INSIGHTS

Supermarket Competition – Who are the Winners?

11 March 2022
I was really disappointed with the recent Commerce Commission report on supermarket competition, as released 8 March 2022. But as I am an ex supermarket executive I also had to check whether my thinking was biased.

Having industry knowledge is not biased, but actually provides clarity. You see my disappointment was not in the findings but more in the frustration of the process and its purpose.

Basically I believe the process as it was established was a waste of time, money and resources for everyone, taxpayers included and unfortunately looks like it was created with little understanding of what the actual real issues are. I ask you “Who Are The Winners?”  – Not the government, not the suppliers, not the retailers and certainly not the customers.

Looks to me like some politicians and the media may need a lesson in business, as it is not Profit that increases Price but Costs. Any business including the government sets its product or service price based on their total CODB. If sales volume drops and CODB remains the same or increases, then the business has 4 choices to attempt to maintain current profit levels. 1. Lose profit, 2. Sell more, 3. Reduce costs 4. Increase profit %. Good leaders know that the right answer is option 3. Reduce Costs but the trouble is that it is the hardest to do and many choose to take one of the other options.

The facts are that to reduce CODB you need efficiency and the only real way to do that long term is to create size and scale so that’s why you have large companies dominating any business sector. If the government wants more competition then they need to help make the smaller businesses more cost efficient through the laws and policies they pass or they force more consolidation and overall less competition.

The facts remain that the government sets the laws, policies and procedures for which all business and New Zealanders operate. As such they also set a large chunk of business costs of operating through tax such as income, property, transport etc. and compliance & social policies such as min wage, safety, COVID etc. If they don’t actually understand the impacts of the laws and policies then they should set up a process to do so more collaboratively. Instead of accusing businesses of inappropriate operating processes without the correct facts and then instructing their own policing body to investigate. They have done this before and it proved to be ill founded and a waste of public money.

I believe that the Commerce commission should have been asked to investigate the reason why the costs are so high within the grocery industry but that would mean as leaders the politicians would have to front up and be accountable for a large part of them. So it’s much easier to say it must be profits that are driving the inflation and high grocery prices in NZ.

The government could have achieved much more through better communication and collaboration from all parts of the industry on how they could work together to reduce CODB in the industry but only if the government had wanted it that way. The commerce commission’s report found that there were no laws broken, the businesses were doing what they are entitled to do under their current environment. My frustration stems from yet another example of a top down leadership mentality with a flawed purpose. It is clear in this case that the actions that have been lawfully allowed to happen, have now created an environment that some no longer like.

If you want change then you have to plan that change and I say start by delivering actions that create the right behaviours. Those behaviours will enable the environment you want but I can also assure you that you won’t create the right behaviours by just wielding a big stick!

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