Proposed Foodstuffs North Island and Foodstuffs South Island merger would reduce number of major grocery operators in the country from three to two
The New Zealand Commerce Commission has declined to give clearance for Foodstuffs North Island and Foodstuffs South Island to merge and become a single national grocery entity.
Chair John Small said the Commission was concerned the proposed merger could substantially lessen competition in multiple acquisition and retail markets.
“The proposed merger would result in a permanent structural change to the New Zealand grocery industry,” Small said. “We are concerned about the impact this could have on competition and New Zealand consumers.”
According to Small, the proposed merger would reduce the number of major grocery operators in New Zealand from three to two, reducing the number of buyers for many suppliers including fresh produce growers. It would also create the largest acquirer of grocery products in New Zealand.
“This would result in the merged entity having greater buyer power than Foodstuffs North Island and Foodstuffs South Island each do individually, which would harm the competitive process, and we consider is likely to substantially lessen competition in many acquisition markets,” he said.
“As a consequence of the substantial lessening of competition and the associated increase in buyer power, the merged entity would likely be able to extract lower prices from suppliers and/or otherwise adversely impact suppliers in the relevant markets. We are also concerned that the consolidation with the proposed merger would lead to reduced investment and innovation by suppliers, meaning reduced consumer choice and/or quality of grocery products in New Zealand for consumers.”
Small added that it is likely the merger would make it harder for other grocery retailers to compete and grow, potentially depriving consumers of a more competitive grocery industry in the future.
“We consider that the proposed merger increases the risk of coordination between the merged entity and Woolworths,” Small concluded. “In particular, we are concerned that the reduction in the number of major grocery retailers from three to two and the creation of a national Foodstuffs entity could make price coordination between the merged entity and Woolworths more likely, complete or sustainable.”
Foodstuffs North Island and Foodstuffs South Island expressed their disappointment at the decision.
“This merger is about bringing together the back-end support functions of our two regional co-ops to become more efficient and competitive, so we can better serve our customers. That’s good for everybody,” said Chris Quin, Foodstuffs North Island chief executive.
“We know affordable groceries matter to New Zealanders, and we’ve worked hard to tame food price inflation over the past two years. Being one national co-op would allow us to do more.”
Quin added that he remains convinced that merging is “the right thing to do for our customers, our 500-plus members and for New Zealand”.
“This process is about a legal test, and we were confident in putting forward our proposal that it satisfied the legal test. While we’re disappointed with the decision, we’ll await the Commerce Commission’s full reasoning and take time to review it before we decide our next steps.”
In June the two co-ops’ owner-operators voted overwhelmingly in support of the proposed merger.
“It was a clear sign that both co-ops were united in our vision for the future and committed to delivering the benefits,” said Foodstuffs South Island chief executive Mary Devine.
“By joining forces, we would be better equipped to invest in new technology, streamline how we operate and bring fresh ideas to both in-store and online shopping.”
