by frog
The future of New Zealand’s grocery market continues to wind its way through the courts.
Last year the High Court overruled the Commerce Commission’s decision to prevent either Foodstuffs or Woolworths from buying the Warehouse. The Commerce Commission is now appealing that decision and a result is expected from Justice Mallon shortly. The Commerce Commission had initially said that New Zealand’s supermarket retail market was already highly concentrated, and a reduction of players from three to two would substantially reduce competition, to the detriment of New Zealand consumers. Between them Progressive Enterprises (which runs Foodtown, Countdown and Woolworths Supermarkets) and Foodstuffs (which runs Pak’n Save, New World and many convenience stores) control virtually all of New Zealand’s grocery market.
Commission Chair Paula Rebstock said at the time:
“Without the competitive threat offered by The Warehouse, Foodstuffs and Woolworths would not face the same incentives to reduce prices, and increase quality, service, and innovation”.
“There are high barriers to entry in the supermarket retail market, as evidenced by the fact that, apart from The Warehouse, there has been no new entry into that market for 20 years, other than through acquisition.”
Currently New Zealand food is in the grip of a duopoly. While the Warehouse decision on its own is unlikely to make a significant difference one way or other to the control we have over our own food, it is an important starting point. The real threat to the duopoly though won’t come from the Warehouse, or any other maverick operator that wants to provide more of the same. Local communities’ ability to have a say in the control and ownership of our own groceries will require us to break apart the duopoly that isolates us as food consumers from the farmers and manufacturers that produce our food.
Published in Economy, Work, & Welfare by frog on Wed, January 30th, 2008
Tags: commerce commission, duopoly, farmers, Food, foodstuffs, groceries, progressive enterprises, supermarkets, Warehouse, woolworths
on the trolls and those who are unable to keep on topic
The wikipedea entry reads like a page from the Communist Manifesto.
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Such utter nonsense. Anyone can set up a grocery retail business, and thousands do. Large supermarket chains haven’t been set up, not because of “natural monopoly” characteristics, but because there isn’t enough of a return on investment in replicating what the major chains have got. People choose whether to go to a supermarket, a specialist food store or local grocers. You can moan as much as you like that there aren’t countless choices wherever you may be, but to talk about “the control we have over our own food”. Whose food? It isn’t nationalised, it isn’t yours till you have bought, grown, made or been given it.
Statements like “Local communities’ ability to have a say in the control and ownership of our own groceries” would be laughable if you didn’t believe them. Why SHOULD communities (which is code for “those people who are motivated to interfere in the lives of others and aren’t too busy making a living themselves) have a say in private businesses? They are not “our groceries” until you buy them. What business would let “communities” have a say? and how many would last?
You then create strawmen with statements like “duopoly that isolates us as food consumers from the farmers and manufacturers that produce our food”. Who is stopping you approaching farmers directly or manufacturers? Kevyn is right – the wiki post is pure Marxism, and where has that fed people?
The concept of food sovereignty is outright statist rubbish – New Zealanders are fed (many overfed), food is relatively cheap, plentiful, with enormous variety and range of quality. How could the state or coercive community collectivism make that any better?
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libertyscott,
This is the first I have heard of food sovereignty, so I went and read the web page to see what it is about.
You claim that it is “outright statist rubbish”; I don’t know how you come to this conclusion. Points 2 (Agrarian reform) and 7 (Democratic control) would seem to imply that the concept of food sovereignty encourages participation in agriculture and ownership of farms by individuals (especially small scale farming), as well as farms owned by local communities (collectively owned). By collectively owned, they don’t seem to mean state owned, with the instructions coming from bureaucrats in Moscow, they seem to be referring to the agricultural decisions being made at the individual and local community level. There is no mention of coercion.
From this and other posts, I think you seem to have difficulty with the possibility that some communists are actually as liberal (in the traditional meaning of the word) as the “right wing” liberals you are more familiar with. You might be interested to read some history on the origins of socialism, around the time of the French revolution.
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I think the linkage between food sovereignty and grocery chains is very, very tenious.
Food sovereignty is about production and ownership of production. The grocery chains are about food distribution.
The two are miles apart.
What I find interesting is that farmers (large or small holdings) are free to grow and distribute what they grow, where they like in New Zealand.
They already are carrying out samieula requirement of having “agricultural decisions being made at the individual and local community level.”
The producrs grow what the customers require (otherwise they would have to plow the crop back into the ground and shoot the cattle).
How would the community owning the means of production change this?
Would the community also want to own the means of food distribution?
I’m with libertscott, it is outdated marxist theory without any foundation based on a outdated concept of french socialism not relevant in today’s world.
A good indiciation of how the people have changed their purchasing patterns (market forces) and are no longer treating supermarkets as a one stop shop. Most people now buy their fruit and veges, meat, fish, booze, etc from dedicated independently owned local shops at a usually better price and quality then available from the supermarket.
