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Foodstuffs’ mega merger on the cards

An application to shift mega supermarket chain Foodstuffs’ North and South Island businesses from a “close relationship” to a “full merger” was filed with the Commerce Commission just before Christmas.

The chain claims the amalgamation would result in a range of efficiencies, including lower overheads, greater innovation, and better value for customers.

Foodstuffs stores in Wairarapa include New World in Carterton and Masterton, PAK’nSAVE in Masterton, and P&K Four Square in Martinborough.

Some estimates put Foodstuffs’ control of the New Zealand supermarket sector at 53 per cent, and, together with the Woolworth’s chain, forms what has been described by the Commerce Commission as “a duopoly with a fringe of other grocery retailers”.

Foodstuff’s national market share is reflected in Wairarapa, where it has 50 per cent of the region’s supermarkets.

Woolworths operates three supermarkets in the region – SuperValue in Featherston, FreshChoice in Greytown, and Countdown in Masterton – while Moore Wilson in Masterton represents Wairarapa’s only large-scale family-owned supermarket offer.

According to Foodstuffs’ redacted application document, the merger will “deliver better value for customers at the checkout and thus enhance competition” as well as create a “merged entity … that is leaner and more resilient, more efficient, and faster at adapting to customers’ changing needs”.

In a subsequent statement, a spokesperson for Foodstuffs said the merger would allow the supermarket giant to “combine the best ways of doing things from each co-operative, with one national co-operative that will help us deliver better value to shoppers wherever they are in New Zealand.”

It’s a claim that anti-monopoly campaigner Tex Edwards, of Monopoly Watch NZ, takes issue with – he believes Wairarapa shoppers are unlikely to see any benefits from the merger if it goes ahead.

“The dominance by Foodstuffs in the Wairarapa area means there is absolutely no pass through to Wairarapa consumers. There is no financial incentive for the Four Square guy to compete with the New World guy or the PAK’nSAVE guy or woman to sell cheaper,” Edwards said.

“Because the market is fundamentally broken, there is no market. All the savings are going to the owner, it’s making their business worth more.”

Consumer NZ head of research and advocacy Gemma Rasmussen is also of the view it’s “unlikely” shoppers would see lower prices at the checkout anytime soon if the merger was successful.

“I don’t necessarily think that we would immediately see this drastic drop in costs when New Zealanders because of this merger.”

It could also increase the vulnerability of businesses that hold contracts to supply Foodstuffs North Island and Foodstuffs South Island, Rasmussen suggested.

“What you’re now seeing is that the fate of your company and your ability to distribute across the entirety of the country might lay in the hands of one supplier contract manager.

“When we look at consolidation and Foodstuffs becoming more consolidated and powerful, I think we do need to ask if that is a good thing because New Zealand has a really highly concentrated market.”

A division of the Commerce Commission that includes the new grocery commissioner Pierre van Heerden will decide the application.

In a statement to the Times-Age, the commission said it will grant the merger if it’s satisfied it “will not have or will not be likely to have the effect of substantially lessening competition in any market. To the extent that a merger promotes competition in a market rather than lessening it, this would be a relevant consideration under this test.”

It can consider the efficiencies claimed by Foodstuffs, “provided they are realised in a timely fashion and are unlikely to be realised without the merger.”

The commission is expected to release a statement of preliminary issues and call for public submissions on the merger later this month.

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