The key issues raised by the proposed merger of the North Island and South Island Foodstuffs co-operatives are now clearer, after the Commerce Commission released its Statement of Preliminary Issues on the application for clearance made by the co-operatives.
The co-operatives each operate under the New World, PAK’nSAVE, and Four Square brands. Each co-operative operates under additional brands; for example, Foodstuffs North Island operates wholesale supply services under Gilmours, while Foodstuffs South Island operates under additional retail brand Raeward Fresh.
In order to grant clearance for the merger, the Commission must be satisfied that the merger is unlikely to substantially lessen competition in a market.
The two co-operatives say that there is no competition between them, partly due to the different geographical markets that each co-operative operates in. The co-operatives collaborate in some cases and share ownership of several entities, such as Foodstuffs (NZ) Limited, which represents the co-operatives on national issues. These are some of the key reasons they say for why a clearance should be granted.
The Statement of Preliminary Issues outlines key competition concerns that the Commission will consider. The three key areas of concern mentioned are:
- Unilateral effects: The Commission will consider whether Foodstuffs suppliers and consumers would be adversely affected by an increase ability to act unilaterally. This assessment will consider whether the proposed merger would allow Foodstuffs to do things like increasing prices, reducing quality of service, or paying lower prices to suppliers without affecting Foodstuffs’ profitability. The Commission will consider whether the merger may decrease competitive restraints and therefore enable such actions.
- Coordinated effects: The Commission will consider whether the merger will increase the potential for Foodstuffs and its remaining competitors to coordinate their behaviour. This is a familiar issue for the grocery sector; the Commission’s 2022 market study into the grocery sector found that the sector was vulnerable to coordination at the retail supply level. The Commission will therefore look at whether the merger would make coordination more likely, complete, or sustainable.
- Vertical effects: The Commission will consider the vertical changes to the structure of the grocery sector caused by the proposed merger, in which wholesale suppliers are combined with retail suppliers. For example, the entity that would own Gilmours (owned by Foodstuffs North Island) would also own and manage all stores under Foodstuffs retail brands like New World and PAK’nSAVE. These types of vertical changes can give the merged entity increased ability to engage in anti-competitive behaviour, such as refusing to deal with competitors or raising prices charged to competitors.
Interested parties have been given until 1 February 2024 to submit their comments to the Commission on the above effects of the proposed merger and any other issues it raises for them, although the Commission is open to extending this date in some cases. The Commission aims to reach a decision by 5 March 2024, but this date may be extended depending on the Commission’s progress with the investigation.
The statement comes after the extensive market study by the Commission into the grocery sector in 2022, which led to law changes after finding that lack of competition in the industry was leading to poor consumer outcomes. The grocery industry also continues to find itself under the microscope in 2024 with the Commission recently announcing that it is investigating into both Foodstuffs co-operatives and Woolworths New Zealand Limited. These investigations concern the supermarkets’ actions under the Fair Trading Act after complaints from Consumer NZ about various pricing and promotional practices.
If you have any questions about the content of this article, please feel free to get in touch with a member of our Competition and Antitrust team.
Special thanks to Partner Nick Crang and Graduate Brooke Kinajil-Moran for preparing this article.
Disclaimer: The content of this article is general in nature and not intended as a substitute for specific professional advice on any matter and should not be relied upon for that purpose.
