Underinvestment in technology a major factor in supermarket pricing errors - Consumer NZ

Supermarkets have got away with underinvesting in technology for years, leading to systemic issues with their pricing, Consumer NZ says.

Consumer NZ chief executive Jon Duffy said the supermarkets had had no incentives to upgrade their technology, leading to widespread instances of shelf prices not matching till prices.

His organisation had received hundreds of complaints covering all the supermarket brands, he said.

He was speaking after the Commerce Commission announced it was looking into Woolworths, which operates Woolworths (previously Countdown), FreshChoice and SuperValue supermarkets, and Foodstuffs, which operates New World, Pak'n'Save, Four Square and others.

The watchdog said the focus of the investigations was to consider whether certain pricing and promotional practices of the supermarkets complied with the Fair Trading Act.

The consumer watchdog is responding to a claim made last August by Consumer NZ that both supermarket groups have engaged in misleading pricing, including around the advertising of specials.

Woolworths, which used to be known as Countdown, has said it will cooperate fully, as have the respective Foodstuffs operations in both islands.

Both companies declined Morning Report requests for interviews on Tuesday.

Duffy told the programme problems included shelf prices being lower than what was charged at the till.

"It's the basics of running a retail store - get the price on the till the same as the price you are telling people you are charging them on the shelf."

Another example included the supposed special price of buying two items together when the items would be cheaper if they had been bought separately.

Another issue was how supermarkets advertised discounts.

"The signals and all the colours and the way that all this marketing is carried out within the supermarket is really confusing consumers and at a time like this when consumers are really struggling with their supermarket bills, that layered on top of high prices is really problematic and confusing for consumers."

Consumer NZ had received hundreds of complaints from shoppers across all the brands so it was hard to say the problems were not systemic, especially when it came to pricing.

He believed supermarket operators had underinvested in technology.

"It costs a lot to run a supermarket and if you can get away with having lax pricing practices for as long as the supermarkets have without really being called to account, you won't invest in the technology to clean up those practices.

"So it's not necessarily deliberate but they're certainly not being incentivised to make the change."

If the current practices led to a prosecution, Duffy hoped "a really strong fine" would be a signal from the courts that the behaviour wouldn't be allowed to continue.

Duffy agreed the fine for Pak'nSave Mangere supermarket of $78,000 in 2020 was inadequate when the supermarkets were multi-million dollar operations.

"The courts really need to back up the work of both Consumer NZ and the Commerce Commission to provide a real deterrent to these businesses."

The industry also needed at least one more operator to put pressure on the existing ones.

The Grocery Commissioner has been up and running for some time with not much in the way of results and it might be time to look at divestment, he said.

He suggested Foodstuffs' request to the Commerce Commission to merge its North and South Island operations should be an opportunity for the operator to divest some parts of its business.

Review not helpful - consumer advocate

A campaigner against the supermarket duopoly says the current market will not produce better practice and pricing without intervention.

Monopoly Watch's Tex Edwards said the commission was paying lip service to consumers without addressing the lack of competition in the industry.

It was an attempt to convince the public something was being done but failed to address the core issue of a lack of competition, he said.

Consumer advocates would prefer the Commerce Commission focused on what it took to ensure competition rather than the "housekeeping review", Edwards said.

"You can't regulate yourself into better pricing or better consumer outcome."

If the supermarket operators were found to be guilty of any breaches of the Fair Trading Act, any fines imposed should be paid to Consumer NZ, he said.

However, he believed the cost of any fines would ultimately be passed on to consumers through price increases.

He wanted legislative changes so the supermarket operators would be forced to divest some parts of their businesses.

"You have to force structural divestment. You have to pull out 80 to 120 stores, put them in a new organisation, and pull out the distribution centres and have the distruction centres structurally separated from the supermarkets."

An economist would make sure there was competition "in the footprint of the supermarkets", in each geographical area of the country, he said.

Minister backs supermarket probe

Consumer Affairs Minister Andrew Bayly is backing an investigation into whether the two big supermarket chains are complying with the Fair Trading Act.

Bayly said while the Commerce Commission was independent, he was "very encouraging" of the decision.

He believed the commission should be undertaking reviews on other aspects of the supermarkets' operations.

The issue of penalties and fines was being looked at but the Commerce Commission had not raised any concerns about them not being high enough, he told Morning Report.

"I would say there have been some cases where the Commerce Commission has been quite successful and got quite reasonable levels of penalties."

Under the coalition agreement, there would be scrutiny of whether the grocery commissioner's powers needed to be strengthened.

"There might be some options that we put in place... I think there might be a situation where there could be some additional powers but we're just working our way through that process."

However, at this stage the government had not adopted a policy of wanting the duopoly of the two major players broken up.

Finance Minister Nicola Willis said she supported the move too.

"I want New Zealand shoppers to face fair prices, and that means good competition in the supermarkets sector.

"Because there are those two big dominant players at work, it's really important that if there are examples where people are concerned competition isn't happening, that the Commerce Commission get right in there and do their job."