Foodstuffs deletes NZ seafood products, making way for more imports
New World and Pak'nSave are to remove most of NZ fishing company Sealord's range from their freezers as the supermarkets flex their muscles in the face of the Commerce Commission.
// Updated with comment and explanation from Foodstuffs
Jobs at Sealord's Nelson plant are understood to be on the line, after Foodstuffs North Island's decision to "delete" most of the New Zealand fishing company's frozen products.
Food and Grocery Council chief executive Katherine Rich said the decision would shrink Sealord's 80 percent local market share to less than 20 percent, turning it into a market minnow and making more space in the supermarket freezers for overseas products like Alaskan pollock instead.
The Foodstuffs decision is a bold one, at a time when it's engaging with a Commerce Commission market study, with allegations of anti-competitive behaviour by the supermarket chains. This week the commission is to publish its agenda for hearings. There are concerns that Foodstuffs and Woolworths are pushing up food prices at the same time as producers are paid less.
It will hear evidence on improving conditions for entry and expansion, including site availability; improving access to products at the wholesale level, and directly improving retail competition in grocery markets. The hearings begin next week. This is a time when Foodstuffs might be expected to play nice.
But this latest news shows Foodstuffs' confidence to flex its muscles. Its ambitions extend beyond food to liquor, pharmaceuticals, and even diversifying into housing, with the fast-track consent approval this month of a new retail and residential development in Dominion Rd, Auckland.
Sealord staff have been told the removal of most of their frozen products from New World and Pak'nSave will take effect from November 15.
Rich described the decision to remove the Sealord frozen ranges as the best example in 20 years of the detrimental impact of the duopoly.
"Last week it announced plans to decimate – and I do not use that word lightly – the range of market leader Sealord Group Ltd, a decision that will delete most of their frozen products from New Worlds and Pak'nSaves, removing major choice from consumers."
She said the range of frozen goods was being cut from 1600 to about 1000 at New World, and down to 600-700 at Pak'nSave. Those ranges that remained were not decided according to customer demand, affordability, quality or local sourcing, but purely on the basis of the profit margin they returned to the supermarket chain. Rich said Sealord had offered to increase Foodstuffs' profit margin by 50 percent, but this wasn't enough to satisfy the retailer.
"Most New Zealand consumers believe we have the best fish in the world and so it's no surprise that Sealord's fish is the market leader and most preferred brand in NZ supermarket freezers."
She said Pam's Alaskan pollock, processed in China and imported to New Zealand, was not substitutable for New Zealand-caught fish. “This belies sense, knowledge of market trends and New Zealand consumer sentiment regarding local species and provenance.
"Our industry has never experienced such an extreme margin grab. It's quite extraordinary at the time they are in the Commerce Commission spotlight. They're snubbing their nose at the commission and government’s process."
"Sealord was informed that the outcome was a significant reduction in our range despite Sealord’s sizeable market share, which will undoubtedly adversely impact our retail sales in all their stores, which would then have follow on impacts for our operations in New Zealand." – Doug Paulin, Sealord chief executive
Foodstuffs also owns its own New Zealand fishing company. Two years ago, the supermarket chain purchased Leigh Fisheries and the Lee Fish brand. At the time of the takeover, the companies said Leigh Fisheries had a total of 53 independent boats fishing catching lobster, snapper, john dory, bluenose, and groper, as well as long-line tuna boats fishing for southern bluefin tuna and swordfish.
Somewhat ironically, New World features Sealord on the "support our locals" page of its website, highlighting that the company was established in 1961 and is half-owned by iwi. "We are passionate about bringing quality seafood to our customers in New Zealand and around the world," the website says.
It's another blow for Sealord, after China suspended exports from the Nelson plant that processes finfish and fishmeal, citing Covid-19 hygiene food safety fears. Chief executive Doug Paulin says that suspension has cost it $3 million.
In a statement to Newsroom, Paulin said Sealord had been negotiating with Foodstuffs North Island as part of their freezer review, which was itself part of a larger review across their stores.
