anti-competitive

Questionable supermarket policy needs investigation: Greens

Allegations that supermarket giant Progressive Enterprises is applying pressure to its suppliers adds further impetus to the Green Party's call for a Commerce Commission inquiry into industry practices, and a code of conduct for supermarkets, Safe Food Spokesperson Sue Kedgley says.

According to a news report, grocery suppliers will be penalised for having their products promoted in rival supermarkets at or around the same time as Progressive's own advertised promotions. If this occurs, suppliers would be charged for the differential on the price offered in the opposition supermarket.

"These are precisely the kind of tactics that penalise small independent growers and suppliers who are already struggling in a highly competitive environment," Ms Kedgley says. "Progressive allegedly wants details of suppliers' supermarket specials with trade competitors - in advance - and will not accept promotions for inclusion in its mailers where there is a clash with a competitor's promotion arranged by the supplier," Ms Kedgley says.

Ms Kedgley says she is alarmed at reports that, while suppliers are furious about these practices, they fear if they don't play ball, their products would be left off supermarket shelves.

"Why should a farmer who grows and supplies broccoli to Progressive and the local New World be punished by a retrospective cut on their payment from Progressive because New World decides to have a special on broccoli in the same week?

"Most farmers and manufacturers have nowhere else to sell their produce than the two supermarket chains that control 96 percent of New Zealand's grocery market. An investigation would clarify whether there is any truth to the allegations that Progressive may be misusing its position to force small farmers and business people to take cuts in their margins.

"It would also determine whether this practice breaches the restrictive trade practices under the Commerce Act.

"New Zealanders spent $16 billion in supermarkets last year. They are a huge business, and it is essential that there are clear rules governing the trade, which prevent unfair trading practices occurring in the sector. That's why we need a Commerce Commission Inquiry into the sector and a code of conduct for supermarkets, such as exists in the United Kingdom," Ms Kedgley says

Supermarket giant Progressive Enterprises is turning the screws on its suppliers with a "no clash policy" imported from Australia. The policy financially penalises grocery suppliers for having their product promoted in rival supermarkets at or around the same time as Progressive's own advertised promotions. Should a clash happen, suppliers will be charged for the differential on the price offered in the opposition supermarket.

Progressive also wants details of suppliers' forward promotion plans with competitors. The practice so worries the Food and Grocery Council, it went to Auckland barrister John McBride for an opinion.

The council told its members to seek their own legal advice, but says it would counsel against accepting the policy. It has recommended they decline the request to share forward promotion plans.

Progressive's managing director Peter Smith said in a written statement yesterday that the company was not breaching any law when indicating to suppliers it would not accept promotions for inclusion in its mailers where there was a clash with a competitor's promotion arranged by the supplier. But nowhere did Smith address the policy's punitive element dropping the price of a product in a Progressive store to match that of a competitor, then back invoicing the supplier for the price difference. Nor did he address the cost to the supplier of having a product dropped from a promotions mailer at the last minute.

Smith said it did not make commercial common sense to enter into a promotion arrangement with a supplier at the same time or immediately following the same or a greater promotion by a competitor arranged by the supplier. "Having the same or a greater promotion in competitor's stores immediately before or at the same time defeats the purpose." Smith recognised the policy might require suppliers to revise marketing plans and said he was happy to work through concerns with suppliers.

In documents obtained by The Independent the grocery council's commercial director, Lindsay Davidson, told his 158 members that Progressive risked breaching restrictive trade practices under the Commerce Act.

The policy could also be seen as a prohibitive price fix when Progressive had "Select" or "Home Brand" competing in the same category, or horizontal pricing, in which it could be seen as trying to influence the retail prices of a competitor.

Progressive told suppliers the week prior and the week of a promotion in rival supermarkets such as New World would be deemed a "no clash" period. This means there must be no advertised clash on the same product or assortment of products as between a Progressive mailer and a competitor's mailer for the week of and week prior to the promo. In the event a supplier had a promotion at New World with prices lower than in Progressive stores, Progressive would lower the retail price immediately on the same product in its store. It would then back invoice the supplier for the difference, based on items scanned at the checkout.

Progressive runs Foodtown, Woolworths and Countdown New Zealand-wide and Fresh Choice and Super Value supermarkets in the South Island. Foodstuffs runs rival New World and Pak'nSave.

Foodstuffs managing director Tony Carter said he had heard about the new Progressive policy on promotions but his company did not practice it, nor had it ever been practised in New Zealand before. He warned suppliers if they breached confidentiality by tip-ping Progressive about its promotions "we would view it very seriously".

Suppliers spoken to by the Independent are furious about the practice and don't want to co-operate with it, but fear if they don't play ball their products will be left off the supermarket shelves.

The Commerce Commission said it had not received a complaint about Progressive Enterprises' 'no clash policy' and did not have sufficient information to determine whether or not the behaviour breaches the Commerce Act.

RUNNING A RULE

Auckland barrister John McBride has run his legal ruler over Progressive's "no clash" policy.

Remember, the policy means that if New World, owned by competitor Foodstuffs, runs a promotion on a product a week before one planned by Progressive's Woolworths stores, Progressive would not only pull the product from its promotional mailer, but would lower the product price to match the competitor, then deduct from its next remittance the difference for what it costs Progressive to match a lower promo price.

The key issues raised were:

Supplier volumes could be reduced because a supplier's product is removed from the Progressive mailer, damaging the benefit of going to the lower price point. If Progressive had ordered the product before it was left out of the mailer it could mean the product didn't sell, forcing Progressive to delay re-ordering.

