Supermarkets impervious to bad headlines and court fines

Newsroom

a day ago

Opinion: If you have the impression the big supermarket chains have been facing a lot of court cases over allegations of abusing competition, heavying suppliers or exploiting customers, then you're not wrong.
The Commerce Commission reveals it will be filing civil proceedings against Foodstuffs North Island and its wholesale arm, Gilmours, for alleged cartel conduct. Essentially, it alleges they pressured a big food producer to cancel a deal to supply direct to a hospitality customer, and instead transact via the Foodstuffs firms.
We've been hearing these sorts of allegations for more than 10 years now. In 2014, Shane Jones (who was then a Labour MP) sparked an inquiry by claiming in Parliament that New Zealand suppliers were being 'blackmailed' into making payments to the Australian-owned chain Countdown, to ensure their products continued to be stocked. He called it a 'shakedown' and an example of the ruthless 'dingo culture' of Australian corporations.
Back then, I remember talking to big Kiwi food suppliers. Really big companies. Companies whose brands are household names. One senior manager at a food multinational told me the supermarket brought in top Australian managers to its south Auckland HQ, to review suppliers' terms. 'Suddenly you get invited into a windowless room at Favona Rd and you get ambushed.'
But they were too scared to speak out publicly – 'people are nervous about getting that phone call inviting them to that windowless room' – and that's only slowly starting to change.
Today, the focus is on both Woolworths (as Countdown is now branded) and perhaps more so, the New Zealand cooperatives that make up Foodstuffs.
It started with the Commerce Commission market study of grocery competition. And from July 2021, one after another, Kiwi suppliers mustered the courage to speak publicly to Newsroom.
First Sarah Hedger, the founder of a the small Yum Granola breakfast cereal maker in Nelson. Then Orchard Gold, Bloomsberry Chocolate and even the big fishing company Sealord.
Yet just last week, the commission issued a warning to Foodstuffs North Island for its treatment of another supplier, arbitrarily obstructing and delaying the business from raising its wholesale prices.
The commission is already prosecuting Woolworths for allegedly misleading consumers about the price they'd pay for groceries, and fake 'specials'. The owners of Foodstuff's Pak'nSave supermarkets in Mill St and Silverdale have pleaded guilty to similar charges. Earlier, Pak'nSave Mangere was fined $78,000 for promotional price discrepancies.
The commission has taken action against both supermarket chains over restrictive land covenants. Last year, the High Court penalised Foodstuffs $3.25m for lodging anti-competitive land covenants with the purpose of blocking competitors.
There are more ongoing Commerce Commission investigations, that may yet result in criminal charges or civil proceedings. And it's not just the commission that has unscrupulous supermarket behaviour in its crosshairs.
Newsroom revealed in 2023 that police had won a judicial order forcing grocery giants Foodstuffs and Woolworths to change the way they do business.
It was the result of a test case against Silverstream New World for illegal discounting of alcohol. That was followed last year by the Alcohol Regulation and Licensing Authority ordering more than 30 New World supermarkets' off-licences to be suspended, after a wider police case of illegal discounting.
The question has to be, are these bad corporate citizens?
Certainly, senior politicians in both National and Labour seem to have drawn that conclusion. Finance Minister Nicola Willis, like her Labour predecessors, has spoken loudly and firmly about her determination to crack down on supermarkets in order to rein in rising food prices.
Foodstuffs managing director Chris Quin says his cooperatives are very focused on managing down prices. He claims a basket of food from Pak'nSave compares favourably in price with a basket from Aldi in Australia. He claims Foodstuffs has surveyed New Zealanders and most of them understand that rising prices are driving the continuing food inflation.
'Facts do matter a little bit. I know they can appear pretty complicated, but keeping it simple like that matters,' he told broadcaster Mike Hosking a month ago. 'But none of that makes it easier in terms of households meeting budget.'
In response to the latest court case, spokesperson Stefan Herrick says Foodstuffs North Island and its stores are committed to complying with all their regulatory obligations, and cooperated fully with the Commerce Commission throughout its investigation. 'We strongly deny any unlawful conduct,' he says. 'As this matter will be before the court in due course, it would not be appropriate to comment further at this time.'
Jon Duffy, the Consumer NZ chief executive, welcomes the Commerce Commission cases, which he says are difficult for regulators to detect. 'Complainants reporting this type of conduct often face the risk of retribution. When you are dealing with businesses on the scale of supermarkets, targeted retribution could wipe out a supplier's business.'
Consumer NZ, too, reports heading off-the-record comments for years, about how supermarkets conduct their business and treat suppliers. 'We understand there is a significant number of other active cases on the commission's books relating to a range of supermarket conduct under the Commerce Act, the Grocery Industry Competition Act and the Fair Trading Act.'
Duffy believes the series of cases, with warnings and guilty pleas, could indicate a culture issue within the Foodstuffs North Island cooperative – a belief it can act without consequence.
It's got to the extent that last week, Willis said she planned to meet Fonterra chief executive Miles Hurrell to discuss how to get affordable cheese, milk and butter to New Zealanders. Willis said she was interested in how much of the recent price increases were due to Fonterra's wholesale prices, and how much was about a lack of supermarket competition.
It's true that last month, Stats NZ figures showed the price of milk was up 15 percent, cheese was up more than 30 percent, and a 500g block of butter had risen 51 percent – and that's not entirely down to rising global dairy prices.
This is an exemplar of populist retail politics – and her own coalition partner David Seymour was quick to differentiate Act's position. At the party conference this weekend, he acknowledged concern at people 'driving across the country just to buy butter at Costco in Auckland', but warned that Willis' proposal to break up the private grocery firms would scare off international investment.
Jon Duffy acknowledges the politics involved. 'Yes, politicians have got headlines calling out the behaviour of the supermarkets in respect of consumers and suppliers,' he says, 'but that doesn't mean there isn't a significant issue to be addressed'.
'There is a clear difference in robust dealings between commercial actors and what could amount to anti-competitive behaviour. What's been alleged in the proceedings announced today is reminiscent of the excesses of the robber barons of the early 20th century which led to the establishment of competition law in the first place.'
What's clear is that 10 years of increasingly robust Commerce Commission action has thus far failed to solve the problem. Chair Dr John Small says the commission does not tolerate this kind of behaviour and will not hesitate to take court action, where appropriate.
What's also clear, after 10 years, is the supermarkets seem able to absorb the bad publicity, convictions and fines without it seriously hurting their businesses. They seem impervious.
And that goes to the heart of the problem: no matter what Kiwi suppliers and consumers may think of the supermarkets' behaviour, they have few other choices about where to buy and sell their groceries.