"These discussions concluded last week and Sealord was informed that the outcome was a significant reduction in our range despite Sealord’s sizeable market share, which will undoubtedly adversely impact our retail sales in all their stores, which would then have follow on impacts for our operations in New Zealand," he said.
"We are seeking clarity on Foodstuff North Island’s rationale for this decision. We also reached out to the Food and Grocery Council as the industry body, to understand if there have been similar supplier outcomes.
"We don’t have anything else to comment on until we have complete understanding of Foodstuffs North Island’s position.”
Jocelyn McCallum, Foodstuffs North Island’s head of grocery, food and frozen, said the company's priority was to find and offer to its customers the best value it could. "Our range review process has been guided by a range of customer data and insights to deepen our understanding of customer needs, customer loyalty, brand loyalty and customers’ willingness to buy alternative products within a category."
She said there was "significant duplication of products" within the frozen fish category. They had started with 62 products. One fifth of those accounted for four-fifths of sales.
"Our goal is to ensure we are offering our customers products that meet their needs and this means removing duplication in the range to enable more choices for customers.
"It's not correct to say Sealord’s range has been decimated. We have kept their products that our customers tell us are most important to them and these represent over 70 percent of Sealord’s current frozen range sales with us. From a share of shelf position this is approximately 30 percent in New World and 35 percent in Pak'nSave."
Katherine Rich says these products represent just half of Sealord's frozen sales; McCallum said they represented 70 percent. "We struggle to see how a change of this size puts jobs at risk as claimed,” McCallum said.
McCallum said the priority was to offer options that provided locally-caught fish as the raw material source and by far the majority of the category continued to be. Foodstuffs North Island’s commitment to sustainable locally caught fish was demonstrated by its 100 percent ownership of Leigh Fisheries, she said.
The frozen goods range review comes after Newsroom revealed range reviews across other products, such as Foodstuffs North Island's decision to reduce its range of breakfast cereals from 500-plus products down to about 200.
The supermarket margins come at the expense of returns to farmers and fishers. An NZ Institute of Economic Research study, submitted to the Commerce Commission, shows farmers receive just 20.32 percent of what shoppers pay for their produce at the supermarket, down from a peak of 22.53 percent in 2012.
Sarah Hedger, the maker of an acclaimed sustainably-sourced breakfast cereal, said the two dominant supermarket chains screwed down suppliers' prices under an implied threat that their products would be pulled from the shelves.
Statistics NZ will publish the latest monthly Food Price Index statistics on Wednesday. The September figures may confirm or refute widespread claims from shoppers that supermarkets hiked prices during Level 4 and Level 3 lockdowns.
The Commerce Commission inquiry has published submissions on its website, including 31 from submitters who asked not to be identified because they feared professional or financial repercussions.
One, identified only as "Anonymous D", worked until recently in a Foodstuffs supermarket. "Allowing suppliers to collectively bargain would be incredibly beneficial for producers of homogenous products, companies typically in perfectly competitive markets like most fresh produce would benefit from being able to unionise and bargain as a cohesive unit to help the power imbalance between these producers and the supermarkets," they say.
"Noticing that New Zealand has some of the highest costs of food in the OECD while also having grocery companies earning significantly higher profits than international competition tends to lead to the conclusion that New Zealand’s high prices can causally be attributed to the profits of grocery companies.
"Therefore, I agree with the proposition of intervention in the market to increase competition and I believe introducing a new competitive firm either by creating one, having an overseas firm enter the New Zealand market or splitting up existing companies would go a long way to helping this disparity between profits domestically and internationally."
The supermarket chain has been in expansionary mode this year, despite the Commerce Commission inquiry into the so-called duopoly of Foodstuffs and Woolworths.
Foodstuffs is made up of two co-operatives, one in each island. As well as grocery retail brands including New World, Pak'nSave, Four Square and Fresh Collective, Foodstuffs also owns wholesalers Gilmours and Trents, inhouse food brands like Pam's, and liquor chains Liquorland, Henry's and The Mill.
Tighter licensing rules now prevent most dairies selling alcohol – and the supermarket chains use covenants and lease terms to prevent smaller liquor chains opening up.
