Commerce Commission remains sceptical about proposed merger of North and South Island food companies

Foodstuffs operates the New World, Pak’n’Save and Four Square chains as well as several wholesale businesses.
photo: RNZ/Simon Rogers

The Commerce Commission still has serious concerns about the proposed merger of North Island Grocery Group and South Island Grocery Group.

The regulator has issued a statement on outstanding issues surrounding the merger of the two co-operatives, which operate the New World, Pak’n’Save and Four Square chains as well as several wholesale businesses, and extended the deadline for a decision to October 1.

“Based on the information collected to date, we are not currently satisfied that the proposed merger will not, or is unlikely to, have the effect of substantially lessening competition in the New Zealand (grocery) market,” the regulator said in the filing.

The company said the merger would create a significant national operator and effectively reduce the number of national supermarket operators from three to two, including Woolworths.

The enlarged food companies could affect competition in various parts of the industry related to food suppliers and end consumers by exerting market power in grocery purchasing and cause damage to food suppliers, thereby harming the interests of other grocery retailers and consumers.

“This could enable the merged entity to obtain lower prices from some suppliers, ‘cherry-pick’ the most favourable terms, disadvantage some suppliers and/or otherwise obtain more favourable deal terms from some suppliers.”

The commission said that if the merged group decided not to stock its products anymore, this could lead to some suppliers that supply only one of the food company’s divisions leaving the market.

“This could have an impact on the development of new product innovation, leading to reduced consumer choice and lower quality grocery products,” the commission said.

The competition watchdog even raised the possibility that an enlarged Foodstuffs could make its partnership with Woolworths “more likely, more complete or more sustainable”.

More consultation and advice

The committee said further consultations and submissions would be made, and reiterated that the document and unresolved issues did not represent its final decision.

Foodstuffs issued a brief statement saying it would “actively” work with the Commerce Commission to resolve the issues and highlighted its initial Top 10 reasons why the merger should be approved.

“We believe these top 10 reasons are also supported by a host of other evidence – for example Pak’n’Save is rated as New Zealand’s second most trusted brand, our continued strong relationships with valued supplier partners, our two-year fight to combat rising food prices, and 99 per cent of local grocers voting in favour of the merger in June.”

Positives raised by Foodstuffs include that the merger will create a strong and large New Zealand-owned business, with profits staying in New Zealand, saving behind-the-scenes operating costs, and allowing for technological innovation and helping small local suppliers.

They also stressed that the industry is now regulated by a code of conduct and a grocery commissioner.

Foodstuffs and Woolworths have already gone through the Commerce Commission’s 2022 market study, which resulted in some regulations and moves to clamp down on anti-competitive land covenants.

They are currently Under investigation A decision made by a regulator following a complaint from a consumer organization.