Parallel importing – the import of goods made in a foreign country without permission from the holder of the copyright in those goods – is posing a growing threat to unwary grocers. The practice threatens consumer safety and brand perception, while its cost benefits to consumers are dubious. Robert Stockdill of the New Zealand Grocers’ Review takes up the story.

While clothing, CDs, cars and books have had all the headlines, parallel importing could also create hazards for grocers and have a major impact on the trade. Australasian food importer and distributor Stuart Alexander says the potential impacts are wide-ranging.

Stuart Alexander has been successfully marketing and distributing some of the world’s favourite household names for more than 115 years. The company is one of Australia’s oldest privately owned companies, with revenues of over $100 million per year. It entered the New Zealand marketplace last year with the acquisition of two brands, including the icon Tabasco. It recently purchased the Continental Cigar Company.

Chief Executive

Garry Browne
Garry Browne says both New Zealand and Australia are going through a radical period in retailing with the relatively recent introduction of parallel importing.

Parallel importing involves importing goods that were lawfully made in a foreign country, without obtaining the permission from the holder of the copyright in those goods. This means grocery lines can be imported into New Zealand by someone other than the manufacturer or the authorised distributor.

Browne says the practice is inextricably linked to issues relating to the labelling of food. Stuart Alexander recently made a submission to the Australian & New Zealand Food Authority (Anzfa) which had called for public comment on the ‘country of origin’ labelling of food.

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“The major issue is consumer safety. If food meant for another market is brought into New Zealand there are no guarantees that it conforms to local safety standards.

“Who is going to ensure compliance? At the moment there is no organisation that is charged with ensuring that grocery lines that may be parallel imported conform to our health standards. There is no-one checking whether labelling is correct or whether it has even been incorrectly re-labelled,” says Browne.

Use-by dates are another issue that has a major impact on consumers.

“With parallel importing there are simply no controls,” says Browne.

A product offered by parallel importers would almost invariably have been through at least one supply chain process. This is because manufacturers, keen to protect their brands and distributors from parallel importing, would not be participating in parallel importing. So the product would have gone from the manufacturer, passed through the supply chain and then for whatever reason been made available for parallel importing.

“How has that product been stored? When is its use-by date and has that been altered? How will a grocer really know what he is getting?” says Browne.

A 1999 study by Massey University academics appears to support Browne’s concerns.

Albany academics Professor Larry Rose, Lynne Eagle and Dr Brendon Moyle found that consumer safety could be put at risk due to serious loopholes in the monitoring and enforcement of government legislation surrounding product safety.

The team originally set out to examine the impact of parallel importing on brand equity and values in New Zealand. However they uncovered that parallel imported items can be sold here without being checked for compliance with New Zealand’s safety standards or regulations.

The researchers found instances where products had been brought into New Zealand either very close or past their use-by dates. In one instance the labels on bottles of alcohol had either been tampered with or had their label information erased, making it impossible to track the liquor suppliers.

The Massey University team found that although importers are obliged to comply with New Zealand law there was no surveillance at the border. The researchers stated that the implications of the lack of monitoring on consumer safety was huge. The impact on brand perception was also a serious issue.

Browne agrees and says for instance if one shipment of chocolates that came into the country had not been properly stored and consequently had deteriorated, consumers may buy one box but then never buy the brand again, even though subsequent shipments may have come from the manufacturer or distributor.

“When grocers are staking claims to freshness and quality in order to attract and retain customers, this is simply not good business practice.

“The potential damage to the brand would also have serious implications for authorised distributors as they struggled to get the public to differentiate between parallel imported product and official product.”

“In the end all the investment in the brand by way of advertising, brand building and grocer support could go down the gurgler because of the actions of a parallel importing operation,” says Browne.

“Not only would it affect the existing operations of licensed distributors, they would also have to seriously consider the viability of new brands they are looking to bring into the marketplace. If they are likely to be subject to parallel importing, then it’s simply doesn’t make good business sense to spend the money needed to build the brand only to have its quality and reputation compromised.”

 In another twist in the tale, products can vary from country to country and this has implications for parallel importing. Browne takes the icon Tabasco sauce as an example. “The recipe for Tabasco varies between countries to suit local tastes. The Tabasco you buy in New Zealand may be quite different from one in Asia.

“Tabasco may be parallel imported into New Zealand and conform to all the domestic safety requirements. But the consumer may think that the product is off or of a lesser quality when they are really only consuming a product that suits the tastes of another country,” says Browne.

It’s not only consumers and distributors who are vulnerable to the practice of parallel importing.

“What recourse does a grocer have to a parallel importer if things go wrong? Reliability or continuity of supply may also be an issue.

“The grocer may have a contract but what guarantees does he or she have that the contract will be honoured, given that the parallel importer may be in the business only short-term for quick profits. And that’s not even taking into account the difficulty in enforcing contracts in foreign countries,” says Browne.

“Product recalls would also prove difficult because who would take the responsibility for them, not to mention the impact they would have on legitimate products?”

While the recent recall of some Soy sauce products was not related to parallel importing, there were serious implications for products that either were not the named brands, or were the named brands but made elsewhere under strict safety standards.

“People simply stopped buying Soy sauce. This is an ominous warning of what could happen under a parallel importing culture.”

Browne says justification for parallel importing has been based on its supposed benefit to consumers. A report by the New Zealand Institute of Economic Research (NZIER) for the Ministry of Commerce suggested that where New Zealand consumers are being charged higher prices for goods compared to other countries, the reforms could introduce a degree of competition and hence lower prices.

“It is dubious whether this rationale applies to grocery lines where profit margins are tight. In addition, the NZIER report was based on a study of the CD, car and book market.

“When it comes to perishables, there are a lot more issues at stake such as safety and quality, and these need careful thought.”

Pricing differentials may also be an issue for grocers, with larger players likely to be the only ones to have the resources to participate in parallel importing.

“It certainly won’t help the price gap between the large and small retailer. For larger retailers it could create pricing chaos.”

When Browne envisages what the grocery market could look like if parallel importing became common practice, he’s extremely concerned.

“Consumers at risk with safety and quality issues, pricing chaos, grocers vulnerable to consumer perception about the quality and freshness of their products, questions over consistency and reliability of supply, problems over product recalls, damage to brand values, licensed distributors at risk.

“It’s time that these issues were talked about and addressed,” says Browne.

This article first appeared in the August 2001 edition of the Grocers’ Review.

To view related research report, please follow the link below:-

The Market for Packaged Food in New Zealand