anti-competitive

Waikato supermarket owners are "blown away" by figures showing a 42.5 per cent rise in food prices since 2000.

The news has prompted Labour consumer spokeswoman Carol Beaumont to call for the Government to encourage more competition in the supermarket sector.

New Zealand grocery prices have risen 42.5 per cent between 2000 and 2009, followed by Australia which pays 41.3 per cent more, Britain's prices rose 32.9 per cent and America's were up 28.4 per cent, according to a study out yesterday.

Pak `n Save Mill St owner Glenn Miller said he was trying to obtain a grocery bill from nine years ago as he and his staff doubted the cost of many grocery items had risen to that extent.

He said a can of spaghetti cost 90c in 2000 and now customers would pay $1.09 for the same can. "At Pak n Save the margin we enjoy is lower than many other countries in the world and we think we are still very competitive given manufacturing cost and we try and keep our overheads down," said Mr Miller, who believes Pak `n Save is extremely competitive.

Vege King owner Swaran Singh said prices at his Fairfield fruit and vegetable shop would have risen by up to 10 per cent at the most. In some cases prices had not changed. He said the price tag on asparagus had stayed at $3.99 since 2000.

Progressive Enterprises, which owns Countdown, Woolworths and Foodtown, blamed international events such as drought as the main drivers of food inflation. Progressive spokesman Bill Moore said the group was consistently striving to offer the best prices and its profitability had remained at between 3 and 4 per cent since Australian-owned Woolworths Limited purchased Progressive four years ago. The group said there was plenty of competition between supermarkets, delis, butchers, green grocers and bakeries.

But Ms Beaumont has questioned why New Zealand is not following the example of Australia's Competition Minister, Craig Emerson, whose government was taking "hard measures" and lowering the barriers to other retailers competing with Coles and Woolworths on that side of the Tasman.

She was critical of Consumer Affairs Minister Heather Roy's suggestion that New Zealanders "shop around" to combat some of the fastest-rising food prices in the developed world, saying it had attracted widespread criticism. It was "poor advice" to families struggling with soaring food bills, Ms Beaumont said.

Public comments on news websites and on talkback radio produced a stream of consumers critical of grocery pricing, with many calling for overseas chains such as Aldi and Costco to compete against New Zealand's Foodstuffs (which owns Pak `n Save and New World) and Progressive Enterprises.

Hamish Wilson, of Consumer New Zealand, said there had been some attempts by other companies, such as The Warehouse, to break into the supermarket sector "but it's pretty difficult". The controversy arose in the wake of the Australian study which says the price of food in New Zealand has risen faster than in any other OECD country other than Korea.

- With NZPA

Infratil's decision to register four key bus services as commercial - which require no regional council subsidy - is being described by the Green Party as the actions of a "virtual monopoly" trying to undermine a new tender process.

But Infratil says it will save the Greater Wellington Regional Council (GWRC) $2.5 million a year, making it a win-win for passengers, ratepayers-taxpayers and its own operation.

Two of the services (Queensgate to Stokes Valley and Petone to Upper Hutt) are contracted services which means they attract a GWRC subsidy.

A third proposed commercial service replaces contracted weekend and night-time services between Wellington and Eastbourne. The fourth is a new route from Johnsonville via Khandallah to Victoria and Massey Universities.

Until now, GWRC has set contracts on a route-by-route basis. But a change to legislation introduced last year means that it is possible to bundle sets of public transport routes into a contract.

That's likely to cause competition among bidders, thus driving down the overall level of subsidy required.

GWRC is about to release contracts for bus routes in the Hutt Valley on this new basis. The contracts will be for eight years, with an option for renewal for a further four years, the long guaranteed period being another incentive for an operator to sharpen its price.

According to a GWRC report, there had been steady bus patronage growth up until 2006 but since then, user numbers have been static of declining, despite higher costs of using private cars, petrol, etc. Bus customer satisfaction levels have also slipped 5 per cent since 2003.

''Information on the operational performance of Wellington's bus services is generally acknowledged by all parties to be unsatisfactory,'' the report says.

Services are dominated by the ''big two'' Infratril's NZ Bus Ltd (Go Wellington, Valley Flyer) and Mana Coach Services account for 98 per cent of the market with NZ Bus being by far the bigger of the two.

A High Court finding from 2006 was that while there was genuine interest from other operators to bid for services in this region, current contracts were too small in size and too short in duration.

A nationwide benchmarking exercise found that contracts involving more than one bidder are 15-20 per cent lower than with a single bidder (97 per cent of Wellington's contracted services attract a single bid).

''While it would be simplistic to conclude that competition for all contracts would reduce prices to this extent, the information does indicate that competition would generate significant downward pressures on prices in Wellington,'' the GWRC's report says.

A switch from net to gross contracts, as the GWRC is now proposing in the Hutt Valley, could enable the council to make savings of up to $4m-$5m each year.

Greens former co-leader Jeanette Fitzsimons says Infratil's registration of the two Hutt Valley commercial services on the eve of introduction of the new system here is ''cherry picking'' of the plum routes.

''They've busted open the contract and made it much less likely there will be a competitive tender for the rest of it.''

While it might initially appear to be a saving for GWRC, with two services no longer needing any subsidy, she says the subsidy required for remaining services with those two prime, well-patronised routes out of the equation, ''are likely to be higher''.

NZ Bus CEO Bruce Emson says the company is making these registrations now ''because of a very narrow window of opportunity''.

