The country’s competition regulator is initiating legal action against Foodstuffs South Island (FSSI) over allegations of discounting malpractice at independently-owned Pak’nSave stores.

The supermarket giant operates South Island Pak’nSave stores under a franchise model that should allow individual operators to set their own prices, discounts, and promotions. But the Commerce Commission (ComCom) believes that Foodstuffs has been enforcing restrictions on the discounting of products at such stores.

“The conduct we allege occurred deprives Kiwis of the best possible prices when shopping at their local supermarket and limits competition,” ComCom chair Dr John Small said. “Under the franchise model, individual South Island Pak’nSave supermarkets are supposed to be able to compete on pricing, discounts and promotions.

“Instead, we allege FSSI applied guidelines and rules that stopped these independently owned and operated supermarkets from offering certain discounts unless they received prior approval.”

ComCom’s argument centres on the illegality of resale price maintenance, which stops retailers from setting prices below levels that can limit competition and, in turn, lead to higher prices.

“FSSI centrally set a ‘Super Deal’ promotion price for a product and prohibited franchisees from discounting below this price, unless the Pak’nSave obtained prior approval,” the commission alleges.

“Franchisees were also prohibited from discounting any other product in the same category below the ‘Super Deal’ promotional price.”

The commission also alleged that it continues to detect anti-competitive behaviour from the country’s major supermarkets.

“We will argue the alleged anti-competitive conduct was widespread, with FSSI’s guidelines covering all South Island Pak’nSave franchisees for a period of at least several years,” Small said.