Grocery Commissioner set to copy Telecommunications Commissioner model, but creating groceries competition will be much harder; Oil slides under US$100/barrel; China gets BA5
Whenever there is a problem, the reaction is to pass a new law, rather than using existing legislation.
So here's my idea: - pass a law.
Create the EIU - Enforcement Is Us. This body would have the power to use any existing legislation regardless of which part of government it is assigned to. So it could use the Crimes Act; Income Tax Act; Commerce Act; etc. And their regulations.
Plus act as any non-governmental body given legislative authority such as the Law Society. But not the Ombudsman or Auditor General.
Speaking of the Ombudsman and Auditor General the EIU would be independent from the government and only report to Parliament.
If the EIU felt a ministry wasn't doing a good job of enforcing their laws and regulations in a specific case then they could step in and take over. Remember the Roastbusters and the Police decision not to prosecute the rapists? Or ComCom not taking any action after Shane Jones made accusations against the supermarkets?
The EIU would be able to use laws and regulations from all over against an 'offender' rather than be limited to one ministry's powers. So maybe use the Crimes Act, ComCom regulations and something out of the Oversea Investment Office all in one 'offence'.
That leaves persons and businesses having to decide whether to co-operate with an investigation or risk the attention of the EIU. A case of good cop and bad cop.
When the anti-monopolists cry 'market structure' they're right, but not in the 'let's have another 2Degrees player' sense. In France, thanks to the Raffarin Law requiring supermarkets to jump through planning hoops, and recently the Loi Alimentation to stop food waste by supermarkets, it's been able to maintain a broad base of independent retailers at the heart of their communities. Incentives for smaller local retailers and pricing transparency for big guys (similar problem in construction materials) as well as learnings from the French experience could be a good place to start (and we haven't even touched the subject of food miles and large retail...)
Bernard, good summary in the Kaka on the complexities of life in the food/grocery trade.
As you point out its not simple with thousands of SKU's to manage, many different store ownership structures and buying arrangements and the landscape is changing fast with multiple channels developing (online, home delivery etc). And existing stores can't easily pull more shelf space out of the air to accommodate a wider range of suppliers. The Grocery Commissioner and Code of Conduct should certainly focus the chains on being better citizens which a big step forward. But my grocery bill isn't going to miraculously go down.
Danger for the government is that by deciding to beat up the supermarkets with this so-called excess profit number (first calculated by NZ Consumer which must be enjoying their sudden return to popularity), they have raised expectations of significant change. Approaching next years election ordinary consumers out there in the suburbs will be asking whats really changed to their weekly grocery bill. The answer is unlikely to be its lower.
I note that online shopping is available at Pak n Save in the North Island but not in the South Island. While noting Foodstuffs North Island & South Island are different entities I cant help think Foodstuffs South Island are slow to implement online shopping at Pak n Save because it will cannibalise New World sales. Or is there a more substantial reason than this?
Replying to Nick on the Comment of the Day. Good observations and many will commiserate with you. We can point blame to politics/economics as stuffing up our plans for the future and we are correct factually that things are not fair with the division of wealth in this country. Just a caution regarding putting off having kids: you can take or leave two of my own observations after a longer life amid different economic ructions, including a 19% mortgage in the late 1980'.s 1. making lifetime decisions based on predicted economic future is a mistake, 2. children are more than economic considerations. So, I had my three children early, not really planned and many tut tutted that I was (my then husband and I were) blighting our economic futures. After a marriage breakup, years solo, re-training in a profession and doing the sharing kids routine, I would still make exactly the same decision regarding their births. Sure, I am not rich in assets nor funds. Sure I have had some really hard times financially, socially and personally when one of them died at 33. But what I do have is my health and energy while a grandparent still vitally involved with the future of my kids, their partners and my grandkids. I count the wealth that I enjoy now as my family and my long term friends. Also my health, albeit challenged at times. My neighbours chose not to have kids, they are great neighbours and I respect their choice. I wanted kids and I am so grateful that I jeopardised future wealth so as to have them. I think they might be too.
It is my view that based on past experience the government's Grocery Commission will have little or no impact on New Zealand's supermarket duopoly, competitiveness and pricing for several reasons. Firstly: the government hasn't sufficient will or expertise to deal with such large and complex sector where every retailer/supplier negotiation and deal is based on multiple factors apart from supply and demand. Secondly: The New Zealand operation of the Woolworths Group (Australian) represents only approx 13% of its grocery sales and an increasing number of their product offerings are house brands and or sourced from Australia ,so they are the supplier and the retailer. Thirdly: it is more likely than not that a National government, when in power, will immediately roll back whatever progress if any the Commission achieves in a deal with the supermarkets.
Bernard, I think the issue we should be examining is the possibility of lower food prices, not lower profits of supermarkets. Especially lower prices for basic foods for those who need them, in the way that Aldi and Lidl cater for this. I have read the CC report, over 500 pages, and it is very poor. It is a 'markets report', founded on the theory that if there are 'excess' profits, then the whole pricing structure could come down under competition. The Coriolis report to the CC showed that of all the factors making NZ supermarket prices higher than a 'like for like' market in the US, profit was the least of them. Many were desirable, better health and safety, higher wages. Others were so logical - logistics prices and population density.
