KATHRYN GEORGE / Stuff
Foodstuffs is asking retailers who may want it to supply them with groceries to express their interest.
New World and Pak’n Save owner Foodstuffs has taken the first step towards meeting a government demand that it start wholesaling groceries to rivals.
The company is now inviting expressions of interest from rival retailers that might want supplies, so that it can gauge demand.
Commerce Minister David Clark announced in May that it wanted Countdown and Foodstuffs to begin wholesaling groceries to other retailers and would put a “wholesale backstop” regime in place by the end of the year to ensure that happened.
“Supermarkets would be well advised to organise their own agreements sooner,” he later said.
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The Government is understood to believe that a wholesaling regime could put some downward pressure on supermarket pricing, even if it only made it easier for existing rival retailers, including dairies, to improve their blend of pricing and convenience.
But a Cabinet paper released earlier this month indicated that big decisions about how its regulation would work had yet to be determined.
Those decisions include whether the regime would be based on a requirement for Countdown and Foodstuffs to supply rivals on terms equivalent to their own retail stores without discrimination, or on a “regulated cost of supply basis”.
MONIQUE FORD / STUFF
Commerce Commission chairwoman Anna Rawlings and commissioner John Small insist proposed supermarket industry reforms will make a difference, even though they are making no promises they will lead to a third entrant.
The public may get a say next year on whether Countdown and Foodstuffs should be forced to sell off some of their stores or chains to make way for a third supermarket group.
Foodstuffs North Island managing director Chris Quin said wholesaling groceries to retailers that weren’t members of its co-op was not as simple as opening the doors of its distribution centers and letting trucks roll up.
“Providing retail-ready wholesale groceries to non-members means setting up a new service for retailers who are not integrated into our co-operatives,” he said.
Although Foodstuffs was in a good position to offer wholesaling, with an existing infrastructure and supply chain, there was still work to do, he said.
Quin said the cooperative was developing the wholesale option “with urgency”.
The Commerce Commissions’ market study on the grocery sector recommended requiring Countdown and Foodstuffs to fairly consider any requests they received to supply competitors, but the Government decided to go much further by deciding to impose a regulatory backstop.
Quin said Foodstuffs had conversations underway with four potential wholesale customers. Any other retailers which are interested can now register their interest.
“Once we know who wants wholesale groceries from us, and what they need in terms of things like service level, range and volume, we can take that information to negotiations with suppliers,” Quin said.
The next step was understanding if suppliers could supply other retailers through Foodstuffs on comparable terms to those offered the cooperative itself, including price, he said.
Suppliers currently differentiated their pricing to the cooperative according to the retail channel their goods were sold at, but to make wholesaling work, that would need to change, he said.
“It’s their products that will stock the shelves of the new wholesale service, and supplier cost prices make up the biggest proportion of the shelf price so their willingness to work with us on this is critical.
“For each dollar on the supermarket shelf, supplier costs make up 68c.”
Foodstuffs sources grocery products from more than 3500 suppliers, many of which are large global companies.
“We have several streams of work well underway to complete this wholesale supply solution, and are well-prepared to serve any potential customers given our existing expertise and business processes,” Quin said.
Countdown spokesperson Kate Porter said there was a lot of work involved for it in setting up wholesale supply.
“We’re not set up to operate like this at scale at the moment, so we’re just at the beginning ie exploring demand, talking to interested parties, considering the products likely to be sought by other retailers, and then of course beginning the discussions and negotiations with our suppliers, ”she said.
“We’re not at a point to be able to talk timings or prices – just working through the interest and these conversations.