A draft report that sets out the preliminary findings and draft recommendations from a study into the New Zealand building supplies market has been released. The Minister of Commerce and Consumer Affairs asked the Commerce Commission to examine whether competition for the supply or acquisition of key building supplies is working well and, if not, what can be done to improve it. Source: Timberbiz
The study was promoted by a belief that New Zealand building supplies can be up to four times the price of other markets.
The preliminary view is that competition for the supply and acquisition of key building supplies is not working as well as it could if it was easier for building products to be introduced and for competing suppliers to expand their businesses.
The study considered the industry structure and nature of competition within each level of the industry supply chain for key building supplies. However, there was a focus on conditions for entry or expansion of new or competing products. It was considered that these conditions were critical to facilitating workable competition for key building supplies.
Two main factors negatively impact competition for key building supplies in New Zealand.
These factors make it difficult for competing products to be introduced to markets and consequently for competing suppliers to expand businesses. This reinforces the market position of established building products and methods, and of existing suppliers of those products in highly concentrated markets.
The building sector is governed by a building regulatory system which has, at its heart, the provision of safe, healthy, and durable homes for New Zealanders. While innovation is recognised as important to achieving these objectives, the preliminary view is that the regulatory system has a number of features which prevent competition from working well.
Most key building supplies are distributed to builders through merchants. There are five major building supplies merchants with a nationwide presence: Bunnings, Carters, ITM, Mitre 10 and PlaceMakers. Outside of the major merchants, several smaller merchants and retailers have varying presence and carry varying product ranges.
The preliminary findings are summarised below.
Competition for the supply and acquisition of key building supplies is not working as well as it could if it was easier for building products to be introduced and for competing suppliers to expand their businesses.
There are few competing suppliers for many categories of key building supplies and competition at the supplier level appears limited for some key building supplies because:
- features of the regulatory and standards systems are making the introduction and expansion of competing building products difficult.
- designers and builders generally favour ‘tried and tested’ products, because their compliance is more easily assured within the regulatory and standards systems; and
- quantity-forcing rebates used by established suppliers appear, under certain conditions, to be reinforcing difficulties for new or smaller suppliers.
Competition between merchants appears to be working relatively well at the national level but is potentially limited by the use of restrictive land covenants and exclusive leases.
Entry or expansion of new or innovative building supplies (including ‘green’ building supplies and novel prefabricated products) is likely to be impeded by the same factors affecting competition at the supplier level that are affecting other products.
In some cases, for example offsite manufacturing, the need to invest in manufacturing at large scale, compared with the overall market size, means that it is difficult to enter the market without an assured pipeline of demand.
You can download the report here.
