Friday 3 June 2022

Sequencing matters

Last year, I'd suggested that the government do a few things to help improve real competition in grocery retail.

In hindsight, the fault is mine. I should have made really really explicit that the ordering of these things matters. 

You have to do them in order. 

Well, maybe not all of them. 

Flip around the ordering on 1, 2, and 3 if you like. But 4 has to come last. 

  1. Direct the Overseas Investment Office to approve any application that involves building a new supermarket. Be liberal about it. If it's a ground-floor grocer with a 40-story apartment building above it, that's still a-ok.
  2. Make sure that existing covenants restricting properties against use in grocery retail are wiped if they're found to have anticompetitive effect.
  3. Set very credible expectations that consenting will no longer block grocery retail. There are options for doing this. We'd liked the idea of an "and a supermarket" addendum to the Enabling Housing Supply legislation, so that building three houses of up to three stories, and / or a supermarket, on your property would be a by-right activity. Send the appropriate threats to Councils that Commissioners will be put in place if they block supermarkets, or that a UDA will be set on top of them whose specific purpose is consenting supermarkets - and that it will authorise every single last one, overriding any zoning constraints.
  4. THEN phone up Aldi, Lidl, and a pile of others and announce that NZ is now actually open for business and would love their entry.
So what's happened since?

Best I'm aware, nobody's talked to the Overseas Investment Office.

The supermarkets are removing the covenants on their own, and there's legislation coming on top of that too.

Nothing's been done on consenting.

The Government has threatened that any large supermarket chain with a wholesaler may be forced to sell wholesale product at regulated prices to competitors. It has also threatened that it may yet force existing chains to divest stores.

And the government's asked Aldi if it wants to come in. 1 isn't done; 2's done, 3 hasn't been touched yet. 

If Aldi would still expect consenting to be uncertain and take years, there's no good reason for them to be interested. 

But it's worse than that. The Government has threatened that the wholesale side of integrated grocery chains could be forced to sell product to competitor chains at regulated prices. And that they're still considering forcing chains to sell off stores.

Gary Mortimer, an expert in supermarket retailing and a professor at the Queensland University of Technology, said New Zealand is a "reasonable next port of call for Aldi" which likes to target markets which are underserved by competition.

Aldi is popular in Australia, where it has more than 570 stores and employs some 13,500 people. It claims to save families who switch to its supermarket $2400 a year.

However, Mortimer said the company is more likely to be put off than pleased by the changes the Government has announced for grocery wholesale.

"Aldi is likely to see complicated wholesaling rules as a barrier to entry," Mortimer said.
The company sources its apparel and general merchandising goods globally. And the majority of its products are purchased through contract manufacturing and sold under the company's own private labels.

"It won't be interested in purchasing wholesale from local New Zealand competitors," he said.

Moreover, Mortimer said Aldi may be wary of being ensnared by the requirement to wholesale to competitors, should it pursue a New Zealand expansion.

It's currently unclear which supermarkets will be subject to a regulated mandate to supply competitors, now or in the future.

It is far from crazy for Minister Clark to have a preliminary chat with the likes of Aldi along the lines of: "We think these are the big problems inhibiting entry, this is what we're doing about them, what do you think?"

Could find out about issues nobody here had considered.

But doing it while issuing threats around forced access into the wholesale side, and around long-term property rights, and while the consenting side hasn't really been touched?

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