The New Zealand Commerce Commission has recently blocked a proposed merger between Foodstuffs North Island and Foodstuffs South Island, two of the country’s largest grocery retailers.
The Foodstuffs division boards for the North and South Islands currently function separately. Earlier this year, the largest supermarket operator in the country reached an agreement to merge its divisions and establish a national cooperative.
However, the Commerce Commission rejected the proposal, stating it would significantly reduce competition.
“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,” Commerce Commission chair Dr. John Small said.
“We are also concerned that the consolidation with the proposed merger would lead to reduced investment and innovation by suppliers, meaning reduced consumer choice and/or quality of grocery products in New Zealand for consumers.”
Foodstuffs’ proposal needed approval from both the Commerce Commission and the High Court. ComCom can only approve a deal if it is convinced that it will not lead to a significant reduction in competition.
Foodstuffs North Island and South Island divisions expressed disappointment by the decision.
“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,” North Island chief executive Chris Quin said, emphasising that the proposal to merge represented a once-in-a-generation chance for the supermarket operator to adjust to the market.
Foodstuffs South Island chief executive Mary Devine also said operating as a single entity would be more logical.