But I regret that you and almost everyone else focus on 'profit', without explaining how less of it will lower food prices more than a smidgeon (easy to calculate, about 2% max on average). As you note, food retailing is complex: for example, the big profits are on chippies and chocolate and fizzy drink and 'nice to have's' - not on what keeps you well. Why do we as a population buy this stuff? And should we worry too much for half of us anyway, who have enough to buy what we want? A major chapter in hte CC report is about suppliers - and almost all of them were complaining the supermarkets kept their prices down - how does that compute? They don't make the food, they sell it, and that's not the major input into food prices.
We should have had an industry study first, showing how it works. All those Penrose food factories repackaging tomatoes from barrels from Italy and making profits for private companies I bet make on average more than supermarkets. They've been let off the hook entirely in all this.
The biggie for lefties and centre-lefts like yourself (and me) is the scandal of housing costs, which you go for hard, and which simply needs relentless focus and dissection. And it is not all about Gib costs either, but the self-inflicted land supply, housing construction regulation where it adds nothing and a lamentable labour force strategy and quality - yes, quality, we wasted $40bn and counting on leaky homes. Couldn't even build a Ronald McDonald opposite Wgtn hospital, had to try twice.
If we get shelter prices down to 1960s ratios to income, then we won't have such a family poverty problem at all, or be focused on food prices. Their root, in metropolitan areas, has fundamentally been land prices and the covenants and our ridiculous rents in consequence (all that rent Countdown pays to family trusts for their buildings etc etc).
If we must talk about food so much, let's talk about all of it, not just the supermarkets' role in the chain, and think through and write about where/on what products profit is delivered vs those that don't pay for their shelf space but must be carried to provide an overall 'product'.
You have done a good summary of the problems facing a supermarket regulator. In any case the real gouging is between to buyer and supplier, so the code of conduct will help suppliers not consumers. I say this having spent 35 years in the industry on both sides.
Opening up of wholesale is good in theory but impossible to control with 25,000 skus and over 10,000 suppliers, and the largest sums of money are volume related discounts which favour the incumbent and theres no word of banning those.
The real difference will only come with introducing serious competition at scale, so we need to see immediate cancellation of all restrictive lease and title clauses, (they are probably anticompetitive under current law anyway) plus a tax break for new entrants who establish a large scale network.
Nz is a global outlier having only two supermarket competitors. It is time for a change.
Whenever there is a problem, the reaction is to pass a new law, rather than using existing legislation.
So here's my idea: - pass a law.
Create the EIU - Enforcement Is Us. This body would have the power to use any existing legislation regardless of which part of government it is assigned to. So it could use the Crimes Act; Income Tax Act; Commerce Act; etc. And their regulations.
Plus act as any non-governmental body given legislative authority such as the Law Society. But not the Ombudsman or Auditor General.
Speaking of the Ombudsman and Auditor General the EIU would be independent from the government and only report to Parliament.
If the EIU felt a ministry wasn't doing a good job of enforcing their laws and regulations in a specific case then they could step in and take over. Remember the Roastbusters and the Police decision not to prosecute the rapists? Or ComCom not taking any action after Shane Jones made accusations against the supermarkets?
The EIU would be able to use laws and regulations from all over against an 'offender' rather than be limited to one ministry's powers. So maybe use the Crimes Act, ComCom regulations and something out of the Oversea Investment Office all in one 'offence'.
That leaves persons and businesses having to decide whether to co-operate with an investigation or risk the attention of the EIU. A case of good cop and bad cop.
Obviously non financial advice, any thoughts on the place/likely outcome of Supie vs the duopoly?
When the anti-monopolists cry 'market structure' they're right, but not in the 'let's have another 2Degrees player' sense. In France, thanks to the Raffarin Law requiring supermarkets to jump through planning hoops, and recently the Loi Alimentation to stop food waste by supermarkets, it's been able to maintain a broad base of independent retailers at the heart of their communities. Incentives for smaller local retailers and pricing transparency for big guys (similar problem in construction materials) as well as learnings from the French experience could be a good place to start (and we haven't even touched the subject of food miles and large retail...)
Bernard, good summary in the Kaka on the complexities of life in the food/grocery trade.
As you point out its not simple with thousands of SKU's to manage, many different store ownership structures and buying arrangements and the landscape is changing fast with multiple channels developing (online, home delivery etc). And existing stores can't easily pull more shelf space out of the air to accommodate a wider range of suppliers. The Grocery Commissioner and Code of Conduct should certainly focus the chains on being better citizens which a big step forward. But my grocery bill isn't going to miraculously go down.
Danger for the government is that by deciding to beat up the supermarkets with this so-called excess profit number (first calculated by NZ Consumer which must be enjoying their sudden return to popularity), they have raised expectations of significant change. Approaching next years election ordinary consumers out there in the suburbs will be asking whats really changed to their weekly grocery bill. The answer is unlikely to be its lower.
