Foodstuffs North Island to update on action plan at Commerce Commission conference on market study into retail grocery sector

Ahead of the Commerce Commission’s consultation conference on its market study into the retail grocery sector, Foodstuffs North Island (FSNI) has provided a summary of the key points it will be making at the conference and an update on progress against its action plan.

As part of its response to the draft market study, FSNI released an action plan setting out the steps it is taking to ensure better value for customers, improved outcomes for suppliers and to remove any barriers to competition within its control.

FSNI Chief Executive Chris Quin says the market study is about New Zealand consumers and whether this market is working as well as it can for New Zealanders.

“That’s why understanding the breakdown of what makes up every $1 on shelf and FSNI’s actual level of returns is critical to this market study. This underlies what we are going to be saying at the conference.

“We are responsible for 19 cents of every $1 on shelf, and of that 4 cents is our profit after tax. We are working every day to ensure better value for customers within that 19 cents. That’s why in our response to the Commission’s draft report, we put forward an action plan to address the issues raised by the Commission that we have control over and that relate to the focus of the market study.”

Over the seven days of sessions at the conference, Quin says FSNI will be reiterating the key recommendations from the Commission’s draft report that it agrees with and is addressing in its action plan. There are also a number of findings and assumptions that FSNI will be challenging.

“There are a number of recommendations that we agree with, and we are already implementing our action plan to drive better outcomes for customers that are in our control.

“There are, though, a number of the Commission’s findings and assumptions that are incomplete and we will be discussing at the conference based on the detailed analysis and evidence provided in our submission.

“We welcome the opportunity to explain and establish that our returns are less than half of what the Commission’s draft report states and are below the average returns of supermarkets overseas, strong competition exists, New Zealand grocery prices are in line with comparable countries, and as such significant regulatory interventions are not supported by this and won’t give New Zealand consumers a better outcome.

“As our submission on the draft market study showed, our actual returns are less than half of that calculated by the Commission (approximately 9-12% compared with the Commission’s figure of close to 24%) and below the average of the Commission’s international sample of grocery retailers.

“New Zealand prices are fair by international standards (we rank 21st in the OECD using Purchasing Power Parity (PPP) comparison). In addition, the largest component of shelf prices is the supplier cost (68c in $1), and we are facing a record number of cost increases from our suppliers.

“Competition is strong and this can be observed from a range of different metrics. In particular, the recent arrival of Costco and Circle K in the New Zealand market shows that competition in the retail grocery sector is working.

“Also, consumer behaviour has changed. The days of a main weekly shop are gone. Supermarkets don’t just compete with supermarkets; we compete with a full range of retailers for all shopping missions.

“Finally, we are committed to becoming one of the most customer driven retailers in the world. Last year we added approximately 9,000 new innovations and products onto store shelves. We are not there yet but are committed to getting there as fast as we can. That’s why innovation to benefit our consumers is critical for us. We’re investing $50 million plus this year alone into innovation to deliver that.

“In all the focus around the market study, it is important to remember that Foodstuffs North Island is an almost 100-year old co-operative with 323 individual local owner operators of New World, PAKn’SAVE, Four Square and Gilmours stores in hundreds of communities around the North Island. Many of our owner operators started on the shop floor, stacking shelves, running the checkout and have worked their way up over many years. We employ over 24,000 New Zealanders and are proud of our history and the steps we are taking to become one of the most customer driven retailers in the world.”

Quin says Foodstuffs North Island is continuing to fully engage with the Commerce Commission, including as part of getting started on steps in its action plan.

“We are up for the challenge and are committed to delivering better value for customers, improving outcomes for suppliers and removing competition barriers within our control. We’ve got a clear action plan and we’re getting on with it.”

Transcripts of Foodstuffs North Island’s remarks will be available on the FSNI website and LinkedIn after they are delivered at the conference.