An example is the battle for domination of liquor sales is being waged in the small community of Prebbleton, just 1km outside Christchurch City's urban boundary. Prebbleton is at the centre of a housing boom in the Selwyn District, and that's accompanied by three big new retail developments.
The Commerce Commission has published a submission from "Anonymous T" quoting a potential lessee at one of the new developments. He said Foodstuffs North Island, which sold the land, had imposed a requirement that if the owner leased out a site for a bottle store franchise, it had to be either Henry's or Liquorland – both banners owned by Foodstuffs.
"He informed me this is very common knowledge within the industry and that Foodstuffs South Island and North Island both landbank at new developments, so they can determine what brands are included in their development, that is, no competing brands or banners that they don’t own," the submission says.
"Transparency within this industry would create competition throughout several industries, not just the grocery trade but also the liquor industry, because these main players are using the same tactics in liquor as well."
Woolworths opened a FreshChoice supermarket in the Prebbleton Central development last year, which sells beer and wine. Other developers said Woolworths had placed covenants to stop other liquor brands.
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Foodstuffs has replied with a classic pincer movement: the small Thirsty Liquor store next door at Prebbleton Tavern (at the heart of a second retail development) converted to a Henry's in July. And half a kilometre down the road at The Prebbleton Village development, Canterbury couple Amanda and Aaron Taylor have applied for a licence to open a big new Liquorland franchise.
The Prebbleton Village developer Johnny Hague said his company was building its 2200 square metre retail centre on land purchased from Foodstuffs.
He confirmed that came with covenants attached: Foodstuffs imposed no legal constraint on which liquor brand opened on the site, he said, but had tried to restrain Hague's company from leasing to any butcher or baker. MON Developments had successfully pushed back on the bakery clause, but remained unable to open a butcher's store.
The landlords for both the Liquorland and the Henry's stores said it was their choice to sign up to Foodstuffs brands. "We've gone with the Liquorland 2.0 fit-out because the demographic of the area can afford a nicer bottle of wine," Hague said.
And at the Prebbleton Tavern, landlord Shannon Gilmore said they had chosen Henry's because it had a better brand image. He said that when the tavern first got its licence in 1970, it was the only one in the area. Now, there were 22 off-licences in a 5km radius.
"The Local Alcohol Policy needs to be reviewed with regards to density of liquor outlets," he said. "They're issuing more and more liquor licences. Why is the council letting businesses cut each other out, instead of supporting local businesses?"
The Commerce Commission has signalled its concern about the two supermarket chains placing restrictive covenants on land, to stop competitors, and both companies have given public assurances they will abandon the practice, though Woolworth's assurance is conditional on the Commerce Commission requiring that of its competitors too.
At Woolworths, corporate affairs general manager Kiri Hannifin declined to answer questions about what covenants the company had in Prebbleton, and when it would lift those covenants. "We won't be making any further comments on these matters outside the submission we've made to the Commerce Commission," she said.
Over at Foodstuffs South Island, chief executive Steve Anderson said he supported freeing up of land for supermarkets through planning law reform. "In the meantime, we will not be enforcing restrictive land covenants on land we’ve sold and won’t be registering covenants when selling land in the future," he said. "This includes land Foodstuffs South Island has previously sold in Prebbleton."
His counterpart at Foodstuffs North Island, Chris Quin, agreed on the important of developing an industry-wide solution to restrictive covenants. "We’ve started the process of removing all existing restrictive land covenants and exclusivity provisions in leases and we don’t plan to make any further use of them in future," he said. "Of the 50 restrictive land covenants and exclusivity provisions that were in place, four have already been removed.”
Moving into housing
Foodstuffs' expansionary vision extends beyond retail. In Auckland's Dominion Rd, the company has just been granted resource consent approval through the Government's fast-track process to build a multi-storey supermarket and apartments complex.
In response to concerns expressed by neighbours and the council about the complexes' the height, noice and traffic congestion caused by the new complex, the consenting panel has asked Foodstuffs and its development partner to reduce the building's height, install traffic signals, reduce the number of carparks from 277 to 110, and reduce the opening hours of the supermarket from 24 hours a day to a more restrained 13 1/2 hours.
