The government has responded to the Commerce Commission's market study into New Zealand supermarkets by announcing a raft of urgent measures to bring change. The government has warned that supermarkets will have to change 'at pace' or be forced by regulation to do so.
The Minister of Commerce and Consumer Affairs, Hon Dr David Clark, announced on Monday 30 May 2022 that the government accepted 12 of the Commerce Commission's 14 recommendations, including:
- An industry regulator (with the Commerce Commission temporarily taking on those responsibilities while work is underway to establish the new regulator)
- Amendment of the Fair Trading Act to strengthen the business-to-business unfair contract terms regime
- A mandatory code of conduct
- Compulsory unit pricing on groceries
- More transparent loyalty schemes.
The government is taking stronger action in connection with the remaining two recommendations. Specifically, it has rejected the Commerce Commission's proposed three-year review timeframe, instead favouring an annual review, and rejected the proposed voluntary wholesale access regime. Instead, the government called on the existing supermarkets to open their wholesale arms to competitors now, and will put a regulatory backstop in place by the end of the year.
The government has said that if supermarkets cannot find a way to change voluntarily, regulation will be brought in to do so. The grocery sector is not the first industry in which the government has dangled the Sword of Damocles. For example, the telecommunications industry, dominated by Telecom at the time, operated under the threat of regulation from the time Telecom was corporatised in 1987 until it became subject to direct regulation and ultimately corporate separation in 2008 when its conduct did not meet with the expectations of the government at the time.
Looking ahead, a regulator for supermarkets could feasibly outlive its utility if the market measures that the government has announced, including wholesale access, work to create new entrants into the market and greater competition.
Finally, we previously highlighted the current legislative fatigue and questioned whether the government would have the appetite to pursue the Commerce Commission's 14 recommendations in its report. While it seems that the government is somewhat hungry, stating that it has "accepted" most of the recommendations, and "put supermarkets on notice", it remains to be seen how quickly the changes will be made (in relation to the Unfair Contracts Terms regime). We also question whether the government has in fact "agreed" to the recommendation that the next review of the Overseas Investment Act should consider whether it unduly impedes entry or expansion. The response document clearly states that a review has just been completed (as we pointed out), and no further review is planned.
This article was co-written by Susie Kilty (partner), Tony Dellow (partner), Anna Parker (senior associate), Laura Green (senior solicitor), Hannah Lee (senior solicitor) and Emily Tyler (solicitor).