Supermarkets - Back Full Circle

I never imagined that at this stage of life I'd be back taking a professional interest in the grocery industry, but fate can be strange. I've been following with interest tihe Commerce Commission's market study into that sector, and been struck by the parallels with telecommunications. Both are huge sectors with enormous economic impact; both feature duopolies or monopolies; and both have been caught using their massive market power to exert total dominance over their markets.

This led me several months ago to write an opinion piece for Stuff. Then, much more recently I connected with Katherine Rich at the Food and Grocery Council, with whom I am now in contact offering support and advice gleaned from the Telecom saga.

This weekend my contribution was this article in the Herald highlighting the comparison.

Unbelievably its 4 decades since I worked for the NZ Grocery Manufacturers' Association - precursor to the Food and Grocery Council - as Executive Director! It was a strong and effective organisation, as the FGC is now. I remember working on the phase-in of bar coding, the successful campaign to remove restrictive requirements to use expensive rail transport rather than cheaper trucks, and defending the manufacturers against the Muldoon price freeze.

In those days there was a healthy power balance between the manufacturers/suppliers and the distribution sector. The latter was known in those days as "the trade." In those times manufacturers sold to wholesalers, but also maintained a sales channel direct to each retail store, thereby insuring themselves against the concentratiion of buying power that we now see.

But the signs of today's issues were there even then. The three Foodstuffs businesses (yes, three in those days - Auckland, Wellington and South Island) desperately wanted to bring in "central warehousing" to improve logistical efficiency through the supply chain. Manufacturers pushed back heavily, foreseeing that this would put way too much power into the hands of a handful of wholesale buyers.

At some stage in the ensuing 4 decades the wholesalers won. The situation we have today - total wholesale dominance over both upstream and downstream markets - is what the GMA feared. But its much worse, because in the meantime the number of wholesalers has shrunk from about 8 in those days (Foodstuffs x3, Foodtown, Woolworths, Shoprite and a couple more) to the 2 we have today. Looking back, you have to wonder why it took so long for the government to act.

I'll be watching developments with great interest. I'm all for competition, capitalism and free markets. But now and then when a sector or a company gets too powerful the government, through its regulator, has to step in and protect the public.

As with telecommunications the Commerce Commission has provided a very thorough analysis. I look forward to seeing the next steps.