EPISODE 9: Magic bullets
As the government grapples with removing GST from fruit and vegetables but sidesteps any talk of a sugar tax, episode 9 explores why soft drinks are so cheap at your local supermarket.
Ever wondered why there’s an entire supermarket aisle dedicated to fizzy drinks for two-for-one prices and yet a head of cabbage costs $6.99?
Monopoly Watch NZ spokesman Tex Edwards told Chewing the Facts it’s because rebates are paid to people who sell certain brands.
Rebates can include large suppliers paying supermarkets to exclusively stock the supplier’s products or a portion of fridge or shelf space, he said.
“These financial payments camouflage the true price of what a bottle of Coke is or the incentives a retailer is given to sell it to you.”
For companies that have market power, rebates tend to be illegal in other countries, he said.
It means Coca Coca New Zealand is one of the company’s most profitable branches per capita, Edwards said.
Coca Cola’s New Zealand arm made a gross profit of $380 million for the year ending December last year.
A 2021 study found the company dominated the global fizzy drinks market in 2020 at 47 per cent, with Pepsi coming in second at 19 per cent.
Coca Cola made up 57 per cent of the Australasian market. Coca Cola declined to comment.
The situation is exacerbated by New Zealand’s reluctance to introduce a sugar tax, Edwards said.
More than 50 countries have some sort of sugar tax. A World Health Organisation review in 2022 assessed 86 studies and found a sugar tax was linked to a fifteen per cent drop in sales and no negative effect on employment rates.
Last year the Commerce Commission released its draft for consultation on the Misuse of Market Power Guidelines. It found that rebates and discounts offered to retailers or distributors by a supplier with substantial market power could harm competition by reducing the ability of other suppliers to compete effectively.
Food and Grocery Council CEO Raewyn Bleakley said consumers decided to purchase certain products, which led to greater supply.
“In every market you have the 80-20 rule... generally [sic] applies where you have a smaller number of large companies because scale and having global reach has benefits. That’s business, that’s the world we live in.”
Suppliers provided the product to the supermarkets and “they certainly may entertain and negotiate different promotions and fund those, but it is ultimately the retailers that make those decisions”.
A Foodstuffs spokesperson said the cost of goods from suppliers was the largest cost to its business, making up 68 cents of every retail dollar on the shelf.
“Other factors include the cost of getting the product onto the shelf, whether the product is in good supply and if it’s on or off special.”
A Woolworths spokesperson said it had a range of commercial agreements, including rebate agreements that are negotiated with suppliers.
“We can’t share details as this is commercially sensitive to the suppliers we deal with.”
Finite shelf space required balancing product, shelf space, and storage availability.
In August commerce and consumer affairs minister Duncan Webb released the new Grocery Supply Code to even the level playing field between suppliers and supermarkets.
A Commerce Commission spokesperson said the code addressed rebates by ensuring terms of supply were clear and supermarkets couldn’t charge rebates unless written into agreements that were expressly agreed to by suppliers.
New rules around wholesaling meant grocery stores would have to reveal the scale and efficiency of their business, including volume rebates.
New Grocery Commissioner Pierre van Heerden can also take action if necessary.
Chewing the Facts - new episodes out every Sunday. Produced with the NZ Herald, with support from NZ On Air. Show notes and research are available via chewingthefacts.com.
This article originally appeared in the NZ Herald here.
RESEARCH AND SOURCES:
- Impact of the announcement and implementation of the UK Soft Drinks Industry Levy on sugar content, price, product size and number of available soft drinks in the UK, 2015-19: A controlled interrupted time series analysis