Commerce Commission shies away from slicing up duopolists into wholesale and retail arms, or Govt helping a new entrant; Instead, it prefers a regulator and easier entry for private competitors
Re Supermarket Report I guess a duopoly Supermarket system will never be fully sorted out be a duopoly political system and Old Sleepy Joe is correct 👍 “Capitalism without competition is exploitation” especially when it leads to the Corporate Socialism that plagues the world now
Thanks Bernard. Wet bus tickets again.Commerce Commission has failed in Fuels, electricity and now supermarkets. Is there “provider capture” or just blind faith in “the Market” Cannot wait till they do building products. Consumers are there to be confused and ripped off by providers.
Big sigh, thanks for the analysis, Bernard. It is truly public service to tackle 600 page reports for us. I would have thought that the government playing tough with supermarkets, fuel, electricity providers would have been a relatively easy vote winner. Everyone is moaning about prices and this is a chance for the government to say, it's not us for a change, it's them (pointing big angry fingers at duopolies) and we're going to regulate to reduce prices. Why are they so reluctant to do anything that will achieve some thing?
I always look forward to The Kaka & Bernard's deep insight into the latest happenings - until today. That ComCom outcome undid me, I'm quite demoralised. Between that, the effing parliament protest bunch & the Russian invasion of Ukraine I'm gonna need a news respite. I'm heading off into the trees, I may be a while...
Sadly I’m not surprised by CC report. When was the last time a NZ govt had the courage to make bold transformational change in a particular sector for the benefit of the tax payers? I can’t remember. Every time the difficult decisions need to be made they bottle it. And so it continues. The inequality gap will continue to grow, the Haves will continue to prosper while the Have Nots will struggle even more.
I've had this philosophy for a while (just not shared it with you) that a business beyond a certain market share cannot buy/merge with their competition. If they want to grow then they do it organically.
Look at some listed company annual reports and you will over time see things such as they've bought someone else for a billion dollars. Three years later they write down the investment by a couple of hundred million. Then again a few years later, until finally they sell it off for a few hundred million.
So if a company cannot produce the talent to grow organically then how are they going to manage buying a competitor with a totally different culture?
Maybe more conversation on reformation or scraping of the Resource Management Act (RMA) is needed. It appears it is working in favour or land bankers and investors big and small (which is including the Supermarket chains), and not fit for purpose anymore. The adverse effects of not doing anything (status quo) is leading to social, economic and cultural well being being affected disproportionately by those who are renters, lower-middle income earners, solo working class and small businesses, as well as health and the safety of all these individuals.
In no way shape or form is the RMA currently sustaining the potential of natural and physical resources to meet the reasonably foreseeable needs of future generations. Living with this hypocrisy is dishonest, yet accepting it is immoral. Where have the principles of Aotearoa-NZ gone?
Isn't this exactly what people said would happen when Progressive was allowed to buy Woolworths in 2005? The Commerce Commission allowed this mess in the first place!
Out of the complexity theres a real need for action and not all the recommendations are equal in that regard. Speaking as a retired 35 year industry veteran I can say that a stronger code of conduct is needed, it could potentially change the balance between innovative small firms who struggle and giant multinationals who currently do well because of their bargaining power, it will be good for local entrepreneurs but it wont shift consumer prices.
NZ supermarkets protect their duopoly with fierce restrictions on land which is the scarcest element. Of course these restrictions should be banned, but instead of waiting for decades for the new rules to filter through all existing covenants could be removed now.
NZ supermarkets do make unusually large profits compared to international peers. Large stores make around 3% net profit on sales. Doesnt seem a lot until you realise that a large PNS turns over $3M per day, or $32M profit a year. Thats just one store. In bigger markets it would be very unusual for grocery store owners to be on the richlist, but common here.
The experience in Australia was that the entry of new low price players had a huge impact, Coles and Woolworths stepped up their game, lowered prices and refreshed their offerings and consumers benefitted.
Grocery supplies are an essential service but Kiwis are paying too much. If the govt really wanted to change the game they should make an offer to actively encourage new competitors. Heres a suggestion
1. Run a proper EOI process for qualified new entrants. Employ someone commercial like Tex Edwards rather than MBIE to run it. (OK, add your own preferred name there)
2. Remove all existing and future restrictive covenants on supermarket developments
3. Fast track approvals for new sites
4. Legislate to allow controlled access to wholesale supplies for smaller competitors. (This is complex but think of Fonterra and the requirement to supply milk to others)
5. Offer a tax break to approved large scale new entrants for the first 2-3 years based on store openings.
All of this could and should be done by an effective Govt if they wanted to really change the game for the benefit of all NZers.
I guess we have to wait now and judge them by their actions.
Excellent comment Bernard as usual. I'm also disappointed, but now surprised by the ComCom report. I think the report should spell out (in addition to the rather weak ones in the report)-
1. Any legal document, both new and existing ones, that withholds land for a specific purpose must be acted on within say 5 years for the legality to remain. There are currently large blocks of land that cannot be used for any supermarket, so this will eventually close down that loophole.
2. It is impossible to force supermarkets to close, as in the case of Foodstuffs they are individually owned. Similarly the suggestions that existing supermarkets should be prevented from opening will not support new housing areas, or supermarket consolidation.
3 However there should be an ownership split between wholesale and retail, with stores able to buy from any wholesaler. In most cases, goods at a supermarket do pass through a wholesaler first, and this split can take place if the government legislates for it.