A contract cannot unilaterally be varied unless by agreement, so it is unlikely Progressive could legally enforce a back invoice that reduced the pre-agreed supply price of promo goods. It would also breach this contract by removing it from the mailer.

Section 30 of the Commerce Act prohibits a price-fixing arrangement between competitors. "There is no cartel hatched in a smoke-filled room or secret phone calls between CEOs of competing businesses," says McBride. But the likely effect is a regime to make sure New World doesn't have a promo price when Progressive does.

There is a risk of a prohibitive price fix if there is no Progressive house brand in the product market. But it would be difficult for the Commerce Commission to demonstrate individual suppliers' vertical agreements with Progressive also amounted to horizontal understanding between those suppliers.

On a possible breach of Section 36 of the Commerce Act covering the misuse of market power, McBride said it was hard to bring home a case against a powerful supermarket over alleged "bullying" of suppliers. The supermarket could convincingly say it was enforcing the policy in the interests of delivering benefits of price, quality and choice to consumers, therefore it was not anti-competitive. But McBride said it would be very difficult for Progressive to characterise a "no slash" policy as being in the interests of consumers.

The Warehouse Group considered attempting to buy supermarket operator Progressive Enterprises as it looked at options for entering the food business, court documents show.

Ironically, Progressive, which operates the Foodtown, Countdown and Woolworths supermarket chains, was later taken over by Woolworths Australia, which has since applied for High Court clearance to make a takeover offer for The Warehouse.

The information about The Warehouse's ambitions for Progressive was contained in the court's ruling released last week, which cleared the way for Woolworths or rival supermarket operator Foodstuffs to make takeover offers, unless the decision is appealed.

The documents show The Warehouse also considered forming a partnership with another food retailer as a way of entering the food market, but instead decided to go it alone and roll out its Extra stores.  However it appears The Warehouse has not completely abandoned the idea of buying another retailer.

Although much of the evidence the court examined has not been publicly released, the judgement reveals that Warehouse chief executive Ian Morrice told the court: "The Warehouse has a strong balance sheet. The Extra strategy has been testing a number of different things and there is a long list of things the board will need to consider. That includes what other investment opportunities are presented."  The judgement also suggested that at least some of The Warehouse directors shared institutional investor scepticism about the Extra concept and the risks it posed.  It quotes Warehouse founder Stephen Tindall as saying "the boardroom battles we had around going into food were quite historic" and that the strategy was always seen as "risky".

The court papers also throw some light on the difficulties The Warehouse has encountered since opening its first Extra stores and suggested the company has been disappointed at the prices grocery suppliers were prepared to offer the company.  "Suppliers had indicated to The Warehouse that a third player would be welcomed but `reality' and `promise' are two different things," the judgement said.  This meant The Warehouse Extra stores could not match the special promotional prices provided by discount operators like Pak'n'Save.

The Extra concept was also adversely affected by the acquisition of Progressive by Woolworths, which created a common buying umbrella for that company's Australian and New Zealand supermarkets.  Morrice told the court that Woolworths' acquisition of Progressive had put pressure on suppliers to cut their prices. As a result, competitive conditions had fundamentally changed since The Warehouse embarked on the Extra strategy.  When the research for Extra was carried out, the margins in supermarkets were higher than they are now, the court was told.

The Sunday Star-Times also understands that when The Warehouse opened its first Extra store at the Sylvia Park mall in Auckland, it accused Progressive of predatory pricing in its neighbouring Foodtown outlet, and sought a High Court injunction and the intervention of the Commerce Commission. It was unsuccessful in both instances.

As markets go, Papatoetoe's can't hold a 10c candle to its big brother, Otara, with its South Seas flavour, streets of vendor stalls and flocks of tourists.

In fact, at Papatoetoe it takes only 15 minutes to scan the stalls in the carpark behind the St George St shops. There are no queues and one clothing stall holder still manages to smile after selling just two pairs of knickers in a morning.

But to the patrons yesterday morning, the market was their little taste of a cosmopolitan style of mixing socialising with shopping - bargains and banter.

Next Sunday, however, after 15 years, the market will be no more. The licence of market operators Nita Knight and son Jason has expired and Manukau City Council refuses to renew it - on the recommendation of the Papatoetoe Community Board.

The market's closeness to the New World Supermarket and the mainstreet shops of old Papatoetoe has led to its downfall.

Supermarket operator Hamish Walton complained that the market deprived his customers of parking space.

The terms of the market's licence provided for a section of the carpark to be kept available for New World shoppers but it was often used by market traffic. The Knights failed to get council approval for an alternative venue at the local licensing trust's tavern carpark.

They gave the bad news to stallholders and customers through a circular letter yesterday, saying it was disappointing to have to close a valued community asset, and that they hoped to find another venue.

That day cannot come soon enough for local resident Joyce McGarvey. "I don't want to see this market go and I'm angry over what's happened."

An avid sifter through second-hand goods and recycler, she brings her plastic bags from home to give to stall-holders.

She confesses an ulterior motive - the school teacher of 24 years finds the market a perfect place to meet and greet her pupils' parents, who are shy about visiting her at her office.

She recalls how neighbours used the market over the years to sell their home-made apple pies, or bedcovers and cushions to raise money to put their children through the technical institute.

The market is a treasured weekly outing for nearby residents of homes for the elderly. The board made its decision in September and would not be swayed even by a petition signed by 1000 market supporters.

Chairman Gary Troup said that complaints about the market had come from businesses other than New World. "We have people in retail who are working very hard and somebody comes in for five hours on a Sunday and takes their cream."