Measures announced following the Commerce Commission’s market study into the grocery sector are gradually coming into play, but there is considerable scepticism about whether it will do much to increase competition or lower prices for shoppers.
Last week, the details of the new mandatory grocery supply code, designed to improve the behaviour of the two big supermarket chains Woolworths (formerly Countdown) and Foodstuffs (covering Pak'n'Save, New World and Four Square stores) towards suppliers.
Some of the wild west behaviour in the sector included suppliers faced with unreasonable take-it-or-leave-it deals offering a poor return and having to cover the cost of their stock broken or stolen in the store, even though they would have no control over that. Often suppliers were too scared to speak out because they did not want to risk their products being deleted.
The new code, to be introduced fully in the next six months, will require the supermarkets to act in good faith with suppliers, pay them on time, have plain-English contracts in writing, and prevent supermarkets from charging suppliers for what are the duopoly’s business costs.
Smaller suppliers will also be able to join forces to negotiate with a supermarket.
Breaches of the code could mean fines of up to $3 million or 3% of turnover, whichever is the greater.
At the end of August, the unit pricing regulations came into being, requiring such prices for goods to be displayed clearly and legibly, something which has been slapdash or absent before now. That’s made it difficult for shoppers to easily compare prices for similar products on the shelves. It is hard to understand why it is necessary to allow a year’s grace before physical stores must comply and two years for online operators.
Part of the reforms under the Grocery Industry Competition Act aim for better access to reliable, cost-effective wholesale supply. The duopoly’s dominance as wholesalers has meant smaller retailers such as dairies have often had to buy their goods at supermarket prices like any other shopper.
He says he will be monitoring the big supermarkets closely to ensure they make meaningful progress towards providing a reliable, cost-effective wholesale offering.
Early this year it was revealed if the government’s measures did not bring supermarket profits down and lower prices it was reserving the option of further research into forcing the big two to sell some of their stores to make way for new competition.
Initial advice on this suggested without such bold action, the current reform programme would have little impact for consumers over the next 20 years.
If there is no progress discernible to shoppers by next June — when Mr van Heerden delivers his first report on the state of competition — will there be political will for further action?
And another thing . . .
The multimillion-dollar profits being made by our four major electricity retailers and generators, referred to as gentailers, are being questioned by Consumer NZ.
It estimates 40,000 households have gone without power at some point in the past year because they could not afford to pay and asks if it is time to examine whether the market is working as reformers hoped 25 years ago.
The gentailers have been quick to push back, saying they are putting money into renewable generation and that they have measures in place to help struggling households.
Consumer’s concerns seem particularly pertinent when the government is consulting on what market measures may be required to ensure electricity is reliable and affordable as we transition to "a highly renewable electricity system".
