Shopping around: Further reforms to the Grocery sector continue to shake things up for the main players

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The continuation of reforms in the grocery sector sees two further changes recently come into effect. These include the new Grocery Supply Code and new regulations requiring clearer pricing information, effective from the end of August. The reforms are a result of the Commerce Commission’s market study into the grocery sector that resulted in a number of changes introduced by the Grocery Industry Competition Act 2023.

Grocery Supply Code

The new Grocery Supply Code (Code) will come into force on 28 September 2023 and will impose rules on agreements between supermarkets and their suppliers.

The Code will initially apply to New Zealand’s two main supermarket chains – Woolworths New Zealand (Countdown) and Foodstuffs North Island and South Island (including Pak ‘n Save, New World and Four Square). Other retailers may be designated as ‘regulated grocery retailers’ and become subject to the Code in the future.

The Code, which is largely based on its Australian equivalent:

  • requires retailers to deal with suppliers in good faith,
  • requires all supply agreements to be written in plain language and to contain certain key terms,
  • restricts retailers making changes to agreements without the consent of the supplier and making retrospective changes to supply agreements,
  • restricts retailers requiring suppliers to use a particular transport or logistics service,
  • requires retailers to pay supplier invoices within reasonable timeframes,
  • provides for better sharing of costs relating to promotions,
  • restricts retailers requiring payment for its own business activities, such as merchandising,
  • restricts payments for lost, damaged and spoiled stock,
  • imposes requirements for the acceptance or rejection of fresh produce,
  • requires retailers to respond to requests for price increases from suppliers,
  • protects a supplier’s confidential information and intellectual property,
  • prevents retailers from unduly obstructing suppliers from entering into supply agreements with other parties,
  • protects a supplier’s freedom of association with other suppliers.

The Code will apply to all new supply agreements from 28 September 2023. Supermarkets will have a ‘grace period’ of six months (until 28 March 2024) to review and amend existing supply agreements to comply with certain matters in the Code. Matters which don’t require amendments to existing agreements, such as the requirement to deal with suppliers in good faith, will apply to existing agreements immediately.

The new Grocery Commissioner Pierre van Heerden will oversee compliance and enforcement of the Code. Retailers found to be in breach could face a range of penalties. The maximum penalty for companies breaching the Code is the greater of 3% of turnover, the value of any commercial gain from the breach, or $3 million. Individuals face fines up to $200,000.

Clearer pricing information in supermarkets

New regulations requiring retailers to display the unit price of certain grocery products came into force on 31 August 2023.

These regulations apply to grocery retailers with an internal floor space of over 1,000sqm, which sell all the following product categories, as well as to online retailers that sell all these product categories:

  • bread
  • dairy products
  • eggs or egg products
  • fruit
  • vegetables
  • meat
  • fish
  • rice
  • sugar
  • manufacturer-packaged food.

Retailers must display the unit price for products clearly and legibly, at no less than 25% of the size of the marked price. This applies to in store, online, and advertised prices. The regulations prescribe what grocery products are covered, and how unit prices must be measured, calculated and displayed.

Affected retailers now have a transition time to comply with the new unit pricing requirements. Physical stores must comply by 31 August 2024. Online stores have until 31 August 2025.

The Commerce Commission is expected to publish guidance on unit pricing and the Grocery Supply Code shortly.

The above changes are part of a range of reform measures introduced by the Grocery Industry Competition Act 2023 (the Act). Other reforms include:

  • a new regulatory regime for the wholesale supply of groceries,
  • the appointment of a new Grocery Commissioner in July to oversee the grocery industry,
  • the extension of the unfair contract terms regime in the Fair Trading Act 1986 to certain supply contracts between grocery suppliers and retailers,
  • allowing certain suppliers to collectively negotiate terms and conditions of supply with major grocery retailers by exempting those suppliers from prohibitions in the Commerce Act 1986.

If you would like further information on these changes and how they may affect your business, please contact a member of our Competition & Antitrust law team.

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.

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