The Commerce Commission (Commission) has announced its decision to decline clearance for the proposed merger of Foodstuffs North Island (FSNI) and Foodstuffs South Island (FSSI) as it was not satisfied it would not have the effect of substantially lessening competition in multiple acquisition and retail markets. FSNI and FSSI are two of the largest grocery retailers in New Zealand and operate as co-operatives. FSNI and FSSI share the retail brands, New World, PAK’nSAVE and Four Square but operate separate wholesale brands (FSNI operates Gilmours Wholesale and FSSI operates Trents Wholesale).

While the Commission’s written decision is yet to be released, the Commission’s media release announcing the decision recorded the Commission’s view that the proposed merger was likely to substantially lessen competition in many acquisition markets as it would reduce the number of major buyers of grocery products in New Zealand from three to two and create the largest acquirer of grocery products in New Zealand. The merged entity could then potentially secure lower prices from suppliers and/or adversely affect suppliers in the relevant markets. The Commission also expressed concern that the proposed merger could lead to decreased investment and innovation by suppliers and create challenges for other grocery retailers to compete and grow in the relevant markets. Finally, the Commission also identified the merger would increase the risk of price coordination between the merged entity and the other major grocery retailer, Woolworths.

The Commission’s decision to decline clearance is not unexpected. New Zealand has one of the most concentrated grocery markets in the world, and both the Commission and Government have continuously raised serious concerns about the lack of competition in the grocery sector, with the Commission’s most recent Annual Grocery Report concluding that competition was still limited despite the introduction of the Grocery Industry Competition Act 2023 and Grocery Supply Code (see our previous alert on the Annual Report here). The Commission is also currently carrying out an inquiry into the wholesale supply of groceries to consider if additional regulation (such as a wholesale code) or other intervention is needed to enable competitors of major grocery retailers to have better access to the wholesale supply of groceries. In addition, the Commission is conducting a review of the Grocery Supply Code to assess its operation and effectiveness and to consider whether the Grocery Supply Code should be amended, revoked, or replaced.

The Commission’s full written decision is due to be published on the Commission’s website by 23 October 2024. FSNI and FSSI have 20 working days to lodge an appeal of the decision in the High Court, although the Commission generally does not oppose parties filing an appeal out of time if it is filed within 20 working days from the date the Commission’s written reasons are published.

If you would like to know more about the Commission’s merger review process, or the Commission’s work in the grocery sector, please get in touch with one of our experts.

This article was co-authored by Soomin Yang, a Solicitor in our Competition team.