Ben O'Connell
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New Zealand’s biggest supermarket operator announced its plans to merge its various businesses into a single national cooperative last week. Foodstuffs in the North and South Island currently exist separately, but now their boards propose two becomes one.
Foodstuffs operate New World, Pak’N Save, Four Square, Raeward Fresh, On the Spot, Gilmours and Trents Wholesale. The proposed merge aims to remove duplication, simplify business dealings, and save on costs.
The idea of Foodstuffs in the North Island (FSNI) and South Island (FSSI) merging is not a new idea, having been in discussion for years within the industry. But it’s impacts may be more far-reaching than first envisioned.
First of all, let’s take a look at the rationale behind this proposal. The main driver behind the merge is to improve operational efficiency and deliver more benefits for its 1.8 million customers across New Zealand.
Right now, as two separate cooperatives, FSNI and FSSI have been managing their own distribution, marketing, and supply chain processes. Consolidating all of this action is set to bring numerous advantages for Foodstuffs.
2023 has seen New Zealand finally push to break up its dominant supermarket duopoly, which the Commerce Commission found earns $1 million a day in excess profits. The Commerce Commission will review the proposed merger to ensure it does not result in a significantly less competitive market.
The Grocery Industry Competition Act came into force in July and seeks to improve competition and efficiency in the industry. Kiwis can expect compulsory unit pricing on grocery products which should give shoppers the ability to better compare products, with further changes aimed to disrupt the duopoly to come. This will come as relief just as food inflation may finally be slowing.
There is no doubt that the merger will strengthen Foodstuffs’ position in New Zealand’s grocery retail market, so a third party overseeing and understanding the degree and impact on competition and overall industry will work to protect consumers and keep Foodstuffs accountable.
A critical aspect to monitor will be the competitive landscape between Foodstuffs and its main rival, Woolworths-owned Countdown. Regulators and industry stakeholders must carefully assess its long-term impact on suppliers and market competition to ensure a fair outcome for all parties involved.
But will Foodstuffs in the North and South merging actually lower prices for consumers? Through more efficient supply chain management and increasing buying power, consumers should face many benefits. A merged Foodstuffs entity would have a stronger negotiating position with suppliers due to its larger scale.
With improved economies of scale and operational efficiencies, customers should also expect better product range and availability in their local stores. All up, this could pass cost savings onto customers.
But can we trust the savings will be passed on? Kiwis are increasingly suspicious of supermarkets. A Consumer NZ survey in June 2021 said supermarkets were one of the most trusted sectors in New Zealand, but that’s plummeted 42 percent over the past year.
Consumer NZ has since lodged a complaint with the Commerce Commission about potential breaches of the Fair-Trading Act at supermarkets, asking it to investigate Woolworths and Foodstuffs stores. It’s part of Consumer NZ’s campaign to end promotional practices that are actually not special, an unfortunate trend.
Foodstuffs’ proposed operational merge is another move in the grocery industry, which has been a large talking point in New Zealand recently. With all of the power plays and industry action comes a need for strategic planning for all players impacted.
Some strategies for adapting to the evolving grocery market are embracing digital transformation, adopting a more consumer-centric approach, focusing on sustainability, diversity, and innovation, and enhancing the in-store shopping experience. But juggling all of these elements is easier said than done, as is keeping an eye on the competition.
The proposed merger between FSNI and FSSI has been in talks for many years, drawing attention to possible regulatory concerns. Retailers must stay informed about potential changes to regulations and be prepared to adjust their operations accordingly.
In summary, Foodstuffs’ proposed operational merger has the potential to bring about significant changes to New Zealand’s grocery retail industry. If executed well, it could lead to improved efficiency, better customer experiences and more competitive prices. However, regulators and industry stakeholders must carefully assess its long-term impact on suppliers and market competition to ensure a fair outcome for all parties involved.
Image courtesy of 123RF: Impact of Foodstuffs Proposed Operational Merge
By Ben O’Connell