Foodstuffs North Island and Foodstuffs South Island are set to continue their battle for a merger despite facing a setback from the New Zealand Commerce Commission.
Foodstuffs North Island and Foodstuffs South Island filed a joint application to merge into one New Zealand cooperative. However, in October, the Commerce Commission rejected the proposed Foodstuffs merger, stating it would significantly reduce competition.
The Commission’s chairperson, John Small, emphasised that such a merger would lead to a permanent structural change in the grocery industry, which could negatively impact consumers.
But both retailers are committed to appealing this decision. In their statement, they maintained that combining the two cooperatives into a single national entity would not significantly diminish competition, as the two divisions do not compete with each other at the retail level.
Furthermore, the merger is expected to reduce operational costs for Foodstuffs, allowing these savings to be passed on to consumers in the form of more competitive prices.
Chris Quin, the chief executive of Foodstuffs North Island, indicated that there is an alternative route for seeking approval from the Commerce Commission, known as an authorisation.
Authorisation is a type of application that evaluates whether the public advantages of a transaction outweigh its competitive impacts.
“We’ve got to be alive to all the possibilities all the time. We’ve got an open mind on this, and we’re just considering the facts as each stage comes. We’ll redo that and work with our advisors and with our boards and owners about the strategy and how we invest in it,” Quin said.
While this application is being looked at, Quin stated that their current focus remains on obtaining clearance for the merger.
“The opportunity and the benefit of this merger are still significant, so it is still worth investing in to get to the right answer.”
Matthews Law partner Alicia Murray highlighted that the Commission’s statement of unresolved issues was unusually extensive, spanning 149 pages in the merger decision.
Murray said ComCom was concerned about the growing buyer power and the diminishing options available to suppliers, especially considering that a market study had already revealed a substantial imbalance of power between suppliers and the major grocery chains.
She stated that seeking authorisation is a possibility for Foodstuffs, but it would be challenging to make a convincing case.
“They would have to show benefit to the public, not just the benefit to Foodstuffs as an entity. Although there will be efficiencies from the transaction, it’s not clear whether those will be actually passed on to consumers and whether that will actually have any impact on grocery prices, for example.”
Murray noted that Foodstuffs has other alternatives, including seeking a judicial review or proceeding with the merger without approval, which could lead to substantial fines.
In a related report, Grocery Commissioner Pierre van Heerden revealed that the Commerce Commission is currently engaging with various potential market disruptors in the grocery industry during a panel discussion at the New Zealand Food and Grocery Council’s annual conference. However, he did not provide specific names or details regarding these disruptors.