ComCom takes Foodstuffs SI to court over alleged anti-competitive conduct

“The conduct we allege occurred deprives Kiwis of the best possible prices when shopping at their local supermarket and limits competition,” Commerce Commission chair Dr John Small says.

“Under the franchise model, individual South Island PAK’nSAVE supermarkets are supposed to be able to compete on pricing, discounts and promotions.”

“Instead, we allege FSSI applied guidelines and rules that stopped these independently owned and operated supermarkets from offering certain discounts unless they received prior approval.”

The Commerce Commission will argue that the conduct constitutes resale price maintenance, which is illegal and prohibited by section 37 of the Commerce Act. Resale price maintenance prevents retailers from setting their prices below certain levels, which limits competition and can lead to higher prices.

Specifically, the Commission will allege FSSI guidelines and rules prevented three forms of discounting.

FSSI centrally set a ‘Super Deal’ promotion price for a product and prohibited franchisees from discounting below this price, unless the PAK’nSAVE obtained prior approval.

Franchisees were also prohibited from discounting any other product in the same category below the 'Super Deal' promotional price.

FSSI also set an ‘Every Day Low Price’ centrally, primarily for ‘shelf staple’ goods, and prohibited PAK’nSAVEs from applying further discounts on these products unless prior approval was given.

“We will argue the alleged anti-competitive conduct was widespread, with FSSI’s guidelines covering all South Island PAKn’SAVE franchisees for a period of at least several years,” Dr Small says.

The Commission continues to detect anti-competitive behaviour on the part of the country’s major supermarkets.

Given proceedings are due to be filed, the Commission cannot make further comment at this time.

Background

The Commerce Act

Under the Commerce Act, anti-competitive agreements between businesses, such as agreements to fix prices or to carve up markets, are illegal. It is also illegal for businesses to abuse a substantial degree of market power.

The Act prohibits:

• agreements that substantially lessen competition in a market
• agreements that fix, maintain or control prices (also known as cartel conduct)
• agreements that restrict output or capacity, or allocate markets or customers
• a person or business with substantial market power engaging in conduct which causes a substantial lessening in competition in a market
• a person or business specifying a minimum price at which its goods or services can be sold by another (also known as resale price maintenance)

More information about anti-competitive behaviour by businesses is available.

Resale Price Maintenance

Resale price maintenance is illegal per se and prohibited by section 37 of the Commerce Act. Resale price maintenance occurs when a supplier of goods enforces, or tries to enforce, a minimum price at which the reseller must on-sell those goods.