Supermarket charges on suppliers harming grocery competition
The Commerce Commission is prioritising investigations to address concerns about rebates, discounts, and other payments the major supermarkets charge suppliers, and the negative impact the practice has on new and existing competitors in the grocery market.
“These payments add backroom complexity and reinforce the low levels of competition in the grocery market. New and smaller entrants struggle to compete or grow as this practice allows the major supermarkets to use their market power to obtain prices from suppliers that other retailers can’t,” Grocery Commissioner Pierre van Heerden says.
“We’re not suggesting that the major supermarkets shouldn’t be able to negotiate hard for competitive prices. This is about the difference between the prices that large and small retailers have to pay for groceries and the impact of that on competition.
“While these payments aren’t unique to New Zealand’s grocery sector, they’re problematic because of our market structure where a few big players hold most of the market and so can distort competition.
“We’re focusing our resources on investigations and enforcement work that puts these payments under the microscope. We’ve concluded this is a better and faster way to address the negative impact of some of these payments, rather than additional regulation.
“Making sure these payments comply with grocery competition law will help support a more enabling environment for other competitors, and for suppliers to innovate and expand. The end goal we’re working towards is a grocery market that has more options, value, and choice for Kiwi households,” van Heerden says.
There are rules under the Grocery Industry Competition Act that specify what supermarkets can charge suppliers for and rules that they treat suppliers in good faith. The Act also prohibits conduct that would prevent wholesale customers from receiving benefits of certain types of payments.
The Commission has identified over 50 different types of supplier payments that account for around $6 billion paid by suppliers to the major supermarkets annually. These payments may be charged for shelf restocking, promotional support, aisle-cleaning and other in-store services.
Background
Rebates, discounts, and payments (RDPs) refer to a range of payments that are paid by a supplier to a grocery retailer to effectively reduce the final price paid by the retailer to a supplier. Information provided by RGRs and suppliers indicates that RDPs vary in form, structure, and timing.
Access to wholesale groceries was identified as a key barrier to competition in the Market Study and is reflected in the provisions of the GICA. We commenced the Wholesale Supply Inquiry in September 2024 due to concerns that the RGRs’ wholesale offers were not delivering improved access or competitive wholesale markets, and to assess whether additional regulation was needed to promote the purpose of Part 3 of the Grocery Industry Competition Act 2023.
The Commission has closed the Inquiry to focus its resources on compliance and enforcement. Through the Inquiry the Commission formed the view that the most efficient way of addressing wholesale supply issues is through industry-led changes to wholesale offerings. Focusing on compliance and enforcement of the existing regulation in the wholesale grocery market will likely drive faster changes to competition than imposing additional regulation.
In the event the Commission decides to re-open the Inquiry and considers additional regulation should apply, it would consult with stakeholders as required under section 59.
The Commission has a range of enforcement powers it can use, and breaches in the grocery sector are a priority enforcement area. The maximum penalty under GICA for contravening or attempting to contravene provisions relating to RDPs in the context of wholesale supply is $500,000 for an individual, or in other cases, the greater of $10 million or three times the commercial gain derived from the contravention. The maximum penalty under GICA for contravening or attempting to contravene provisions relating to RDPs in the context of the Grocery Supply Code is $200,000 for an individual, or the greater of $3 million or the commercial gain derived from the contravention.