''Uncertainly around the [Public Transport Management Act] and regulatory framework has made it difficult to contemplate registration of these services until now,'' he said.

It's regrettable the Hutt Valley tender process is proceeding before the revised legislation is in place.

''We do not want to disrupt the GWRC's tender process, and have chosen to register the two services in their totality, seven days a week, even though this has meant incorporating the unprofitable 'tail' of each service in the registration.

''This means the GWRC will be able to proceed without delay to call tenders for the remaining services ...

He says NZ Bus will ''vigorously compete'' for contract tenders when they are advertised. The commercial registrations are for three years, and Mr Emson says it will take that long to turn them into profit through investment, innovative marketing and excellent service delivery.

Despite the GWRC's 2008 report warning that registration of commercial services could be used as a tactic to disrupt the bundled route approach, Transport and Access Committee chairman Peter Glensor says the registrations are legal, and there are very limited grounds on which the council can decline them.

There is an ''over tender'' process that could override the commercial registration, ''but I don't think it's 'top of the pops' in terms of the way ahead'', Mr Glensor said.

There will be some subsidy for the two Hutt Valley routes, with GWRC picking up the cost of ticket concessions and the taxpayer picking up the cost of SuperGold travellers.

New tenders for Hutt Valley services are expected to be ready in about six weeks.

TARGET SET

Greater Wellington Regional Council is targeting 50 million public transport trips (trains, buses, harbour ferry) a year by 2016-17. The 2007-08 'actual' number of trips was 34.7 million.

Achieving the target will require patronage to increase at an average rate of 4.7 per cent a year, per annum, significantly higher than the 3.3 per cent it has tracked at in the recent past.

The target splits these trips into 25 million peak journeys and the same number of ''off peak'' journeys.

Don't you love the strange bedfellows MMP throws together? Any day now, all going to plan, Parliament will pass a bill permitting the control of Auckland's highly subsidised public transport network to return to public hands. And joining Labour and its more natural allies such as the Greens and Maori will be that supporter of free enterprise, the Act Party.

Leader Rodney Hide assures me his planned move is very "pro-market". He says Auckland Regional Council (ARC) chairman Mike Lee had lobbied him, arguing that a party representing consumers and taxpayers had to support such a bill, and after consideration "I said, absolutely".

Mr Hide says what the bill allows "is exactly what you'd want to do if you were looking at spending a $94 million subsidy and looking at getting best value for money, so I was on board".

Not on for the ride is the National Party, which, when in power 15 years ago, forcibly privatised the publicly owned Yellow Bus Company, and, strangest of allies, Winston Peters and his New Zealand First Party.

The Public Transport Management Act won't drive private bus operators from Auckland's commuter bus network. It just gives the Auckland Regional Transport Authority (ARTA) the power to design an integrated passenger transport network that serves the needs of the passengers and the subsidisers first, rather than the bus company shareholders.

Merchant bankers Infratil, owners of Auckland's biggest bus operator, New Zealand Bus, have been lobbying around Parliament as though Karl Marx was coming up the hill behind them. But the case for the status quo does not stand up to scrutiny.

When Infratil bought the old Stagecoach Bus company in 2005, patronage in the year to June was 43.1 million passenger trips. A year later, the service had shed 900,000 passenger trips. By the year ended June 2007, a further 200,000 passengers had disappeared.

It took a war in Iraq and rocketing fuel prices to reverse this downward trend. In the year to June 2008, passenger numbers bounced back to 2005 levels. In that time though, subsidy payouts soared. When Infratil entered the scene, public handouts to regional bus operators totalled $45 million. Just five years on, the budgeted annual subsidy has more than doubled to $93.1 million.

As ARC chairman Mike Lee wryly noted in a letter to Transport Minister Annette King this year, "It would appear that the private bus companies in Auckland are much more interested in increasing bus subsidies than increasing passenger numbers."

As the law stands, despite these huge subsidies, ARTA cannot inspect operators' books to check whether they are gouging the system. Their need for a subsidy has to be taken on trust.

ARTA has no powers to design a transport network linking buses and rail and ferry services into a rational, user-friendly web. It can't even insist on integrated ticketing. Operators can cherry-pick the profitable routes, calling them "commercial", then stand aside and wait for the public to come to them, cap in hand, offering subsidies if they will graciously fill in the "non-profitable" gaps left unserved after the plums have been plucked.

ARTA and ARC lobbied strongly for the right to introduce a fully contracted system in which ARTA would design a network of services where, for example, subsidised buses didn't compete with subsidised rail services. Regional councils up and down the country backed Auckland's campaign, even though they were not faced with Auckland's problems.

The bill initially offered a compromise which annoyed both sides. Ms King was sympathetic to ARC's case and has enlisted the Greens to introduce the amendment supporting the full contract model. With luck, and Rodney Hide's support, the amendment will be passed tomorrow or Thursday and the bill itself soon after.

The revolution won't occur overnight, more's the pity. First, a new regional public transport plan will have to be drawn up and go through the normal consultation processes. Seeking changes to existing commercial services requires a 12-month transition and existing contracts don't expire until the end of 2009 and the beginning of 2010.

The only quandary now is what the National Party might do if it wins the election. With such broad support in Parliament and across Auckland for this bill, leader John Key owes it to voters to signal whether he will throw this act in with the recently passed Regional Amenities Funding Act as bad law he will repeal if he becomes Prime Minister.

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."