Foodstuffs refused to say what the impact of the reduced scale would be on the number of apartments and the area of supermarket retail space, except to confirm that the reduction in height translated to one whole level and part of another level on adjoining Grange Road.
Lindsay Rowles, Foodstuffs North Island's general manager for property, acknowledged some residents had reservations about the proposed development and raised these as part of the consultation and engagement process.
"As a result, and in response to both community consultation and the Expert Panel’s own advice, we responded to those concerns by adapting and further refining our plans, both before the application was submitted and during the approval process, and following discussions with multiple specialists. These included a series of mitigations suggested and accepted by the Expert Panel," he said.
"While there’s some way to go before building work starts, we’re excited to continue working alongside local residents and retailers, and to be one step closer to becoming a part of and serving this vibrant Auckland community."
Rowles said the development was well-designed and made a positive contribution to a well-functioning urban environment, with significant thought and design incorporated into the plans, including alternative transportation options, a travel demand management plan as the consent required, smart building technology, and emissions reduction and climate adaptation.
"Given its location within the vibrant Dominion Road area, creating a safe, sustainable, and convenient retail and residential experience for everyone, and one that supports public and active transport use for the community, has been a key design principle that has been accepted by the Environmental Protection Authority," he said.
Foodstuffs North Island has a seemingly inactive joint venture with the country's biggest pharmacy chain, Green Cross Health, that dates back to 2004 – but it's been provoking greater interest this year, under the shadow of the Commerce Commission inquiry.
The 50/50 venture is registered as "Pharmacies Instore Ltd". Countdown already has instore pharmacies; the Foodstuffs venture would allow the supermarket to place the Unichem or Life Pharmacy brands in its stores.
Ernie Newman, a retail industry expert who previously headed up the Food and Grocery Council, said it showed the supermarkets chains leveraging their extreme market dominance by taking over more and more adjacent markets.
"It's moved sideways into the liquor business through ownership of Liquorland. Along the way it's taken out hundreds of local butchers, bakers and greengrocers. It's bought a fishing company. And retail fuel. And food service. The land-grab journey is relentless." – Ernie Newman, retail expert
Back in the 1980s the Foodstuffs companies were just wholesalers, established and controlled by independent retail stores as a buying cooperative, he said. Since then Foodstuffs had turned the business model on its head, and it now controlled the retailers and allocated store sites to the highest bidder. "The servant has become the master."
Chris Quin at Foodstuffs North Islands said they were not expanding into pharmacies at this stage. They had no pharmacies in-store and had no current plans to have them in store. "The venture with Green Cross Health is not new – it was formed in 2004 and has not progressed."
Newman pointed out that Foodstuffs had also taken control of the logistics. Foodstuffs North Island alone boasted a fleet of several hundred trucks, and one of the country's biggest and newest warehouses near Auckland Airport.
"It's moved sideways into the liquor business through ownership of Liquorland. Along the way it's taken out hundreds of local butchers, bakers and greengrocers. It's bought a fishing company. And retail fuel. And food service. The land-grab journey is relentless."
"So we should not be surprised to see Foodstuffs moving seriously into competing with the pharmacies. No doubt it will argue that it brings efficiencies through its logistics and purchasing power.
"But is this honestly good for the consumer? Foodstuffs will take the high volume, high margin lines. To hell with the slow movers. And what kind of answer will you get from the checkout guy at Pak'nSave when you ask for advice on treating your ingrown toenail of haemorrhoids?"
Newman said that left unchecked, Foodstuffs and Woolworths Australia could go on to control every element of New Zealand's food chain, from paddock to plate. "The Commerce Commission's Market Study is now crucially important," he said. "Far, far too many businesses and livelihoods are now at risk from excessive market power."
Correction: An earlier version of this article quoted Katherine Rich saying Foodstuffs told Sealord that consumers didn't really mind where their fish came from and that Pam's Alaskan pollock was just as acceptable. Foodstuffs did not say this. The Prebbleton Village land is purchased from Foodstuffs South Island, not Foodstuffs North Island.