Milk and bread is chaepr to buy at the local dairy as well. Simply because more producers, without access to the supermarket distributuion chain, have an ability to sell through these independent stores.
Modern socialism!!!!
Example of this is Rivermill Bread. Bakery is in Huntly and their bread is available only from indendent retailers at a far cheaper price then comparable supermarket bread.
And in the capitalist tradition of competion improves the consumers benefits, the supermarkets are now also offering bread at a far more realistic price.
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Dear me.
A “local community’s say” is based around the local community getting off there bots and doing something.
We have a local farmers market. I don’t buy much there (excerpt, as noted, the pancakes) but many people do, and the farmers and customers clearly have a trade thing going. But what it illustrates is this: if a community want to have a local food production and distribution system, then it can and does work today.
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Hi Gerrit
“I think the linkage between food sovereignty and grocery chains is very, very tenious.”
Perhaps in regards to the price we pay in New Zealand for groceries, with one important caveat. I spent 4 years working in supermarkets so I am quite knowledgeable about their operation. An important factoid I learnt there whilst working in supermarkets was that the lower prices paid for the cheaper, bulk bought (and generally unhealthy) products on the shelves are effectively subsidised by the extremely high margins on fruit and vegetables, which I was told by my manager, compose up to half of the profit of the store.
In New Zealand we have effectively a duopsony (a market with only two buyers), which are also duopolists (two sellers), so they’re able to dictate terms not only to buyers, but sellers of produce as well.
The main problem with such big enterprises dominating their market is that not only are grocery giants able to anticipate desires and needs, but also due to their greater revenue streams they are able to CREATE consumption habits through advertising and dictating what is available on the shelves and the relative prices of their products, with devastating effects on people’s nutrition.
Food distribution is VERY relevent to food sovereignty in the Third World as illustrated by the book Stuffed and Starved. The author described the world’s food distribution system as a hour glass figure where the top producers (wide) and bottom (customers) is wide, but in the middle (processing and distribution), which is aided by government patronage, it narrows thereby allowing those enterprises at the “neck” of the hour glass to dictate terms to both producers and consumers and thereby making generous profits.
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Sleeepy raises the important competition issue. These two chains are increasingly vertically integrating and controlling large sections of the production, manufacture and distribution of food, which may be reducing opportunities for market entry by suppliers. Foodstuffs doesn;t just own a supermarket, they own large distributers too and they are incredibly profitable (good on them).
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Yes, there is vertical intergration (what a 1980′s flash back term!!) however they ability for a producer and consumer to get together is not stifled in any way.
There is nothing to stop an individual farmer from milking his cows, treating the milk to regulatory standards (cant have food poisining happening as with chickens) and selling this through his own distribution (home delivery, local dairies, fruit and vege shops, butcheries, etc. – even out local stationary sells milk and bread) channels to the consumer.
If supermarkets where depended upon fresh fruit and veges for their profit margin I would not put my KiwiSaver money into one of these.
With the mushrooming of independent greengrocers (thank God for the Asian influence to make this happen) I am concerned in regards long term supermarket viability.
My understanding was that booze was the profit centre.
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Gerrit,
You should have read my post more carefully. I was not necessarily advocating community ownership of farms; I was simply refuting libertyscott’s claim that food sovereignty amounted to “state or coercive community collectivism”. In some societies, community (not state) ownership may be a good model, in other societies individual ownership may work better (such as New Zealand?).
Secondly, I was not advocating some form of French socialism. I simply mentioned something about reading the history of socialism, from around the _time_ of the French revolution. People now days tend to associate socialism and communism with a large amount of state intervention in the economy, and in people’s lives. In fact, many communists, both now days and historically, would like to minimise state intervention. Some even believe the state will eventually wither away. I was just raising this point, because in some respects these views are not too far removed from the views of some “right wing” liberals.
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SleepyTreehugger said: allowing those enterprises at the “neck? of the hour glass to dictate terms to both producers and consumers and thereby making generous profits.
Yep, it is produces, rather than consumers, who get hit. Back in 2006 local producers complained that Progressive Enterprises were threatening to boycott them and source food overseas if the local producers didn’t reduce prices to them by 10-15%.
Ans see this Listener article:
Shelf Life
by David W Young
More change is coming to the supermarket business. It’s simply a question of when.
Good news for consumers does not necessarily mean good news for suppliers.
Earlier this year, I received several cloak and dagger phone calls from a businesswoman who refused to give me her surname or the name of her company, but claimed she was a mid-sized supplier to Progressive Enterprises supermarkets. (Thirty percent of the non-fresh items in the supermarket are supplied by local companies.) It made a colourful change from examining corporate press statements or financial reports.
My anonymous caller reckoned that the price competition between Progressive and its competitor Foodstuffs had squeezed suppliers on price so much that they were scarcely making money, especially with rising fuel and transport costs. She didn’t want the supermarkets to find out that she’d complained – hence the secrecy.
