Foodstuffs boss Chris Quin says supermarkets in New Zealand’s $22 billion industry are not earning excess profits of $1 million each day as claimed.
Quin’s comments come following an announcement by the supermarket operator of Pak’nSave, New World and Four Square to slash the price of food by an average of 10 per cent across 110 of its most-shopped grocery items.
From next week, the price of 110 items including meat, vegetables, cheese, butter, tea, coffee and nappies, will be reduced by an average 10 per cent.
The reductions would be implemented at all New World, Pak’nSave and Four Square stores across both the North and South Islands. Approximately half of the price reductions would be across private label brands Pam’s and Value ranges.
Speaking to the Herald post-announcement, Quin said the move by Foodstuffs would result in the company essentially making a loss on certain items – selling below cost price.
He would not confirm how much of a financial hit this would result in for the company or the co-operative’s individual store owners, but said the “investment” that came with the initiative to reduce the price of certain grocery items would result in savings for customers to the tune of $500,000 per week or $7m while it runs through to August 14.
It was revealed in March that supermarkets in this country make in excess of $1m in profits each day following the Commerce Commission’s final report on the industry and the lack of competition keeping prices competitive.
Asked if the price cuts went far enough given hefty profits within the grocery business, Quin said there were not excessive profits in the industry.
“We need to be really clear – we don’t make excessive profits, and we don’t make an excessive profit of a million dollars a day. The claim that is based on is an incorrect assumption, and an opinion really, that says a business should only earn what its capital costs. Fundamentally, if that was true very few businesses would be able to invest and build new stores and add technology [to operations].
“We think the fact that is much more fair and one that is more useful in the Commerce Commission’s report that basically says when they line up the returns that the supermarket industry in New Zealand earns versus global competitors from some of the most competitive markets in the world, our return on the capital we invest versus them is about the same.
“It isn’t correct that there is a million dollars a day in profits in the industry. Even if you took that incorrect argument; if you work the profit difference back, it is $185 a year per household.”
Foodstuffs began working on a plan to introduce its cost-savings initiative two weeks ago but has been looking at ways to combat inflationary challenges all year, Quin said.
He said today’s announcement was not a direct response/one-up on rival supermarket chain Countdown’s move to freeze current market prices on more than 500 essential grocery items through winter.
The Foodstuffs North Island chief executive said the commitment to reduce prices by an average of 10 per cent was “significant” – and was not a marketing stunt, and it would be funded by store owners who wanted to help their communities as the cost of living continued to skyrocket.
“Our store owners are funding this themselves, this is not being funded by a [food] supplier or anyone else. It is millions of dollars in terms of the impact of this and we’ve challenged ourselves to do this on the products that matter most to New Zealanders.”
Food and Grocery Council CEO Katherine Rich welcomed the reduction in prices for 110 of Foodstuffs’ most-shopped grocery items.
“Any reduction in the ticket price can only be good for consumers. These reductions are a recognition there’s a part for supermarkets to play in ensuring affordable groceries,” she said.
But Rich was less optimistic about what it meant for suppliers.
“I suspect suppliers are paying for these reductions one way or another and that retailer profits will be unharmed.”
Quin said it did not take a lot to convince store owners to take the earnings hit for the sake of the good of the community.
“I won’t give exact numbers because of our commercials around our buying arrangements, but this is an investment of millions of dollars. Based on volumes, over the period that we are committing to [reduce prices], this will save New Zealanders nearly $7m.”
Foodstuffs was not freezing supplier cost increase requests, but Quin said it would be looking closely at the prices on items outside of the 110 as part of the initiative.
“We’re not freezing supplier prices, we’re not giving a moratorium on that, we’re trying to work our way through it and make sure we challenge everything and that we’re being reasonable and fair.
“This commitment and this investment doesn’t affect the rest of our promotional programme or our work on value across the board. We are not recovering this through other products in any way.
“We have not done this on the basis that suppliers will fund this or support it, we’ve done it as our decision and funded by us. We are seeing about a 360 per cent increase in the number in price increase requests from suppliers to us, we are asking them to give us an explanation on why this is necessary because we have to work hard to see if we can minimise those, but we also have to support our suppliers to enable them to remain sustainable because the same inflation pressures that are facing us are facing them.”
Quin said for every retail dollar the supermarket costs accounted for just 19 cents. The majority – almost 70 cents was made up by its suppliers, and the rest was GST.
Quin said Foodstuffs hoped its suppliers would take their own initiative and the opportunity to help New Zealanders by passing on price reductions.
“We felt this price drop initiative was the right thing to do to help New Zealanders right now and make a difference … We will keep working on every way we can to attack the food price inflation problem.”
The current cost of rising food prices could attributed to a mix of global inputs such as rising fuel costs, the Ukraine-Russia conflict affecting the availability and price of commodities such as wheat and skyrocketing shipping costs, paired alongside local labour costs.
Inflation hit a 30-year high of 6.9 per cent for the year to March. Meanwhile, food prices rose sharply in the March quarter, up 3.1 per cent, influenced by fruit and vegetables (up 9.3 per cent) and grocery food (up 2.4 per cent).
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