Foodstuffs runs the New World, Pak'n'Save, and Four Square chains and several wholesale operations. Photo: RNZ / Simon Rogers
The Commerce Commission still has considerable doubts about the proposed merger between the North and South Island Foodstuffs grocery groups.
The regulator has issued its statement of unresolved issues for the merger of the two co-operatives, which run the New World, Pak'n'Save, and Four Square chains and several wholesale operations, and further extended the deadline for a decision to 1 October.
"On the basis of the information collected to date, we are currently not satisfied that the proposed merger will not have, or would not be likely to have, the effect of substantially lessening competition in a New Zealand [grocery] market," the regulator said in the issues paper.
It said the merger would create a significant national operator and effectively reduce the number of national supermarket operators from three to two, including Woolworths.
The enlarged Foodstuffs would have the potential to affect competition in various parts of the industry relating to food suppliers and ultimately consumers through the market power it might exert in the buying of groceries, and on food suppliers to the detriment of other grocery retailers and consumers.
"This could allow the merged entity to extract lower prices from some suppliers, 'cherry pick' the most favourable terms, disadvantaging some suppliers and/or otherwise get more favourable trading terms from some suppliers."
The Commission said that might result in some suppliers who only supplied only one of the Foodstuffs operations quitting the market if the merged group decided not to stock their products.
"That could have an impact on the development of new product innovation, resulting in reduced consumer choice and quality of grocery products," the Commission said.
The competition watchdog even raised the prospect that an enlarged Foodstuffs might make to co-ordination with Woolworths more "likely, complete or sustainable".
More consultations and submissions
The Commission said there would be further consultations and submissions, repeating that the paper and the unresolved issues were not an indication of its final decision.
Foodstuffs issued a short statement saying it would engage "positively" with the Commerce Commission to resolve the issues, and highlighted its original list of 10 reasons why the merger should be approved.
"We reckon these 10 reasons are supported by lots of other evidence too - like Pak'n'Save being named New Zealand's second most trusted brand, our ongoing strong relationships with our valued supplier partners, our two-year fight against food price inflation, and 99 percent of our local grocers voting yes for the merger back in June."
Among the positives Foodstuffs put forward were that the merger would create a strong and large New Zealand owned industry with profits retained in the country, savings made in backroom operations, and allow technical innovation and help for small local suppliers.
They also emphasised the sector was now regulated with a code of conduct and Grocery Commissioner.
Foodstuffs and Woolworths have been through the Commerce Commission's 2022 market study which resulted in some regulation, and moves to outlaw anti-competitive land covenants.
They are currently under investigation by the regulator following a complaint by the Consumer organisation.