Foodstuffs South Island submits its response to the Commerce Commission’s draft market study

Foodstuffs South Island Ltd has submitted its response to the Commerce Commission’s draft market study report. After the draft report was made available on 29 July, Foodstuffs was given four weeks to provide additional insights and considerations around the initial recommendations outlined in the report. This was extended by two weeks due to the August COVID-19 Alert Level 4 nationwide lockdown, as it was recognised by the Commerce Commission that the supermarkets were under extreme pressure meeting New Zealand’s grocery needs at this difficult time.  Over this time, Foodstuffs has invested significant resource into reviewing and carefully responding. The Co-operative’s focus was to understand which of the initial recommendations would provide the best outcomes for New Zealand households.

Foodstuffs provided constructive feedback to the draft report, with a particular focus on the Commerce Commission’s methodology and draft finding on profitability. In essence, the Commerce Commission only looked at some elements of the business which led to an overstated view of our profitability.

Steve Anderson, CEO, Foodstuffs South Island says, “Think about it this way, the cost of running a car isn’t just about the everyday essentials like fuel and a warrant of fitness. You need to consider all elements, like the cost of buying it in the first place, to assess the true value of your car. In simplistic terms this is essentially what occurred when assumptions were made when calculating the Co-operative’s profitability. Therefore, we’re grateful to have the opportunity to provide our accurate profitability to the Commission as part of this process.”

“Correctly, calculated, Foodstuffs South Island’s returns are broadly half of that calculated by the Commission. Our Return on Capital is 11.50% - not 23% as outlined in the draft report. This level of return is consistent with the Commission’s international sample of grocery retailers. We’re grateful to have the opportunity to provide our accurate profitability to the Commission as part of this process”, Anderson adds.

Following the announcement from Government that New Zealand was returning to Alert Level 4 at midnight 17 August, Foodstuff South Island’s top priority has been to ensure the health and safety of staff and customers.

“The way our teams have juggled both the immediate needs of a COVID-19 lockdown while considering how we can help New Zealanders in the long-term by dedicating time and energy to the market study has been nothing short of exceptional. The Foodstuffs South Island team of 17,000 has once again stepped up to keep groceries on shelves – and we are extremely thankful for the long hours and commitment they have shown.”

South Islanders want great value, and Foodstuffs South Island has always looked for ways to deliver on this need. The Commerce Commission’s draft market study made options for recommendations that aim to improve value for consumers, and we believe some of these suggestions may offer a good opportunity to achieve this.

Anderson says, “Our focus when working through the draft report was to always think about what’s going to be best for New Zealanders. We consistently look to bring value to South Island communities – it’s what we do every day, and this will not change.”

Foodstuffs believes that developing an industry code of conduct alongside suppliers and Government, simplifying existing pricing and promotion’s structure, clarifying our reward structures and loyalty programmes, committing to consistent use of unit pricing, and improving access to land sites could be beneficial to New Zealanders.

However, there are some recommendations in the report that Foodstuffs South Island is concerned could have unintended consequences for consumers.

“We gave serious thought to what’s going to be realistic for our business to be able to deliver for the benefit of consumers. Some of the options, while might seem initially suitable, may not have the desired outcomes for New Zealanders. Today, we’ve provided as much detail in our response that the timeframe allowed to help illuminate our thinking and support the Commerce Commission’s process”, Anderson concludes.

Foodstuffs South Island has been engaged with the process to date, providing information and data and seeking to collaborate with the Commerce Commission wherever possible to deliver the best outcomes for New Zealand households.