A group of New Zealand grocery suppliers have told Newshub supermarket consumers are being “screwed”.
They’ve revealed the price they sell their goods to the major players, and Newshub compared that to the price you pay in the shop. In some cases, the price is doubled
Forty-six different small to medium-sized suppliers who sell food to both Foodstuffs and Countdown told Newshub the supermarkets are making up to a 55 percent gross profit margin on a product.
One lettuce grower Newshub spoke to said he would sell one for $3, but in-store consumers would pay more than $6 for that same lettuce.
The highest supermarket margins Newshub found were in dairy products, fresh produce, and organics.
But there is a huge range – the lowest profit margin Newshub heard of was 20 percent. That particular supplier was selling a dry-packaged product with a very long shelf life.
The vast majority of these small to medium-sized suppliers were seeing a supermarket profit margin on their product of between 30 percent and 40 percent.
“It’s the consumer getting screwed”
Suppliers believe that’s too high – and it’s left them feeling fed up.
They describe the system as “tyrannical”, and what’s more they say “it’s the consumer getting screwed”.
Suppliers have so much to lose they would only speak to Newshub anonymously, yet they’re the ones who’ve been feeding Kiwis for more than a decade. They’re unhappy with the supermarkets’ profit margins.
“It is not even a negotiation. You’re either coming in at their terms, or you’re not coming in,” said the second supplier.
“It’s limitless, their power is limitless,” they added.
And the third supplier said it’s “disappointing”.
“It’s degrading, you know? It makes you wonder why you even bother.”
Inflation over the past year has made it particularly tough.
“We’ve lost 25 percent of our profit margin in the last 12 months,” said supplier two.
But this supplier said over the same time, the supermarkets refused to pay more, even though they’ve raised their shelf price.
“It’s not hard math. It’s gutting,” said supplier two.
In the case of Foodstuffs North Island – that’s Pak’nSave and New World – suppliers also face a long list of extra charges, so the supermarkets have fewer costs eating into their margin.
“We feel like we’re paying them to do their business,” supplier one told Newshub.
There are extra fees for wastage, display, merchandising, and even prompt payment. That means if the supermarket pays the supplier quickly, they’ll often expect a discount.
“It means your efforts are not being realised through to the consumer. They’re being eaten up by the retailer,” said supplier three.
“We agree that with inflation at record levels and recession looming, value is critical for New Zealanders,” Foodstuffs said.
It argues: “The costs of goods from suppliers are the largest cost to our business, making up 68 cents of every retail dollar on shelf.”
But remember all those extra charges on suppliers? That calculation doesn’t include those.
Suppliers still believe its the supermarkets’ margins causing consumers to lose out
“Consumers are being ripped off,” supplier two said.
“I think it’s fair they know suppliers are trying to do all they can to keep things affordable, but we can only do so much.”
“It’s going to take a big dog with some big teeth, to come in and say, ‘Okay, here’s what we are going to do’,” said supplier three.
A Commerce Commission study published last year found the supermarkets bank $430 million in excess profits a year, double what the commission considered they should be making – though the supermarkets dispute that
The Government’s promising to reign in those profits identified by the Commerce Commission.
“They’re going to have to take steps to make sure they’re conducting themselves in a reasonable manner, where the profits they’re making are reasonable – and no more,” said Commerce and Consumer Affairs Minister Duncan Webb.
A new law is going through Parliament that would bring in a code of conduct, open up wholesale supply, and create a Grocery Commissioner.
Consumer NZ chief executive Jon Duffy has some hope that’ll have an effect.
“There will be regular analysis of what’s going on in the supermarket, so those supermarket margins will be under the microscope and the Commerce Commission will be releasing a report once a year.”
But if that approach doesn’t cut it, forcing the supermarkets to sell off stores to third players is an option.
“If we need to do more, we will – and divestment is absolutely one of the things we’ll look at,” said Minister Webb.
Countdown said it’s not making too much off Kiwis.
“The gross margin we reported in the half-year profit and dividend announcement was 25.2 percent,” they said.
From that, they have to pay for “running our stores, paying our team and operating our supply chain”.
“Our absolute priority remains making sure the food on our shelves is as affordable as possible for our customers.”
Affordable: It’s what everyone seems to want, it’s yet to be seen whether reforms will make that happen.