The Commerce Commission has cleared a Seventh Day Adventist Church entity to take over a rival tofu manufacturer.
Life Health Foods, a registered charity owned by the Seventh Day Adventists’ parent charity, will acquire rival food company Chalmers Organics. Both companies supply a range of tofu, plant-based foods and meat alternative products to supermarkets and other retailers.
The charity is a sister unit to registered charity Sanitarium New Zealand, also owned by the church.
The Commerce Commission had earlier expressed concerns over the merged company’s market dominance in the tofu sector. In a May 4 “Statement of Unresolved Issues”, it argued that other tofu suppliers could not easily step up to supply the major supermarket chains.
However, Commerce Commission chair Anna Rawlings said in a statement that the regulator was satisfied that the acquisition was unlikely to substantially lessen competition in any New Zealand market.
“The Commission found that there are several smaller manufacturers of tofu who currently supply the major grocery retailers and other specialty retailers, and if encouraged, could increase their supply of tofu to these retailers,” Rawlings said.
It will release the written reasons for its decision at a later date.
Close competitors
The regulator had been concerned that the merged company would dominate tofu supply to the large supermarket chains. It considered Life Health Foods and Chalmers Organics the two largest suppliers of tofu to the supermarket chains, and that the merging companies appeared to be each other's closest competitors.
It was the supply of tofu to the big supermarket chains that had been the Commerce Commission’s main sticking point, rather than to other retail outlets.
This was largely due to the strong power supermarkets held over its suppliers, making it harder for smaller tofu businesses to make a profit.
Other companies surveyed had said the supermarkets demanded lower wholesale prices, and more support with promotions and marketing than the suppliers could afford.
Life Health Foods had argued that the barriers to market entry and expansion for tofu were low. New entrants were able to start out by supplying Asian supermarkets and specialty stores and then move into the mainstream supermarkets.
The company also submitted that the supermarket chains’ power over suppliers would be a major constraint on the market dominance of the merged company.
The Commerce Commission has taken that on board.
“Most tofu is sold through the major grocery retailers. Foodstuffs and Woolworths hold significant buyer power and are able to prevent unjustified price increases from the merged entity through their ability to source tofu from competing suppliers,” Rawlings said.
The commission said it was satisfied that there was sufficient competition for the merged company's other meat-alternative products.
"Our investigation identified a number of recent entrants, particularly from overseas, in the supply of meat-alternative products, which will constrain the merged entity," Rawlings said.
Separate market
A key element of the Commerce Commission’s earlier objections was that tofu was in a separate market from other meat-alternative products. Such other products were not a sufficiently close tofu substitute that consumers could switch to.
Life Health Foods responded in a May 17 submission, saying this approach was flawed. The main tofu variant was firm tofu, which the Commerce Commission had agreed could be substituted with other meat-alternative products, at least in some cases.
The charity also disputed a claim that some supermarkets placed tofu in a different area from other meat-alternative products, and produced photos from 12 supermarkets to back this up.
Life Health Foods is based in Avondale, Auckland, and has operations in India and joint venture partnerships in the United States and the United Kingdom.
It produces vegetarian and plant-based products in NZ, under brand names including Bean Supreme, Alternative Meat Co. and Lisa’s Hummus and Dips.
Chalmers Organics eventually grew from an Auckland wholefoods shop founded by the Chalmers family in the early 1980s. It manufactures a range of tofu and meat alternative products under the Tonzu and Zenzo brands.
Life Health Foods’s parent, the Seventh-day Adventist Church in NZ, files consolidated accounts on behalf of all its subsidiaries, including Sanitarium NZ. The group posted a loss of $2.86m on revenue of $187.47m for the June 2021 financial year.
As a registered charity, Life Health Foods does not pay tax. Its stated charitable purpose is the “production and distribution of healthy foods, promotion of a healthy lifestyle and the support of the Seventh-Day Adventist Church”.
Neither Life Health Foods nor Chalmers responded to BusinessDesk’s request for comment.
