Image source: Tzuhsun Hsu
Foodstuffs North Island and Foodstuffs South Island, two of New Zealand’s largest grocery cooperatives, are reviewing their next steps after the Commerce Commission blocked their proposed merger earlier this month. The merger aimed to unify the two cooperatives into a single national entity but was denied clearance due to concerns over its impact on competition and potential harm to consumers. Both co-ops now have 20 working days to decide whether to appeal the decision in the High Court.
The Commerce Commission’s ruling, issued on October 1, 2024, expressed concerns that the merger would substantially lessen competition in both retail and acquisition markets. The Commission feared that reducing the number of large grocery players from three to two would hurt both suppliers and consumers. According to John Small, chairperson of the Commerce Commission, the merger would result in Foodstuffs becoming the largest buyer of grocery products in New Zealand, increasing its market power and reducing supplier options. Additionally, Small highlighted the potential risk of price coordination between Foodstuffs and its main competitor, Woolworths.
“The proposed merger would result in a permanent structural change to the New Zealand grocery industry,” Small said, emphasising that it could negatively impact competition across multiple acquisition markets.
Foodstuffs’ Position
Foodstuffs’ leadership has expressed strong disappointment with the decision and defended the merger as essential for improving operational efficiency Chris Quin, CEO of Foodstuffs North Island, stated that merging the two regional cooperatives would streamline operations, reduce duplication, and ultimately lower costs for consumers. Quin also emphasised that the co-ops operate in separate geographic regions—the North and South Islands—minimising any competitive overlap.
“We strongly believe the merger is the best option for making our business more efficient, keeping checkout prices as low as possible, and ensuring the co-ops are match fit to meet new grocery competition,” Quin said. He added that Foodstuffs is confident the merger would not reduce competition, given that suppliers already serve only one co-op per island.
Foodstuffs South Island CEO Mary Devine echoed these sentiments, arguing that the merger would allow the cooperatives to better respond to market disruptions and stay ahead of global industry trends. “Operating as two regional co-ops divided by the Cook Strait no longer makes sense. The merger will allow us to focus on our shared vision and continue evolving to become a world-class co-op,” Devine said.
Concerns About Market Dominance and Supplier Relationships
The Commerce Commission’s primary concern revolves around market concentration. If the merger were to proceed, Foodstuffs would become the largest acquirer of grocery products in New Zealand, significantly increasing its buyer power. The Commission argued that this could lead to reduced supplier competition and higher grocery prices for consumers. Suppliers would have fewer options to distribute their products, which the Commission feared could drive down the prices they receive and ultimately harm the competitive process in the market.
Additionally, the Commission raised concerns about potential price coordination between the merged Foodstuffs entity and its largest competitor, Woolworths, which could further harm competition.
Next Steps and Potential Appeal
Both Foodstuffs co-ops are now carefully reviewing the Commerce Commission’s full reasoning, which they received on October 23, before deciding whether to challenge the ruling in the High Court. Quin indicated that the co-ops felt they had addressed all the concerns raised during the clearance process.
“If we decide to take it further in the High Court, it will be because we haven’t seen any new information or changes regarding the issues the Commission raised during the clearance process – issues we believe we thoroughly addressed – and we see no valid basis for its final decision,” Quin said.
The co-ops remain focused on their broader mission to keep prices low and continue investing in community support, new stores, and technology upgrades. Despite the setback, both Quin and Devine maintain that merging is the right move for Foodstuffs and its members, and they believe it is crucial for staying competitive and ahead of global.