Pierre van Heerden: Grocery Commissioner on the Commerce Commission's annual report criticising lack of competition in the sector

The Grocery Commissioner says the returns our big supermarkets get on assets is about double what overseas equivalents make.

The Commerce Commission's first annual report into the grocery market shows competition hasn't meaningfully improved.

It flags increasing margins and high profitability.

Pierre van Heerden says overseas grocers make less because they have more competition.

"The return on assets is about 11 percent vs 5.5-6 percent overseas."

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Episode Transcript

Speaker 1 (00:00):
Afternoon. The first annual Commerce Commission report into our supermarkets
has found no meaningful improvement in competition. It has been
now more than two years since the ComCom and the
government first started cracking down on supermarkets, but instead of
things getting better, they've actually got worse. Per Van Heerden
is the Grocery Commissioner, Hope heer hi Ether, you've said
that they're ripping us off. How are they ripping us off?

Speaker 2 (00:22):
Well, when we look at the report, their margins have
actually increased over the last period, the profitability is still high,
and they've still got major dominance in the industry. So
when we combine all of those things, we can see
that competition isn't working the way it should be.

Speaker 1 (00:41):
So are you saying that they are extorting us?

Speaker 2 (00:46):
I wouldn't go as far as saying extorting, but they
are making more margin.

Speaker 1 (00:50):
Yeah, But so is that ripping us off by making
more money off us?

Speaker 2 (00:55):
Yes? I believe in competition. If they are making more
than is accepted overseas, know that QI consumers are paying
too much and KEII consumers deserve better.

Speaker 1 (01:09):
How much more are they making off fast than is
accepted overseas?

Speaker 2 (01:13):
I don't have the figure with me right here, but
from memory, the return on assets is about eleven percent
versus five and a half six.

Speaker 1 (01:22):
Overseas, so it's like double.

Speaker 2 (01:25):
Yes, it is quite a significant difference between what others
overseas are making where there's more competition than what's happening
in New Zealand.

Speaker 1 (01:36):
How much of the margins gone up by.

Speaker 2 (01:39):
The margins have gone up by about three percent when
we look at the different ones, Fruit and veggies has
gone up about zero point four percent from memory, so
overall they've gone up. And when we say the margins
have gone up, this is the difference between what the
suppliers are ch maardging to the supermarkets with their inflation

(02:04):
and what the supermarkets have increased their prices by. So
that margin has increased.

Speaker 1 (02:11):
Ah, So it's not as so the suppliers are getting
a certain amount of money and yet we as consumers
are getting priced over and above that and that's going up,
That gap is going up.

Speaker 2 (02:22):
That is correct, okay, because we do have inflation and
we've got to recognize that. But you know, in a
in a competitive market, you'd expect that those margins are constrained.

Speaker 1 (02:35):
Now, Pier, the problem is this ist no surprise to
me at all, because when the government did the crackdown
on supermarkets, it was never going to work, right it
was it was too lily lived, it was weak. So
it hasn't worked. It's not going to work. What are
you going to do to change things?

Speaker 2 (02:51):
What we're doing is we've got quite a few powers
that haven't been unlocked yet, and we want to make
sure that we unlock all of those. What are those
powers once we've Once we've used that, then we can
say to the government this is where we're at, and
then they can make a decision what they want to
do from there. Are those For instance, if I take
the wholesale side of things, we've got to do a

(03:15):
Section fifty six inquiry in order to unlock what it
is called the backstops, so where we give a report
to the minister, and the minister then says to the
wholesalers that you've got to supply to other wholesalers at
the same price that you supply to your own stores.
That's one of the backstops on the supply code. What

(03:38):
we're doing. It's been in force now for five months.
We see it's not working the way it was intended
to there's some advantages already, but we've taken early actions.
So with all of these we're actually getting ahead of
the game and starting early to make all of the
improvements to the system. There's no one silver bullet. Was

(04:00):
it would be very easy. There's no one silver bullet.
So we've got to use all of these different tools
to their maximum effect to try and get change within
the injury.

Speaker 1 (04:11):
How long will it take you to get this stuff done?

Speaker 2 (04:15):
Well? When we look at overseas, Australia and Finland. In
Australia without a regime like we have, it took Ald
ten years to get to ten percent of the market share.
In Finland, Ledal was also ten years to get to
ten percent. I don't believe we have ten years. No
one is wanting to sit around, and no consumers specifically

(04:38):
wants to sit around for ten years. We have a
unique situation and that we've got a world first in
this grocery regime that we want to use to pull
all those levers. See what we can get done, See
if we can get another player in the market, improve competition.
And I think when we look at geographic areas like Auckland,

(05:00):
there's actually been a decrease already in the concentration of
the major grocery supermarkets by about four percent. So it
shows me that if competition is working and even the
smaller and slightly bigger like Costco come in, they can
have an impact and I believe we can change things

(05:22):
within our industry.

Speaker 1 (05:25):
You can't let the merger go through at foodstuffs with
the stuff going on, can you.

Speaker 2 (05:30):
Well either, you know, I can't comment on that at
the moment. We are in the process of reviewing it
and the decision on that will come out on the
first of October.

Speaker 1 (05:41):
All right, Pier, thank you, I really appreciate your time.
That's Pvnhead and the Grocery Commissioner. Now a lot of
the power will lay in the hands of Andrew Bailey,
the Commerce Minister. He's with us after six o'clock. For
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