Key provisions of the Grocery Industry Competition Act 2023 (the Act) will start to come into force today. Introduced in December 2022 and passed under urgency, the Act is a direct response to the Commerce Commission’s market study into the grocery sector. The Act introduces a regulatory regime for designated grocery retailers for the purpose of promoting competition and efficiency in the grocery industry for the long-term benefit of consumers in New Zealand.  

Who does the Act apply to?

The Act designates Foodstuffs, Woolworths and their related bodies corporate (including franchisees) as regulated grocery retailers and introduces new obligations on these retailers in relation to grocery suppliers and wholesale customers. “Groceries” are defined in the Act as meaning goods in any of the following categories: fresh produce; meat, seafood, or meat substitutes; dairy products; bakery products; chilled or frozen food; pantry goods or dry goods; manufacturer-packaged food; non-alcoholic drinks; personal care products; household consumables and pet care products. Other retailers can be designated as regulated grocery retailers in the future if certain criteria are met.  

Key features of the Act

Introduction of a New Grocery Supply Code of Conduct  

Regulated grocery retailers are required to comply with a Grocery Supply Code of Conduct (Code) which will impose obligations designed to address the imbalance in bargaining power between suppliers and major retailers.

MBIE has published a draft Code for public consultation. It is anticipated that the new Code will be introduced later this year. Public submissions on the Code closed on 7 July 2023. Some of the key obligations in the draft Code are set out below:

If a regulated grocery retailer fails to comply with the Code, suppliers will be able to access a range of remedies under the Act, including the ability to seek compensatory orders, orders varying or cancelling a supply contract or injunctive relief. The supplier can also refer the dispute to the alternative dispute resolution scheme, which is yet to be established (discussed further below).  

The Commerce Commission can seek significant penalties against regulated grocery retailers and individuals for breach of the Code.  

Smaller retailers can now request wholesale supply through regulated retailers 

One of the key issues identified in the Commission’s market study was the inability of smaller retailers (such as dairies, convenience stores and gas stations) to compete with the duopoly because of an inability to access goods from suppliers on equivalent terms.

To address this inequality, the Act imposes a number of obligations on regulated grocery retailers to facilitate wholesale supply agreements, including requiring regulated grocery retailers to consider wholesale supply requests from other grocery retailers in good faith, to establish rules, criteria and processes for considering wholesale supply requests and to establish standard terms and conditions and principles for wholesale supply. Foodstuffs and Woolworths must establish and publish these rules and terms and conditions by 10 September 2023 and establish effective systems and processes to supply groceries to wholesale customers by 10 October 2023. The Act also imposes a duty on regulated grocery retailers not to engage in conduct that has the purpose, effect, or likely effect of preventing a wholesale customer from receiving the benefits of volume or scale based payments, discounts, or rebates from a supplier.

Wholesale supply requests must be made in a manner (if any) prescribed by the Commerce Commission. The regulated grocery retailers must notify the Commission of each supply request and the outcome, including the reasons for rejecting a request or a copy of the wholesale supply agreement if a request is accepted. The Commission may impose additional regulation (including establishing a wholesale industry code) or make recommendations to the Minister for additional regulation (which could include a requirement to supply wholesale customers on non-discriminatory or specified terms). 

If a regulated grocery retailer fails to comply with its obligations to facilitate wholesale supply agreements (including the obligation to consider wholesale supply requests in good faith), wholesale customers can seek compensation orders and other civil remedies. A wholesale customer can also refer the dispute to the (yet to be established) alternative dispute resolution scheme. The Commission can also seek significant penalties against a regulated grocer retailer for a failure to comply with its statutory obligations.  

Grocery supply agreements now subject to Unfair Contract Terms regime 

The Act expands the existing unfair contract terms regime in the Fair Trading Act 1986 (FTA) to standard form grocery supply contracts from today.  

A standard form grocery supply contract will be subject to the regime if: 

• each party is engaged in trade; 
• it is not a consumer contract; 
• it is a contract between a regulated retailer and a supplier; 
• it relates to the acquisition of goods in respect of which the end-user is a consumer; and
• it does not comprise or form part of a trading relationship that exceeds the annual value threshold of NZD1 million when the relationship first arises. 

The new provisions do not apply to contracts entered into before 10 July 2023, unless they are renewed or varied on or after that date.  

While some existing grocery supply contracts would have already been caught by the unfair contract terms regime by virtue of being a “small trade contract”, the Act captures grocery supply contracts that would not have previously been caught due to the higher annual value threshold for these contracts. Grocery supply contracts that met the small trade contract definition prior to 10 July 2023 continue to be subject to the previous unfair contract terms regime. 

More importantly, from today, grocery suppliers can seek a declaration that a term of a standard form grocery supply contract is unfair. Previously, only the Commission had the ability to seek declarations in relation to unfair contract terms, and the extension of the regime to allow private action is a significant development.  

New ADR scheme to be established under Act 

The Act establishes an out of Court dispute resolution scheme for resolving conflicts between wholesale customers, suppliers and regulated grocery retailers. Under the scheme, a non-judicial decision-maker can make binding determinations on eligible disputes, including breaches of the Code, breaches of Part 3 (wholesale supply provisions) of the Act, or those that fall under within a specific category of disputes set by regulation, provided the value of the dispute is below NZD5 million. 

The dispute resolution scheme awaits approval by the Minister and confirmation of the scheme provider. 

Our view

The Act adds the grocery industry to the increasing list of New Zealand industries which are subject to regulation. As there are still aspects of the regime to be confirmed, including the terms of the new Code and dispute resolution scheme, it will take some time before the full impact of the changes will be felt. 

The new Code is designed to address the inequality in bargaining power between grocery retailers and suppliers. Whether it will ultimately improve outcomes for consumers remains to be seen. The amendments to the unfair contract term regime are potentially significant as it will allow suppliers to seek declarations in Court that terms of their supply contracts are unfair contract terms instead of relying on the Commerce Commission to take such action. This is similar to the position in Australia, where private action in relation to unfair contract terms is common.

The dispute resolution scheme is likely to be welcomed by small retailers and suppliers, and if it is modelled on the dispute resolution scheme in the Telecommunications Act is likely to lead to the quick and cheap resolution of disputes. We will be closely monitoring developments in this area.  

For any specific inquiries or to discuss how the Act may impact your business, please contact our dedicated team of lawyers who specialise in competition and regulatory law. 

This article was co-authored by Jovana Nedeljkov, a senior solicitor in our competition team.