The New Zealand Government has announced its full response to the New Zealand Commerce Commission’s (NZCC) market study into the retail grocery sector which found competition is not working well for consumers and supermarkets earn NZ$1M a day in excess profits. The Government has accepted 12 of the NZCC’s 14 recommendations – and the 2 recommendations it disagrees with is because the Government plans to go further including developing an additional mandatory wholesale grocery access regime as a backstop for the voluntary regime recommended by the NZCC.
The Government has proposed a suite of actions and reform for the grocery sector over the coming months, including the Commerce (Grocery Sector Covenants) Amendment Bill earlier introduced on 19 May 2022 and a Grocery Industry Competition Bill to be introduced later this year.
Bill to prohibit grocery sector covenants
The Commerce (Grocery Sector Covenants) Amendment Bill (Bill) proposes to prohibit and make unenforceable covenants which a designated grocery retailer has an interest in that have the purpose, effect or likely effect of:
- Impeding the development of land or the use of a site for a grocery retail store, or
- Impeding another person operating a retail grocery store at the same site (for example, in the same mall or shopping centre).
Such covenants will be deemed to have the purpose, effect or likely effect of substantially lessening competition in the relevant market. The designated grocery retailers will be Foodstuffs North Island, Foodstuffs South Island and Woolworths New Zealand, which the NZCC’s grocery market study estimated had a combined market share of 80-90%.
If the Bill is passed, the prohibition will take effect almost immediately. It would come into force the day after royal assent and would also apply to covenants given before the commencement date.
More reforms to come
Other reforms the Government have announced are coming include:
- Mandatory unit pricing on grocery products
- A mandatory code of conduct between major grocery retailers and suppliers, planned for late June 2022
- Work on recommendation to improve access to sites through planning law reform
- Establishing a retail grocery regulator and one or more dispute resolution schemes to hear disputes relating to wholesale access and the Grocery Code of Conduct. The NZCC would act as interim regulatory while the retail grocery regulator is being developed.
- Implementing the NZCC’s recommended voluntary wholesale access model while also developing a regulatory wholesale access regime to provide a ‘regulatory backstop’
- Examining additional potential steps to improve competition, like requiring major grocery retailers to divest some of their stores or retail banners.
The Grocery Industry Competition Bill is planned to be introduced later this year to progress several key regulatory changes. The bulk of these changes are expected to be implemented by early 2023. MBIE is currently consulting on mandatory unit pricing for grocery products.