Only a breakup will fix this, expert says after Foodstuffs warning

Details of the specific complaint from the unnamed supplier are sparse, but what the Commerce Commission said is that it found a Foodstuffs North Island category manager “obstructed and delayed a supplier request” and acted in an “unco-operative and unreasonable” way.

The unnamed supplier had complained that the treatment did not meet the standard of good faith in the Grocery Supply Code, and likely breached the Grocery Industry Competition Act 2023.

The complaint was met with a warning to Foodstuffs North Island, with a threat to take further action if it happens again. Only a court can determine if there has been a breach of the Act, while the maximum penalty for breaches of the Supply Code for an individual is $200,000, or in any other case the greater of $3 million, and the value of any commercial gain; or if that can’t be ascertained, 3% of the company turnover.

A Foodstuffs North island spokesperson said the company had “taken the Commerce Commission’s findings seriously and have reminded our entire merchandise team, including the category manager concerned, of the specific Code obligations in question, along with practical guidance on how to meet them.

“We’re committed to ensuring all our people understand and meet both the letter and the spirit of the Code.”

Warning

Grocery Commissioner Pierre van Heerden said this morning that the finding against Foodstuffs North Island followed a “pattern of behaviour that has been present in the industry for decades.

“In this instance, based on the evidence we have, we decided a warning was the right response. However, if more examples come to light, we will not hesitate to take further action,” van Heerden added.

The finding comes barely a month after the Commerce Commission proposed to ban major supermarket chains from charging grocery suppliers billions in very opaque “rebates, discounts, and promotional payments”. These are often levied by buyers on suppliers for ordinary actions like running promotions or putting products on certain shelves, and are not factored into data that supermarkets like Foodstuffs publish about the cost of doing business with suppliers.

A ban on the long-standing behaviour would help reduce the power imbalance between supermarkets and smaller suppliers, and also lead to more consistent and lower everyday prices for groceries, van Heerden said at the time.

“Suppliers are reliant on their relationships with the retailers’ commercial teams, so the staff in these roles within the supermarkets hold a lot of power. Any behaviour that weaponises this power imbalance is unacceptable,” van Heerden said.

“We’re focused on addressing this power imbalance and improving things for suppliers. We really appreciate where suppliers have come forward to tell us about issues so we can take action – like in this case where we heard directly from the supplier involved,” he said.

Not enough?

But competition advocate and expert Ernie Newman is unconvinced today’s warning will be enough to stem the type of behaviour smaller suppliers have been subjected to for years.

“The Grocery Commissioner’s slapping of a warning against Foodstuffs North Island for what can only be described as contemptuous treatment of a supplier is progress to a point,” Newman told The Post.

“But it’s yet another reminder that the core problem of market failure can be resolved only by the Government directing a breakup of the supermarket duopoly which is causing huge harm to consumers as well as grocery suppliers.”

Newman said history had shown that only structural change will remedy the problem of excessive concentration of market power, such as in the case of Telecom, “where lukewarm attempts to tinker around the edges were not resolved until both the National and Labour governments found the political courage to take decisive action to address the core problem - market failure”.

He said only a structural breakup ‒ which is reportedly being considered by Economic Growth Minister Nicola Willis ‒ can restore “the diverse and competitive grocery market we once enjoyed. This has been festering for years - if the major political parties are serious about addressing our cost of living crisis its high time they came up with decisive plans.”

Today’s warning to Foodstuffs North Island came after the company was found to be the least-liked supermarket operator in a recent survey of suppliers. That survey showed 37% of suppliers rated their interactions with Foodstuffs North Island as “negative or very negative” ‒ significantly higher than suppliers’ ratings for Woolworths and Foodstuffs South Island, at approximately 20%.