Finance Minister Nicola Willis fired warning shots yesterday at Foodstuffs and Woolworths, threatening “structural separation” on the two dominant forces.
Neil Anderson, partner at A&B CompetitionLawyers, said such a move was achievable but could potentially become sticky and drawn out.
“I can’t think of a precedent where the Government has forced a de-merger by legislation to redeploy private property.”
Anderson said the only two precedents that spring to mind were the Telecom de-merger and the split of Electricity Corporation of New Zealand (ECNZ).
But with the Telecom de-merger, “the Government had a massive bargaining chip there with the billion-dollar funding of the UFB network”, Anderson said.
“So, they were able to do a commercial deal over the de-merger rather than just ram it through.”
“When ECNZ was split up, they [the Government] made them all choose to be a distributor or a generator,” Anderson said.
On whether the Government could force a de-merger of the supermarket duopoly, Anderson referenced the sovereignty of Parliament.
“I guess they can do it if they really want too. It should be achievable I would have thought in a technical sense,” he said.
“I think it’s more of a philosophical question probably than a legal one as to whether or not they’re prepared to go that far and force a de-merger of private property.”
Finance and Economic Growth Minister Nicola Willis has the supermarket duopoly in her sights. Photo / Mark Mitchell
He said the process could become drawn out if the supermarkets chose to oppose it.
“All of that stickiness would potentially be there.
“I think it will be interesting to see how it plays out really … it’s definitely easier said than done.”
Anderson said the supermarkets will have their own tactical questions around a possible de-merger.
“Whether that’s [opposing a de-merger] the right thing to be seen to be doing or whether they can actually realise more value through a de-merger commercially anyway … notwithstanding that they’d be left with a more competitive environment post-merger.”
“Your supermarket shop is too expensive and now Kiwis pay some of the highest prices on the planet for food.
“This is totally unacceptable. Today we’re kicking off the next steps to bring in potential supermarket challengers – both in New Zealand and overseas – to compete with the duopoly.”
‘Putting the supermarkets on notice’
Willis said yesterday she was not satisfied with the status quo and was now actively looking at options for a structural separation.
“Significant action may be required to foster genuine competition ... I have commissioned specialist external advice on the ways in which the existing supermarket duopoly could be restructured to improve competition,” she said yesterday.
This includes a possible de-merger of existing brands – Foodstuffs (which owns Pak’nSave, New World and Four Square) and Woolworths (Countdown, FreshChoice and SuperValue).
“I do not take this step lightly ... Today, I am putting the supermarkets on notice,” Willis said.
“What I want to see is a properly competitive market. I don’t believe we have a properly competitive market right now.”
Willis also announced her officials have engaged with a range of possible third players.
She said at least one more competitor in the industry was needed to bring about change for Kiwis.
But she wasn’t prepared to wait around for an international chain to show up and improve competition either.
Veteran competition consultant and expert in grocery policy Ernie Newman said the fact the Government was commissioning expert advice on a structural separation was a “significant move”.
“This undoubtedly puts Foodstuffs and Woolworths on notice that the magic days of unconstrained dirty tricks and super-profits are coming to an end,” he said.
Structural separation could involve splitting up wholesale and retail parts of a sector.
Newman said the sense of urgency shown by the Government was good news: “Our food distribution chain is clearly broken and no [political] party should stand in the way of the repairs.”
Cameron Smith is an Auckland-based journalist with the Herald business team. He joined the Herald in 2015 and has covered business and sports. He reports on topics such as retail, small business, the workplace and macroeconomics.
