The Commerce Commission raised concerns over reduced competition and negative impacts on New Zealand consumers.
Foodstuffs, the grocery conglomerate that owns the Pak’nSave, New World, and Four Square grocery chains—along with Liquorland and wholesale supplier Gilmours—has been denied permission to merge its North and South Island operations in New Zealand.
The Commerce Commission turned down the application because it would “result in a permanent structural change to the New Zealand grocery industry,” according to the Commission’s Chairman, John Small. The Commission expressed concerns about reduced competition and negative impacts on consumers.
The merger would have reduced the number of major buyers of grocery products from three to two—the other being Australian-owned Woolworths—and created “the largest acquirer of grocery products in New Zealand.”
The Commission said this would give the combined Foodstuffs entity significant buyer power, allowing it to demand lower prices from supplies, ultimately reducing investment, innovation, and potentially the variety and quality of products for consumers.Foodstuffs North Island and Foodstuffs South Island are separate entities but already cooperate in various areas.
Both expressed disappointment at the decision, having first applied for the merger in December last year.
The owner-operators voted overwhelmingly in support of the proposal in June, which Foodstuffs South Island CEO Mary Devine said “was a clear sign that both co-ops were united in our vision for the future and committed to delivering the benefits.”
“The merger would help us stay ahead of global industry trends, adapt quickly to disruptions, improve how we partner with our suppliers, and continue to serve our communities with the same dedication and excellence that has always defined us. Operating as one national business, like our main local and global competitors do, just makes a lot more sense.”
However, in July, the Commission signalled that it was not convinced by the arguments that had been put forward.
Foodstuffs North Island CEO Chris Quin described the merger as a “once-in-a-generation opportunity” for the two companies to meet the challenges of a fast-evolving retail grocery market.
“This merger is about bringing together the back-end support functions of our two regional co-ops to become more efficient and competitive, so we can better serve our customers. That’s good for everybody,” he said.
“This process is about a legal test, and we were confident in putting forward our proposal that it satisfied the legal test.”
Despite the rejection, Foodstuffs awaits the full reasoning from the Commission before deciding on the next steps. They may choose to challenge the decision in the High Court or Court of Appeal.