Having such a code would reduce this imbalance, the commission’s draft report said.
“We consider that it would be beneficial to introduce a mandatory Code of Conduct to help strengthen suppliers bargaining power with retailers and prevent current conduct, which reduces the ability and incentive of suppliers to invest and innovate,” it said.
Horticulture New Zealand chief executive Nadine Tunley supported the move, saying it would increase transparency and reverse the imbalance of power.
“HortNZ supports any move to ensure that growers get a better return on their investment, so that they will continue to invest in fruit and vegetable growing so New Zealanders can eat healthy, locally produced food,” Tunley said.
She says grower returns have not increased for at least 10 years. However, retail prices and costs – labour, freight, compliance, for example – have steadily increased.
The commission says such a code would only be effective if it was mandatory and it may need to be determined by the Government.
It would also need to include a mechanism to resolve disputes between suppliers and retailers, such as an agency or an ombudsman.
While major grocery retailers had charters containing principles for how it interacts with suppliers, the NZ Food and Grocery Council in its submission to the commission’s report described these charters as “largely symbolic”.
The commission found that in most cases there was an imbalance of bargaining power in favour of the major grocery retailers.
The report found that while some suppliers – particularly large suppliers of well-known brands – had relatively strong bargaining positions compared to others, this is relatively rare.
In many cases suppliers are likely to be more dependent on the major grocery retailers than the retailers are on suppliers.
“For suppliers with few outside options other than to supply to major grocery retailers, the cost of walking away from negotiations with a supermarket is high – significant lost sales,” it said.
“In contrast, the cost to a major grocery retailer of walking away from negotiations with most suppliers is relatively low, unless there are no other suppliers of those products to deal with.”
The commission’s study included a suppliers’ survey. The key theme of this survey included the suppliers’ lack of ability to negotiate with retailers.
Feedback from the suppliers included:
•We have two choices 1) sell to them under their terms 2) don’t sell to them at all;
•No ability to negotiate. We are price takers;
•It’s pretty much sign this document, or don’t supply;
•Negotiations are one-sided, as the retailers have all the power to either delete or keep our products on shelf. It is a very competitive market and the supplier who gives them the most, gains the most, even if product quality suffers.
The study was undertaken after the Government asked the commission in November to look at whether competition in the $22 billion a year grocery industry was working well and if not, what could be done to improve it.
The commission’s draft findings are preliminary and subject to consultation prior to its final report being published in late November.
Overall, it found that competition is not working well for consumers.
“If competition was more effective, retailers would face stronger pressures to deliver the right prices, quality and range to satisfy a diverse range of consumer preferences,” commission chair Anna Rawlings said.
“Our preliminary view is that the core problem is the structure of the market. In competitive terms, the major retailers – Woolworths NZ and Foodstuffs – are a duopoly, and while there is an increasingly diverse fringe of other grocery retailers, they have a limited impact on competition.
“This is because they are unable to compete with the major grocery retailers on price and product range in order to satisfy the widespread consumer demand for a main shop at a single store.”
Rawlings says the best options for improving competition are those that enable an increase in the number of retailers directly competing against Foodstuffs and Woolworths NZ.
It recommended making it easier for new competitors to enter or existing independent retailers to expand by increasing wholesale access to a wide range of groceries at competitive prices.
