The public could have a say in whether Countdown and Foodstuffs break up early next year

A Cabinet document says 'property rights' and any reduction in economies of scale would be among the issues that would need to be considered if the government considered breaking up supermarket chains.

Chris McKeen / Stuff

A Cabinet document says ‘property rights’ and any reduction in economies of scale would be among the issues that would need to be considered if the government considered breaking up supermarket chains.

  • Cost-benefit analysis on forced store sales to be provided to Cabinet in October
  • Trade Secretary David Clark says there would be a ‘high burden of proof’ for such a step
  • Supermarkets could be fined a percentage of their turnover for breaking new wholesale rules

The public could be consulted on a breakup of supermarket groups Countdown and Foodstuffs early next year, if the government chooses to go that route, a recently released Cabinet document revealed.

Trade Minister David Clark last week announced initial steps the government would take to improve competition in the $22 billion grocery industry, which include a new wholesale regime and a code driving for industry.

But the Cabinet document supporting the decisions provides more detail on the government’s plans and conundrums, and what further action it could take to order Countdown and Foodstuffs to sell some of their stores to make way for a third chain. of supermarkets.

Clark told his fellow ministers he would report in October with the results of a ‘detailed cost-benefit analysis’ of the various options for ‘retail divestment’ and seek a decision on whether to move on to further steps.

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“Based on this work, implementation options could then be developed for public comment in early 2023,” the document says.

The options could either be to force Countdown and Foodstuffs to sell some of their stores or some of their banners, the newspaper said.

But details of how this could be done have been removed from the Cabinet document.

The option touted by competition advocate Tex Edwards would force Countdown and Foodstuffs to sell more than 100 of their Countdown, New World and Pak’n Save stores.

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But one alternative that has caught the interest of the Maori National Authority is the forced sale of their Fresh Choice and Four Square chains.

Countdown and Foodstuffs have been approached to comment on the contents of the Cabinet document.

It is widely believed that the government would risk being sued by the supermarket groups if it ordered either type of shutdown, which would seem unprecedented at least in New Zealand.

Telecom split into what is now Spark, and Chorus, in 2011 after a series of regulatory interventions, but ultimately did so voluntarily, rather than as a result of government legislation.

The Cabinet paper warned that there would be ‘a heavy burden of proof to meet before decisions on retail divestment could be taken’ in the supermarket industry, noting that the commission no did not perform its own cost-benefit analysis on the option when it did its industry market research.

Potential “risks and issues” should be considered and potential impacts on chain operations, economies of scale, property rights and the sourcing model understood, he said.

Trade Minister David Clark expects to return to Cabinet with the results of a 'cost-benefit analyst' of retail divestitures in October, with consultations possible early next year.

ROBERT KITCHIN/Stuff

Trade Minister David Clark expects to return to Cabinet with the results of a ‘cost-benefit analyst’ of retail divestitures in October, with consultations possible early next year.

The Cabinet paper said a wholesale support scheme being drawn up to try to improve competition in the meantime could include a ‘compulsory supply’ obligation for Countdown and Foodstuffs to sell products groceries at the wholesale level under regulated conditions.

But it showed that major decisions had yet to be made on how it would work, ahead of the introduction of a grocery industry competition bill in October.

These included whether the scheme would be based on requiring Countdown and Foodstuffs to supply rivals on terms equivalent to their own retail stores without discrimination, or on a ‘regulated supply cost basis’. .

The latter regime would seem likely to force supermarket groups to supply groceries to their competitors at the price at which they bought them, plus an allowable margin.

The wholesale backstop would be triggered if supermarket groups are found to have failed to adhere to a “quasi-regulatory regime” to review competitors’ good faith supply requests and supply them on standardized terms with a system of dispute resolution in place.

But the Cabinet document made clear that officials were still working out the criteria by which the wholesale backstop could be triggered.

He said Countdown and Foodstuffs could face the possibility of hefty fines if they fail to comply with the eventual scheme, or through a new mandatory industry code of conduct that will outline how they must treat suppliers and consumers.

Penalties for violations could include fines proportional to their turnover as well as “injunctions, recognizances and damages”.

The authority that will enforce the code of conduct will have investigative powers and provide protections for “whistleblowers and complainants”, he said.

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