Re Supermarket Report I guess a duopoly Supermarket system will never be fully sorted out be a duopoly political system and Old Sleepy Joe is correct 👍 “Capitalism without competition is exploitation” especially when it leads to the Corporate Socialism that plagues the world now
Awesome kaka today thank you Bernard. Trust you are keeping well!
Thanks Bernard. Wet bus tickets again.Commerce Commission has failed in Fuels, electricity and now supermarkets. Is there “provider capture” or just blind faith in “the Market” Cannot wait till they do building products. Consumers are there to be confused and ripped off by providers.
Patrick Medlicott
Big sigh, thanks for the analysis, Bernard. It is truly public service to tackle 600 page reports for us. I would have thought that the government playing tough with supermarkets, fuel, electricity providers would have been a relatively easy vote winner. Everyone is moaning about prices and this is a chance for the government to say, it's not us for a change, it's them (pointing big angry fingers at duopolies) and we're going to regulate to reduce prices. Why are they so reluctant to do anything that will achieve some thing?
I always look forward to The Kaka & Bernard's deep insight into the latest happenings - until today. That ComCom outcome undid me, I'm quite demoralised. Between that, the effing parliament protest bunch & the Russian invasion of Ukraine I'm gonna need a news respite. I'm heading off into the trees, I may be a while...
Sadly I’m not surprised by CC report. When was the last time a NZ govt had the courage to make bold transformational change in a particular sector for the benefit of the tax payers? I can’t remember. Every time the difficult decisions need to be made they bottle it. And so it continues. The inequality gap will continue to grow, the Haves will continue to prosper while the Have Nots will struggle even more.
Not quite aimed at supermarkets.
I've had this philosophy for a while (just not shared it with you) that a business beyond a certain market share cannot buy/merge with their competition. If they want to grow then they do it organically.
Look at some listed company annual reports and you will over time see things such as they've bought someone else for a billion dollars. Three years later they write down the investment by a couple of hundred million. Then again a few years later, until finally they sell it off for a few hundred million.
So if a company cannot produce the talent to grow organically then how are they going to manage buying a competitor with a totally different culture?
Maybe more conversation on reformation or scraping of the Resource Management Act (RMA) is needed. It appears it is working in favour or land bankers and investors big and small (which is including the Supermarket chains), and not fit for purpose anymore. The adverse effects of not doing anything (status quo) is leading to social, economic and cultural well being being affected disproportionately by those who are renters, lower-middle income earners, solo working class and small businesses, as well as health and the safety of all these individuals.
In no way shape or form is the RMA currently sustaining the potential of natural and physical resources to meet the reasonably foreseeable needs of future generations. Living with this hypocrisy is dishonest, yet accepting it is immoral. Where have the principles of Aotearoa-NZ gone?
Isn't this exactly what people said would happen when Progressive was allowed to buy Woolworths in 2005? The Commerce Commission allowed this mess in the first place!
Dear Com Com, we are not angry, just disappointed, again
A very good analysis thanks Bernard.
Out of the complexity theres a real need for action and not all the recommendations are equal in that regard. Speaking as a retired 35 year industry veteran I can say that a stronger code of conduct is needed, it could potentially change the balance between innovative small firms who struggle and giant multinationals who currently do well because of their bargaining power, it will be good for local entrepreneurs but it wont shift consumer prices.
NZ supermarkets protect their duopoly with fierce restrictions on land which is the scarcest element. Of course these restrictions should be banned, but instead of waiting for decades for the new rules to filter through all existing covenants could be removed now.
NZ supermarkets do make unusually large profits compared to international peers. Large stores make around 3% net profit on sales. Doesnt seem a lot until you realise that a large PNS turns over $3M per day, or $32M profit a year. Thats just one store. In bigger markets it would be very unusual for grocery store owners to be on the richlist, but common here.
The experience in Australia was that the entry of new low price players had a huge impact, Coles and Woolworths stepped up their game, lowered prices and refreshed their offerings and consumers benefitted.
Grocery supplies are an essential service but Kiwis are paying too much. If the govt really wanted to change the game they should make an offer to actively encourage new competitors. Heres a suggestion
1. Run a proper EOI process for qualified new entrants. Employ someone commercial like Tex Edwards rather than MBIE to run it. (OK, add your own preferred name there)
2. Remove all existing and future restrictive covenants on supermarket developments
3. Fast track approvals for new sites
4. Legislate to allow controlled access to wholesale supplies for smaller competitors. (This is complex but think of Fonterra and the requirement to supply milk to others)
5. Offer a tax break to approved large scale new entrants for the first 2-3 years based on store openings.
All of this could and should be done by an effective Govt if they wanted to really change the game for the benefit of all NZers.
I guess we have to wait now and judge them by their actions.
Excellent comment Bernard as usual. I'm also disappointed, but now surprised by the ComCom report. I think the report should spell out (in addition to the rather weak ones in the report)-
1. Any legal document, both new and existing ones, that withholds land for a specific purpose must be acted on within say 5 years for the legality to remain. There are currently large blocks of land that cannot be used for any supermarket, so this will eventually close down that loophole.
2. It is impossible to force supermarkets to close, as in the case of Foodstuffs they are individually owned. Similarly the suggestions that existing supermarkets should be prevented from opening will not support new housing areas, or supermarket consolidation.
3 However there should be an ownership split between wholesale and retail, with stores able to buy from any wholesaler. In most cases, goods at a supermarket do pass through a wholesaler first, and this split can take place if the government legislates for it.
Agreed Giles