I note that online shopping is available at Pak n Save in the North Island but not in the South Island. While noting Foodstuffs North Island & South Island are different entities I cant help think Foodstuffs South Island are slow to implement online shopping at Pak n Save because it will cannibalise New World sales. Or is there a more substantial reason than this?
Replying to Nick on the Comment of the Day. Good observations and many will commiserate with you. We can point blame to politics/economics as stuffing up our plans for the future and we are correct factually that things are not fair with the division of wealth in this country. Just a caution regarding putting off having kids: you can take or leave two of my own observations after a longer life amid different economic ructions, including a 19% mortgage in the late 1980'.s 1. making lifetime decisions based on predicted economic future is a mistake, 2. children are more than economic considerations. So, I had my three children early, not really planned and many tut tutted that I was (my then husband and I were) blighting our economic futures. After a marriage breakup, years solo, re-training in a profession and doing the sharing kids routine, I would still make exactly the same decision regarding their births. Sure, I am not rich in assets nor funds. Sure I have had some really hard times financially, socially and personally when one of them died at 33. But what I do have is my health and energy while a grandparent still vitally involved with the future of my kids, their partners and my grandkids. I count the wealth that I enjoy now as my family and my long term friends. Also my health, albeit challenged at times. My neighbours chose not to have kids, they are great neighbours and I respect their choice. I wanted kids and I am so grateful that I jeopardised future wealth so as to have them. I think they might be too.
It is my view that based on past experience the government's Grocery Commission will have little or no impact on New Zealand's supermarket duopoly, competitiveness and pricing for several reasons. Firstly: the government hasn't sufficient will or expertise to deal with such large and complex sector where every retailer/supplier negotiation and deal is based on multiple factors apart from supply and demand. Secondly: The New Zealand operation of the Woolworths Group (Australian) represents only approx 13% of its grocery sales and an increasing number of their product offerings are house brands and or sourced from Australia ,so they are the supplier and the retailer. Thirdly: it is more likely than not that a National government, when in power, will immediately roll back whatever progress if any the Commission achieves in a deal with the supermarkets.
Bernard, I think the issue we should be examining is the possibility of lower food prices, not lower profits of supermarkets. Especially lower prices for basic foods for those who need them, in the way that Aldi and Lidl cater for this. I have read the CC report, over 500 pages, and it is very poor. It is a 'markets report', founded on the theory that if there are 'excess' profits, then the whole pricing structure could come down under competition. The Coriolis report to the CC showed that of all the factors making NZ supermarket prices higher than a 'like for like' market in the US, profit was the least of them. Many were desirable, better health and safety, higher wages. Others were so logical - logistics prices and population density.
But I regret that you and almost everyone else focus on 'profit', without explaining how less of it will lower food prices more than a smidgeon (easy to calculate, about 2% max on average). As you note, food retailing is complex: for example, the big profits are on chippies and chocolate and fizzy drink and 'nice to have's' - not on what keeps you well. Why do we as a population buy this stuff? And should we worry too much for half of us anyway, who have enough to buy what we want? A major chapter in hte CC report is about suppliers - and almost all of them were complaining the supermarkets kept their prices down - how does that compute? They don't make the food, they sell it, and that's not the major input into food prices.
We should have had an industry study first, showing how it works. All those Penrose food factories repackaging tomatoes from barrels from Italy and making profits for private companies I bet make on average more than supermarkets. They've been let off the hook entirely in all this.
The biggie for lefties and centre-lefts like yourself (and me) is the scandal of housing costs, which you go for hard, and which simply needs relentless focus and dissection. And it is not all about Gib costs either, but the self-inflicted land supply, housing construction regulation where it adds nothing and a lamentable labour force strategy and quality - yes, quality, we wasted $40bn and counting on leaky homes. Couldn't even build a Ronald McDonald opposite Wgtn hospital, had to try twice.
If we get shelter prices down to 1960s ratios to income, then we won't have such a family poverty problem at all, or be focused on food prices. Their root, in metropolitan areas, has fundamentally been land prices and the covenants and our ridiculous rents in consequence (all that rent Countdown pays to family trusts for their buildings etc etc).
If we must talk about food so much, let's talk about all of it, not just the supermarkets' role in the chain, and think through and write about where/on what products profit is delivered vs those that don't pay for their shelf space but must be carried to provide an overall 'product'.
cheers
Clive
You have done a good summary of the problems facing a supermarket regulator. In any case the real gouging is between to buyer and supplier, so the code of conduct will help suppliers not consumers. I say this having spent 35 years in the industry on both sides.
Opening up of wholesale is good in theory but impossible to control with 25,000 skus and over 10,000 suppliers, and the largest sums of money are volume related discounts which favour the incumbent and theres no word of banning those.
The real difference will only come with introducing serious competition at scale, so we need to see immediate cancellation of all restrictive lease and title clauses, (they are probably anticompetitive under current law anyway) plus a tax break for new entrants who establish a large scale network.
Nz is a global outlier having only two supermarket competitors. It is time for a change.
David Clark is a weasel. Not to be trusted. Let’s see what actually gets achieved. But don’t hold your breath.
Excess Profits Tax. For God's sake.