29-Jul-2021 10:35

A friend of ours owns a NewWorld store. In his words, "doing business with Foodstuffs is like doing business with the mafia" If he could take it elsewhere he would but in Aotearoa it's a case of out of the fry pan into the fire if in fact you could get out of the fry pan. Competitors will have one heck of an uphill battle to get established here. The Duopoly has the market here tied down very tight.

shrub

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#2751691 29-Jul-2021 10:41

The Fuel one was very different so it shouldn't be part of this convo. Z purchased Caltex so it was downsizing the competitors to do this they needed to sell off a few sites to Mobil to keep the balance and local competition on pricing which was a failed endeavor as unmanned(Gull/NPD) has now filled that gap to keep prices down. Also this is a sunset business model Petrol/Diesel is in decrease.

Supermarkets we have 3 brands 2 of them under 1 roof(Foodstuffs). The problem we have is there is no supplier rules or code of conduct. Its the wild west where if you want your product in a store you have to sign crazy agreements and pay fees to range products instore.

To beat this they will try COC or something to keep these agreements in check it will help everyone except for the supermarkets profits. Then to get around this supermarkets will just increase consumer prices.

This is not going to be a quick fix or fixable unless Foodstuffs is opened right up and exposed for its tactics. The commission is looking at if financially hitting them which will just be passed on to the consumer.

In the end I believe taking stores off both them and giving them to a 3rd operator will be the only option.

tdgeek

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#2751695 29-Jul-2021 10:50

MikeB4:

A friend of ours owns a NewWorld store. In his words, "doing business with Foodstuffs is like doing business with the mafia" If he could take it elsewhere he would but in Aotearoa it's a case of out of the fry pan into the fire if in fact you could get out of the fry pan. Competitors will have one heck of an uphill battle to get established here. The Duopoly has the market here tied down very tight.

As Shrub posted "taking stores off both them and giving them to a 3rd operator will be the only option." \

We live in a market driven economy, these two are managing the grocery market internally

tdgeek

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#2751696 29-Jul-2021 10:53

I believe @sbiddle has expertise/background with supermarkets

MikeB4

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#2751700 29-Jul-2021 10:58

tdgeek:

MikeB4:

A friend of ours owns a NewWorld store. In his words, "doing business with Foodstuffs is like doing business with the mafia" If he could take it elsewhere he would but in Aotearoa it's a case of out of the fry pan into the fire if in fact you could get out of the fry pan. Competitors will have one heck of an uphill battle to get established here. The Duopoly has the market here tied down very tight.

As Shrub posted "taking stores off both them and giving them to a 3rd operator will be the only option." \

We live in a market driven economy, these two are managing the grocery market internally

Wont work. Supply chain agreements can be very very strong. A third party set up in such a way is a hospital pass. We could try the US model eg HP and divide Foodstuffs by separating New World and Pak n Save. Now it could be argued in court that the Foodstuffs cooperative is not a single entity and therefore could not be split given that the stores are "owner operated" individually.

tdgeek

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#2751703 29-Jul-2021 11:05

MikeB4:

Wont work. Supply chain agreements can be very very strong. A third party set up in such a way is a hospital pass. We could try the US model eg HP and divide Foodstuffs by separating New World and Pak n Save. Now it could be argued in court that the Foodstuffs cooperative is not a single entity and therefore could not be split given that the stores are "owner operated" individually.

Id be surprised if one of the options in the draft report won't work due to the issues you raise. Why would they state that option if it won't work?

And Supply Chain Agreements are indeed very strong, because its one way in favour of the Corporate

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#2751706 29-Jul-2021 11:11

Aotearoa has a history of bright ideas that were supposed to benefit the consumer only to be brilliantly successful at the opposite. The notion that we have a "market driven" economy is all smoke and mirrors.

tdgeek

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#2751710 29-Jul-2021 11:15

MikeB4:

Aotearoa has a history of bright ideas that were supposed to benefit the consumer only to be brilliantly successful at the opposite. The notion that we have a "market driven" economy is all smoke and mirrors.

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