Commerce Commission Inquiry Into Supermarket ‘Price Gouging’

Primary Industries

With food prices rising faster than incomes, the Government has announced an investigation into whether the two big supermarket chains are charging too much for food.

With food prices increasing at up to three times the rate of inflation this year, the Commerce Commission is kicking off a study into whether Kiwis are paying too much at the supermarket.

Food price increases peaked at 4.4 per cent in April – the highest rates since 2011, and far above the annual inflation rate of 1.22 percent.

This morning, David Clark, the new Minister of Commerce and Consumer Affairs David Clark, announced a market study to ensure New Zealanders are paying a fair price for groceries. “Supermarkets are an integral part of our communities and economy, so it’s important to ensure that Kiwis are getting a fair deal at the checkout.”

The Commerce Commission study, which will take a year, will look into the structure and competition of the grocery industry at the wholesale and retail levels, the pricing practices and grocery procurement practices of the major grocery retailers, and the price, quality, product range and service offerings for customers.

“There are indicators that competition in the sector has weakened over time.”
– David Clark

Food accounts for roughly 17 percent of the average Kiwi household’s weekly expenses, and this has been increasing year-on-year.

But competition is limited: almost all New Zealand’s supermarkets are owned by two chains: Foodstuffs (whose brands include New World, Pak’nSave and Four Square) and Woolworths (which owns the country’s 180 Countdown supermarkets, as well as 60 Super Value and Fresh Choice).

This year, there were 307 complaints to the Commerce Commission about supermarket pricing. And just last month, Pak’nSave Mangere was fined $78,000 for regularly charging more at the till than what it advertised.

The market study is something Consumer NZ had been calling for, and Labour had promised on the election campaign trail. “Some of the big supermarket chains have said there is already a healthy degree of competition in the sector, and we want to test whether that is the case,” Clark said.

Consumer NZ chief executive Jon Duffy welcoming the announcement of a Commerce Commission investigation, saying New Zealand food retail was dominated by two players. “When you’ve got a market like this, there’s a big risk that consumers will end up paying higher prices because the usual competitive pressures don’t apply.”

He said the investigation should be wide-ranging, looking not only at supermarkets’ contracts with their suppliers, but also the stores’ pricing practices and promotion of their private label brands. Private labels – the supermarkets’ own brands – offer the stores’ higher returns but mean other brands can be pushed off shop shelves, Duffy said.

“Supermarkets have a huge influence on the food supply chain, from the farm gate to the dinner table. Their practices not only affect what choices are available to consumers – and which brands end up on shop shelves – but also what we pay at the checkout. Consumers have the right to know whether this market power is being misused.”
– Jon Duffy

In September, Consumer NZ formally complained to the Commerce Commission about supermarkets’ price promotions. “The stores employ a confusing array of price promotions, which risk misleading consumers about the discount they may be getting,” Duffy said this morning. “Based on our research, we think there are good grounds to question whether some of these discounts are genuine.”

In Mangere, the Pak’nSave supermarket’s owners pleaded guilty to six charges of making false or misleading representations about price, under the Fair Trading Act, but argued the nature of the supermarket business meant it was impossible to eliminate price discrepancies completely.

The judge sternly rejected that argument, saying a degree of error was not an inherent feature in high-volume businesses and that consumers were entitled to rely on error-free pricing.

Duffy said; “Supermarkets have a huge influence on the food supply chain, from the farm gate to the dinner table. Their practices not only affect what choices are available to consumers – and which brands end up on shop shelves – but also what we pay at the checkout. Consumers have the right to know whether this market power is being misused.”

The Minister said New Zealand had one of the most concentrated retail grocery markets in the world. “There are indicators that competition in the sector has weakened over time.”

Countdown’s general manager of corporate affairs, Kiri Hannifin, argued Kiwis do have plenty of choice over where to source their food and groceries. In an email to Newsroom she said: “We work hard every day to make food as affordable as we can for our customers.”

“The New Zealand grocery market is intensely competitive and this can be seen by the huge array of choice that is available for customers – including supermarkets, specialty stores, fruit and vege shops, butchers, meal subscription services and more.  We welcome the opportunity to demonstrate this in an open and transparent way, and will cooperate fully with the Commerce Commission.”

Clark did acknowledge the “vital role” supermarkets played during the Covid-19 lockdown in ensuring continued supply of stock to consumers. “I was impressed with the sector’s measured approach to managing supply issues during the lockdown. While there were some allegations of price-gouging during this time, the study has a focus on longer term competition issues and isn’t primarily about the conduct of supermarkets in relation to those concerns.”

This month, Foodstuffs announced a “Here for New Zealand” corporate social responsibility commitment across its business, to support organisations like City Missions and foodbanks that help vulnerable families access healthy and affordable food.

“Our response to supporting New Zealanders during the pandemic was really the start of ‘Here for New Zealand,’” said Foodstuffs North Island chief executive Chris Quin. “We soon realised this wasn’t going to be a short sharp economic or financial shock. COVID-19 and its aftermath is something New Zealand and the wider global community are going to be dealing with for potentially years to come.”

Today’s announcement of an investigation into food pricing comes after last year’s Commerce Commission market study into the retail fuel industry, which found motorists were paying high petrol prices due to a lack of competition. This led to improvements that include making pricing more transparent by requiring fuel prices to be displayed on forecourt price boards.