Soon after, a group of suppliers banded together and employed a top Wellington barrister and a public and government relations company. They wanted the Commerce Commission to reconsider its decision to allow Woolworths Australia to purchase Progressive, which took place last November. The suppliers (who refused to name themselves) argued that the takeover reduced competition and said the pinch on price was too strong. They claimed that a supplier was going to go under as a result.
The supermarket chain answered that the takeover would allow New Zealand suppliers to export more easily across the Tasman; the suppliers countered that they would be undercut by massive Australian competitors and lose out not just in Australia but also here. There have also been claims of “bullying? during the negotiations to establish the same terms of service on both sides of the Tasman.
Despite the barrister and the public relations team, the Commerce Commission has made it clear it’s not going to revisit its decision.
But if suppliers are in a sticky spot, it’s because the supermarket chains are under their own pressures, with probably more to come.
In one corner: Progressive, which has about 44 percent of the supermarket business, employs 18,000 staff and has 150 supermarkets, comprising Woolworths, Countdown, Foodtown and South Island stores SuperValue and Fresh Choice.
In the other: Foodstuffs, a locally owned federation with three retailer-owned co-operatives, New World, Pak’nSave and Four Square. New Zealand’s seventh-largest business, it accounts for about 56 percent of the market.
The Sylvia Park foray into groceries by new player the Warehouse has the industry talking. (Experienced hands suggest that they should have franchised out the produce section, rather than trying to deal with it themselves.) More important, it has seen supermarkets in the immediate vicinity lower their prices even further. Add to the mix the belief that German grocery giant Aldi is planning to come to New Zealand, and the big chains’ headaches get worse.
Aldi specialises in fewer, cheaper product lines than most supermarkets. It owns more than 5000 stores worldwide, including some in Australia. It confirmed last May that it was eyeing the Kiwi market, and has quietly registered a website domain name and hundreds of trademarks here.
Although some commentators seem to suggest that Aldi could quickly set up shop in New Zealand, it’s hard to envisage any imminent move. For one thing, there’s very little room for a major new player at the no-frills end of the market. For another, few prime greenfield or brownfield sites are available, particularly in the main centres. Also, depending on the speed of its expansion, the Warehouse could take the ultra-cheap market position that Aldi enjoys in other countries.
Meanwhile, some suggest that the Warehouse is a target ripe for takeover by a global grocery giant. With that sort of backing and global efficiency, the company would have unrivalled buying power. And that would mean tough times for Foodstuffs. So it’s easy in retrospect to understand why Foodstuffs launched its $150 million bid for 10 percent of the Warehouse. It can use its stake to ensure that the Warehouse isn’t taken over by a giant. And it can also now align its interests with the Red Sheds – perhaps by working together to ensure stronger buying power – or, less probably, through some form of merger.
There are still opportunities to make money in the $10 billion grocery industry. But the increasing competition for ever-lower prices isn’t good news for local suppliers.
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Gerrit.
“With the mushrooming of independent greengrocers (thank God for the Asian influence to make this happen) I am concerned in regards long term supermarket viability.”
I think that you’re oversttating the trend and neglecting the societal changes that have occured over the last 30-40 years. How many family’s have the time to go from one specialist grocer to the next? Most families now consist of two working parents who now have little enough time to COOK let alone do this. I speculate that the reason that greengrocers are popular amongst the Indian and Asian communities is that stay at home Mums form a greater proportion of their population than Pakeha.
In fact I think that the supermarket’s food dominance will be further consolidated as the price of petrol continues to rise, because most people will no longer be able to afford the luxary of going of shopping from one distant store to another.
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Sleepy, Gerrit is right if he is referring to the situation in inner city areas. Wealthy singles in apartments, retirees in townhouses, asian students and the impossibility of locating and servicing a fullblown supermarket in the CDB or CBD fringe has created the oportunity for these smaller stores located in traditional ground floor shops. At least that’s the case in central Christchurch. Probably the case for whichever part of Wellington Gerrit lives in too.
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It’s interesting how much power we the people (as producers and consumers) give away to others (in this case grocery resellers).
There is absolutely nothing to stop prodcurs and consumers bypassing the these middleman.
We just use them for convenience sake and they take advantage.
So take back the power, and yes be a bit inconvienced, bypass the gocery cartels. There is nothing in a supermarket that you cannot buy elsewhere.
We have to take individual responsibility and shop where its best for our individual needs. Here in South Auckland (sorry Kevyn I live in Auckland slummiest suburb, not a downdown apartment) we have untold independent retailers and markets every week to go to. So that is where we shop.
I reread your post samiuela and you are right it is not state control that will fix the grocery cartels. It is us as individuals, not buying from them.
That is socialism and capitalism at its best.
So the revolution is not in manning barricades but simply taking personal responsibility as producers and consumers to take back our power and bypass those middlemen.
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