The Commerce Commission has declined to give clearance for Foodstuffs North Island Limited and Foodstuffs South Island Limited to merge to become a single national grocery entity.
Commission chairperson John Small said the commission was “not satisfied that the proposed merger would not have the effect of substantially lessening competition in multiple acquisition and retail markets”.
“The proposed merger would result in a permanent structural change to the New Zealand grocery industry. We are concerned about the impact this could have on competition and New Zealand consumers,” Small said.
“The proposed merger would reduce the number of major buyers of grocery products in New Zealand from three to two, reducing the number of buyers for many suppliers to supply their products to, and creating the largest acquirer of grocery products in New Zealand.
Small said this would result in the merged entity having greater buyer power than Foodstuffs North Island and Foodstuffs South Island each do individually, which would harm the competitive process, and considered it likely to substantially lessen competition in many acquisition markets.
“As a consequence of the substantial lessening of competition and the associated increase in buyer power, the merged entity would likely be able to extract lower prices from suppliers and/or otherwise adversely impact suppliers in the relevant markets,” he said.
In particular, Small said the Commission were concerned that the reduction in the number of major grocery retailers from three to two and the creation of a national Foodstuffs entity could make price coordination between the merged entity and Woolworths more likely, complete or sustainable.
Foodstuffs run the Pak’n Save, New World and Four Square brands.
Foodstuffs responds
In a statement this morning, Foodstuffs North Island and Foodstuffs South Island chief executives expressed disappointment following the decision not to merge.
“This merger is about bringing together the back-end support functions of our two regional co-ops to become more efficient and competitive, so we can better serve our customers. That’s good for everybody,” said Foodstuffs North Island chief executive Chris Quin.
He said the process was a “legal test” and the co-op was confident in putting forward a proposal that “satisfied the test”.
“While we’re disappointed with the decision, we’ll await the Commerce Commission’s full reasoning and take time to review it before we decide our next steps.”
South Island chief executive Mary Devine said it “just makes a lot more sense” to operate as one national business as she says other local and global competitors do.
“The merger would help us stay ahead of global industry trends, adapt quickly to disruptions, improve how we partner with our suppliers, and continue to serve our communities with the same dedication and excellence that has always defined us.”
“We remain convinced that merging is the right thing to do for our customers, our 500-plus members and for New Zealand,” said Quin.
Foodstuffs in numbers
199 Members of Foodstuffs South Island (store owner-operators)
320 Members of Foodstuffs North Island (store owner-operators)
2,000 Foodstuffs South Island co-operative employees (excl. store employees)
2,451 Foodstuffs North Island co-operative employees (excl. store employees)
5.4 million customer visits in-store and online with Foodstuffs every week
$10.8b Foodstuffs North Island revenue (FY24)
$3.6b Foodstuffs South Island revenue (FY24)
