As the Commerce Commission reports on the competitive behaviour of NZ's supermarket chains, a local food supplier speaks out about how hard they screw down prices.
The maker of an acclaimed sustainably-sourced breakfast cereal says the growth of her business has been stopped in its tracks by the tough tactics of the big supermarkets.
Yum granola founder Sarah Hedger, from Nelson, has given voice to what many nervous food suppliers are saying privately: that the two dominant supermarket chains screw down their prices under an implied threat that their products will be pulled from the shelves.
"They say they believe in sustainability, then you sit down with them at store level and they say no, we just need the sales," she told Newsroom. "It was quite a shock to think all our efforts of the last five or six years could be gone. It's pretty gutting. We believe in our products but we can't get them to consumer.
"We have the store buyers saying, take a dollar off, take more off, is this the absolute lowest? They're continually asking, give us your best price, and they give you no indication of what is acceptable for your category, so you're punching in the dark."
Hedger's category, breakfast cereals, is one of several in which producers are expecting grim news from today onwards. Newsroom has obtained a document from Foodstuffs, the owner of the country's 330 New World, Pak'nSave and Four Square stores, revealing its North Island co-op is conducting aisle-by-aisle reviews of the products it stocks in its North Islands franchise operations. Its South Island co-op is also understood to be conducting similar reviews.
Hedger says Foodstuffs North Island repeatedly called meetings with her; sometimes they'd keep her waiting or stand her up; sometimes they'd turn up and demand she knock another dollar off the price of her cereals.
Then she and other suppliers met with the category managers and were told the company would reduce its range of breakfast cereals from more than 500 products, to about 200. Producers of other foods are also being told to expect big cuts to the ranges stocked by the chain, some beginning this week, in what the company calls "customer-driven range reviews".
In an unfortunate coincidence, Hedger said she'd been told details of the cereals range cuts would be announced from Thursday this week – the same day as the Commerce Commission delivers its draft report.
The Commission's study of the supermarket industry was ordered by Commerce and Consumer Affairs Minister Dr David Clark, and is expected to indicate the extent to which the big chains have a stranglehold on the market. There are questions about them land-banking in the cities and provincial towns, and adopting aggressive anti-competitive strategies to keep out affordable overseas competitors like Aldi and Costco and drive local challenges such as Nosh into the ground.
"It's a backward step for New World, cutting out artisan and craft products. Since when has any consumer asked for less choice and less innovation?" – Katherine Rich, Food and Grocery Council
But most of all, the Commission will address the ways in which Foodstuffs and Woolworths NZ (which owns the Countdown, Fresh Choice and Supervalue brands) use their dominant position to force down local suppliers' prices, and drive up the prices paid by shoppers.
Just this week, Statistics NZ's Household Living-Costs Price Index revealed the soaring double-digit price rises of foods like meat, poultry, fish and cheese – and the extent to which that hits vulnerable communities including superannuitants, beneficiaries and Māori the hardest.
Food and Grocery Council chief executive Katherine Rich has been speaking out on behalf of her members, food suppliers who she says are too fearful to speak publicly themselves, lest they be bullied out of business by the supermarket chains.
She said Foodstuffs has been quietly cutting its ranges, category by category, pushing out the local and artisan brands to make space on the shelves for high-yielding home brands like Pams. Some producers were expecting to hear back this week on whether they had been "deleted" or not.
"It's a backward step for New World, cutting out artisan and craft products," she told Newsroom. "Since when has any consumer asked for less choice and less innovation? As for this announcement potentially being on the day of the Commerce Commission report, the timing is appalling."
She said Foodstuffs North Island had been going through categories and cutting 10 to 12 shopper choices down to about four, retaining supermarket labels like Pams. "This means a loss of the innovators and the artisans who might sell less but have a strong following. In some categories margin expectations have doubled.
"Like Sarah, some members have been asked to pay a new percentage display fee on all sales and are either getting few displays or no displays at all for their money."
"We see a whole lot of evidence of harms coming out of the sector, but it's really hard to say whether it's because of lack of competition, or because of dodgy behaviour by the supermarkets – or because of normal market dynamics and consumers just have to wear it." – Jon Duffy, Consumer NZ
Rich, a former National MP, pointed to the price of Tasty cheese as an example of the impact on shoppers. In Australia's Woolworths supermarket, a home brand block of Tasty cheese costs AU$8.80 (NZ$9.33) and the New Zealand-made Hillview brand costs just AU$8.00 (NZ$8.48).
Yet New Zealand's Countdown supermarkets charged around $17.50 for a 1kg block of home brand Tasty cheese this month; the premium Mainland brand was $18.20. (The supermarket chain has lowered those prices slightly ahead of this week's Commerce Commission report).
Consumer NZ chief executive Jon Duffy agreed prices were too high. "I hope this is the start of an informed debate about the root causes of the problems in the sector," he told Newsroom.
"We see a whole lot of evidence of harms coming out of the sector, but it's really hard to say whether it's because of lack of competition, or because of dodgy behaviour by the supermarkets – or because of normal market dynamics and consumers just have to wear it.
"If it is the market structure that is one of the contributors to these increases in prices, then I think it is incumbent on the Commerce Commission to recommend changes to that structure, and the Government to take action."
Countdown and Foodstuffs both said they would consider the draft report from the Commerce Commission, before making any comment.
In Nelson, Sarah Hedger said Foodstuffs had required her company, and others, to sign up to dealing with the Foodstuffs North Island co-op head office, rather than dealing with individual supermarkets whose owners had been supportive of her brand over the past six years.
"Obviously they want your product lines to be performing at a level that is comparable to Hubbards, when it's not comparable," she said. "We used to pay the stores directly for the aisle displays that are critical to building the visibility of our brand. Now we have to pay head office. And we went from having a few displays every month, to having only one display in the entire year."
The company's sales had been increasing 40 percent a year, but last year the changes at Foodstuffs caused them to go backwards in supermarkets. As a result, their overall sales increased by only 12 percent last year.
"Now they're saying, your sales aren't high enough, we're not making enough money off you. There was a big trend towards granolas and they took on too many breakfast brands, now they want to get the number down from 550 to about 200.
"I'm not optimistic – I think my products are going to be deleted. Our values are everything they say the want, but we've accept we might not make the cut."
* Sarah Hedger's organic granolas can be bought directly from her company, online at Yum NZ.
