The Commerce Commission (NZCC) recently announced the results of two ongoing lines of review into its grocery regulation function. 

The first being its review of the Grocery Supply Code, the second being the preliminary findings coming out of its review of the wholesale market for the supply of groceries.

In this article we analyse the proposed changes to the Grocery Supply Code, what the key issues are and where to from here.

You can also read an opinion column published today in The Post by Simpson Grierson Partner and head of competition law, James Craig about whether tinkering with the Grocery Code and voluntary compliance will really fix NZ's supermarket problem.

What is the Grocery Supply Code?

The Grocery Supply Code (the Code) came into effect in September 2023, following the establishment of the NZCC’s grocery regulation function, and the appointment of a dedicated Grocery Commissioner in July 2023. The purpose of the Code is to establish an industry code of conduct that regulates the supply arrangements between the three regulated grocery retailers (each of Foodstuffs North and South Island, and Woolworths New Zealand, or the RGRs) and their suppliers, with the aim of addressing the imbalance in bargaining power between these groups, and promoting competition and efficiency within the sector.

Has the Code been working?

The Grocery Industry Competition Act 2023 requires the NZCC to review the operation and effectiveness of the Code by September 2025. Currently, the Code requires RGRs to formalise their agreements with suppliers (written contracts) and provides for certain restrictions on what provisions can go in these agreements.

However, the NZCC’s review has identified some key issues with the functionality of the Code, which largely stem from one key problem:  suppliers are unsurprisingly hesitant to push back in negotiations with RGRs, due to it being essential that their products go on the shelves of the RGRs’ supermarkets. This means that, while the Code exists, suppliers are often agreeing to the terms proposed by the RGRs rather than engaging in proper negotiation on those terms.

What are the issues, and what are the changes proposed?

Fear of retaliation

In responding to the Grocery Commissioner’s 2024 Grocery Supplier Survey, many suppliers said the terms of supply agreements were largely favourable to the RGRs because of the power imbalance in the sector, and often included provisions contracting out of the Code. As noted above, the RGRs represent crucial revenue streams for grocery suppliers, which has left many suppliers feeling pressured into agreeing to unfavourable terms to avoid retaliatory conduct such as delisting and/or deranging, to keep their products on the shelves.

In response to this feedback, the NZCC sought to address suppliers’ fear of backlash. The updated Code would include an explicit ban on any form of retaliation from RGRs against suppliers attempting to exercise their rights and negotiate more favourable supply agreements.

Promotional funding is rife

The NZCC also shed light on the nearly $5 billion in subsidies that grocery suppliers have been providing the RGRs for their products, effectively lowering the prices paid by the RGRs to stock their products. These subsidies typically take the form of rebates and promotional payments, where suppliers pay the RGRs to promote their products and fund the lost margin when RGRs run specials on the suppliers’ products.

While promotional payments and rebates would not be banned under the updated Code, RGRs would be required to make top up payments to suppliers where products have been subject to promotional funding, but not sold at a promotional price in-store. This avoids RGRs stocking up on products in promotional periods, but holding stock back until the promotion ends to sell at a higher margin.

RGRs will also be required to keep detailed records of supplier payments and promotional funding agreements (which will be subject to NZCC review on request). Written records must also be kept for other payments that RGRs require suppliers to make, and any unilateral variations to supply agreements.

Suppliers are being charged for costs reasonably incurred by RGRs

In addition to promotional funding issues, the NZCC noted that Foodstuffs North Island has been charging suppliers for “merchandising” costs, such as stocking shelves and setting up displays, visits to suppliers’ premises, refurbishing/opening stores, and hospitality for RGR staff. Foodstuffs North Island also requires suppliers to compensate them for products which are not in a saleable condition, regardless of whether they have become unsellable once the RGR has taken control of them.

The updated Code would shift the burden of these payments back onto the RGRs, as well as limiting the ability to claim costs for wastage once products are under an RGR’s control.

Wholesale supply inquiry

The NZCC is also undertaking a review of the wholesale market for the supply of groceries (Wholesale Inquiry). While the Code focuses on the relationships between suppliers and the RGRs, the Wholesale Inquiry seeks to understand the barriers facing smaller players and potential new entrants from participating in New Zealand’s retail grocery market, and to explore whether additional regulation may be required. The preliminary findings were released on 5 June 2025 and, as with the Code review, emphasised the importance that promotional funding has in creating significant barriers to effective competition.

As discussed above, promotional funding effectively gives the RGRs access to products at lower prices. Given smaller players/new entrants into the retail grocery market have limited access to promotional funding, they are finding it difficult to compete with the RGRs on price, particularly when engaging in any promotional behaviour. To curb this issue, the NZCC is looking for the RGRs and suppliers to voluntarily alter their behaviour to be more favourable to smaller players/new entrants regarding promotional funding.

In particular, the NZCC is expecting promotional funding for products that the RGRs supply on the wholesale market to be passed on by the RGRs to smaller players/new entrants (allowing these parties to compete on price), and to ensure that a sufficient product range is available to these players (allowing competition on range).

For suppliers, the NZCC is expecting them to cut back on widespread promotional funding behaviour with the RGRs. However, acknowledging the unrealistic prospect of cutting back entirely, the NZCC is asking suppliers to be more willing to offer promotional funding directly to smaller players/new entrants (rather than just to the RGRs).

Why does all this matter?

The Grocery Commissioner has acknowledged that the regulatory regime in the grocery sector is not currently having the intended effect. With many suppliers openly admitting they have limited understanding of the Code and its application, it remains to be seen whether the amendments will bring the Code more into prominence, taking its place as a core consideration in negotiations between suppliers and the RGRs.

The real question is whether these changes will finally stimulate competition in the grocery sector. While we consider that the proposed actions around promotional funding and retaliatory conduct could benefit suppliers, as well as smaller players and potential new entrants in the retail provision of groceries, the NZCC still appears to be reliant on the RGRs to voluntarily change their behaviour regarding their relationships with suppliers and potential competitors in the retail supply of groceries. Whether the RGRs will do this voluntarily remains to be seen.

These steps above highlight the NZCC’s (and the Government’s) continued focus on competition in the grocery sector. We have commented on this ongoing focus at length in other articles, including the potential forced breakup of the RGRs, charges against two of the RGRs for misleading pricing conduct, the blocking of the proposed merger of Foodstuffs North and South Island, and Foodstuffs North Island’s use of restrictive land covenants.

What happens next?

The NZCC is currently seeking submissions on its proposed changes to the Code and will consider this feedback before issuing its final report by the end of September 2025. You can make a submission here - please let us know if you require any assistance in preparing your submission to the NZCC. Following this, the NZCC anticipates a six-month transition period between finalising the updated Code and its effective date, allowing suppliers and the RGRs time to ensure they are complying with the updated framework. In addition, substantial guidance is expected to accompany the Code to support its implementation.

As for the Wholesale Inquiry, submissions on the Preliminary Findings are due on 18 July 2025. You can make a submission here - again, please let us know if you require any assistance in preparing your submission. A final report on the wholesale supply inquiry is expected to follow in 2026.

Special thanks to Henry King and Libby Muir for their assistance in preparing this article.