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Foodstuffs merger raises competition concerns

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Staff Reporter

19 June 2024, 7:24 PM

Foodstuffs merger raises competition concernsCalls for more competition in groceries

In the ongoing debate over New Zealand's grocery sector, folks have become increasingly concerned about the proposed merger of the Foodstuffs co-operatives.

Foodstuffs North Island and Foodstuffs South Island, currently operating independently, have approached the NZ Commerce Commission to merge into a single entity: Foodstuffs NZ.

The OECD's recent Economic Survey highlights that New Zealand's grocery market is dominated by two major players: Australian-owned Woolworths and New Zealand's Foodstuffs.

These giants set prices and profits significantly higher than international standards.

The OECD suggests that breaking up this duopoly might eventually be necessary, although it acknowledges the complexity of such an action.

Emeritus Professor Tim Hazledine from the University of Auckland’s Business School has voiced concerns about the merger, arguing that it could reduce competition further.

“The co-ops already coordinate their purchasing and marketing of private-label products,” Hazledine stated.

“Their wholesaling businesses, Gilmours and Trents, operate as one in the national supply of groceries to institutions and non-retail customers.”

Emeritus Professor Tim Hazledine

Currently, neither co-op competes in the other’s territory, an arrangement which Hazledine describes as a “cosy agreement” that avoids poaching retail customers.

He raises questions about the legality of these practices under the Commerce Act, suggesting that the co-ops might be seeking to legitimise their activities through the merger.

For years, the Commerce Commission and others, including Hazledine and now the OECD, have called for more competition in the supermarket sector.

There have been hopes for a new competitor, such as the German grocer Aldi, to enter the market and invigorate pricing and services.

Hazledine notes that despite these calls, a third competitor has always existed in the form of the two Foodstuffs co-ops, which, if they acted independently, could boost competition.

The Commerce Commission has previously argued that pro-competitive action is necessary.

Hazledine suggests more than just denying the merger; he advocates for enforcing independent operation between the two co-ops and ending their coordinated practices.

“They should pull down the invisible wall separating North and South Island markets,” he recommended, proposing that franchise holders should have the right to switch co-ops to foster real competition.

As the Commerce Commission deliberates on the merger, locals and industry watchers await the decision that could reshape New Zealand's grocery landscape.