Why has trust in supermarkets fallen?

It is the social and economic context of this fall that makes it so remarkable.

The past 4 years have been defined by the coronavirus pandemic and the cost-of-living crisis it sparked. The pandemic led to a rise in misinformation on social networks, calling into question the reliability of mainstream media. Russia’s invasion of Ukraine then precipitated a global energy crisis, driving up the cost of fuel and power, and, more recently, our banks have failed to protect us from an increasing onslaught of scams.

No industry has seen trust fall as far as supermarkets

How much do you trust companies and organisations in each of the following sectors?

Supermarkets are not the only industry that has seen prices rise, or had their practices scrutinised, so why has trust fallen further for them than for other sectors?

Supermarket industry is uncompetitive and excessively profitable

One of the main drivers for loss of trust in supermarkets was the Commerce Commission’s market study into the grocery sector, released in March 2022. The report found the supermarket sector in New Zealand was a duopoly, with a lack of competition driving excess profits of around $1 million per day.

"The average return of the major grocery retailers at over 12 percent was more than double the rate of normal return for grocery retailing in New Zealand of 5.5 percent. No matter how you cut it, it’s clear that New Zealanders are paying too much for their food and groceries," said David Clark, then minister for commerce and consumer affairs.

To fix New Zealand’s broken supermarket sector, the Commission made a series of recommendations, which the government has put in place, including:

• stopping restrictive land use covenants, so new supermarket players can lease properties near existing supermarkets if they wish

• establishing a grocery commissioner, and introducing a new grocery code of conduct, meaning supermarkets can be fined up to $3 million if they treat a supplier poorly

• introducing unit pricing and more transparent loyalty schemes

• giving the duopoly 1 year to open their wholesale suppliers to competitors, enabling competitors to access grocery products at a “fair price”.

However, 2 years on from the market study, prices have risen drastically, and it has become clear just how difficult it will be for new entrants to disrupt the status quo.

Since the Commission’s study, Costco has entered the New Zealand market. That’s a positive development, but we’ve also seen virtual supermarket Supie go out of business. In addition, while The Warehouse has started rolling out its grocery offer, it has also encountered difficulties, notably, when Sanitarium stopped supplying it with Weet-bix due to shortages.

While Sanitarium has since reinstated its supply, both Supie and The Warehouse have alluded to the role played by the supermarket duopoly in influencing suppliers, making it harder for new entrants to trade competitively and bring down prices.

Supermarket sector could consolidate further

New Zealand’s supermarket sector is already too concentrated, but things could be about to get worse as the two branches of Foodstuffs – Foodstuffs North Island and Foodstuffs South Island – look to merge.

Foodstuffs argues that merging the North and South Island branches of the business would allow it to realise efficiencies by operating as a single entity, resulting in better value for customers.

Not everyone agrees.

The Food and Grocery Council has surveyed suppliers about the proposed merger: 77% believed the merger would give Foodstuffs more power to drive down the prices it pays to suppliers. In theory, if Foodstuffs pays a lower price to its suppliers, it can then lower the prices paid by consumers while still maintaining its profit margin.

Consumer NZ’s head of advocacy and campaigns Gemma Rasmussen said that if the merger does go ahead, Foodstuffs would be “even more dominant over suppliers and wield more power over them. It would be an incredible leap of faith to say they would pass those savings on to consumers in the form of lower prices.”

Foodstuffs North Island and Foodstuffs South Island proposed the merger in November 2023, seeking clearance to merge from the Commerce Commission. The Commission has repeatedly extended its timeline for considering the merger, with a decision now due by 1 October 2024.

Grocery costs a primary concern, but prices keep rising

The Commission’s market study might be the most high-profile event to affect our trust in the supermarket sector, but trust had already fallen significantly before the study was released.

Between June 2021 and February 2022, trust in supermarkets declined by 9%, with the increasing cost of food likely to be the culprit.

Food prices rose drastically from 2020 to 2023 and remain high

Food Price Index, 2020-2024, 2017 Q2 = 1000

Statistics NZ’s Food Price Index shows the price of food rose gradually between 2010 and 2020 – the most dramatic rises have happened since then.

Unsurprisingly, these rises have significantly increased consumers’ levels of concern around the cost of food and groceries.

In June 2021, 42% of consumers named the cost of food and groceries as one of their biggest financial concerns for the coming year, but by February 2022, that figure hit 60%. In this same period, the percentage of consumers who said they trusted the supermarket sector fell by almost 10%.

With the government then telling us, one month later, that supermarkets were making $1 million a day in excess profit, it’s no surprise that trust in the sector fell even further.

The cost of food and groceries has been New Zealanders' biggest financial concern for 2 years

Which of the following, if any, are your biggest financial concerns over the next 12 months?

The price is not always right

Since the Commission’s market study, supermarkets have continued to breach our trust when it comes to the prices we pay at the till.

We asked members of the public to look out for examples of dodgy pricing over a 9-month campaign that ended in June 2023. In response, we received more than 600 examples of dodgy pricing, including “specials” that cost more than the product’s regular price, multibuy deals where it would be cheaper to buy the products individually, loyalty card pricing displayed as the default price and shelf pricing that didn’t match the price at the checkout.

Consumer NZ submitted a complaint about these practices to the Commerce Commission in July 2023, with the Commission beginning an investigation in January 2024.

80% of shoppers who noticed pricing inaccuracies see them occasionally or more often

How often do you notice pricing inaccuracies when you are shopping?

But according to our research, the practices haven’t stopped.

Consumer’s April 2024 Sentiment Tracker survey found that 66% of consumers had noticed a pricing inaccuracy while shopping at the supermarket. Eighty per cent of these consumers said they notice these inaccuracies occasionally or more often, while 12% said they spot these issues very often or every time they go shopping.

Yet, the supermarkets ask us to take their word for it that the sector is competitive, and that they are not excessively profitable. How can we, when we can’t even trust them to do the basics right?