Structural separation is
unlikely to do much good if it is not solved. If this problem is solved, other measures might not be needed.
Before reaching for the regulatory sledgehammer, we should address the real question: what market structure is workable?
The current market structure didn’t emerge by accident. It reflects decades of regulatory, geographic and economic forces that have both constrained entry – many of which remain in place – and shaped our retail landscape.
The Commerce Commission identified planning restrictions and site availability as a major barrier to entry – and potentially a strong lever for increasing competitive discipline. It found that “there is likely room to provide a more permissive path towards the enablement of retail grocery store development”.
The problem facing policy-makers is real uncertainty. We don’t know whether our market can sustain three or more viable large-scale competitors. Population density, store density and the inherent scale advantages of incumbents create a complex equation with no obvious solution.
Willis is considering fiddling with what we have. She could do this by forcing divestiture: compelling existing chains to sell stores to create space for new competitors. Alternatively, she could force a break-up of the Foodstuffs’ co-operative or Woolworths’ corporate structures.
Break-ups pose substantial risks. Newly created entities must reproduce logistics infrastructure, while existing operators might face stranded assets.
Transition costs could easily outweigh efficiency gains and be passed on to consumers through higher prices. A forced break-up would also sever the business model supporting many independent owner-operators.
It would be fraught. And this kind of brute-force approach would also chill investment in other sectors.
An alternative deserves serious consideration: make it easier for new entrants by systematically removing the regulatory barriers that frustrate competitive entry.
Our planning laws make it legally impossible for any new large-footprint grocery chain to open at scale. Too few sites are zoned for it, district plan changes to allow new stores are difficult, resource consenting can take years, and Overseas Investment Office approval may be needed.
Why not simply legalise new entry? This would allow the market to discover the number and form of competitors it can support.
The New Zealand Initiative is developing a blueprint for a Fast-track Supermarket Entry and Expansion Omnibus Bill, set to be released in the coming weeks.
This proposal would create a streamlined path for new grocery competitors. It aligns multiple processes into a single “up or down” decision point: the bill would override outdated “town centre hierarchy” rules and other planning constraints that currently restrict where supermarkets can be built.
These arcane restrictions try to channel commercial development to designated centres. Councils block applications that might compete with existing retail hubs or redistribute “vitality” from existing urban centres.
These urban planning policies protect incumbents (commercial and residential) from new competitors, entrenching the local status quo.
The proposal also targets newer forms of urban protectionism. The bill provides a mechanism to separate disingenuous resistance from genuine investment needs to ease the burden on local roads. Statutory overrides and a cost-sharing framework ensure supermarket proposals cannot be delayed or declined.
The legislation would be temporary with a five-year horizon, serving as an interim measure until the Government’s broader Resource Management reforms are operational.
This approach aligns perfectly with Housing and Infrastructure Minister Chris Bishop’s planning vision, demonstrating in practice the principles underpinning the new system: abundant land supply, reduced discretion, streamlined processes, and removal of constraints that impede supply responsiveness.
Allowing entry would enable discovery. If there are really “excess” profits in grocery retail, someone can enter to grab their share. If they do not, we might wonder whether those excess profits existed in the first place.
Break-ups are less likely to provide good outcomes if the new set of supermarkets knows that no new entrant can ever really challenge them. Enabling entry matters.
Regulating without understanding underlying market dynamics risks costly mistakes that harm consumers. The market discovery approach provides a balanced path, ensuring contestability even if the Government seeks structural remedies.
It is tempting to pick up the sledgehammer. However, a more prudent approach begins with clearing the barriers that block competitive entry.
Market openness – not market shares – disciplines businesses and keeps them responsive to consumers. Without it, even forced changes to ownership risk entrenching inefficiencies or making things worse.
Fixing the rules of the game allows the competitive process to unfold, revealing what market structure New Zealand can genuinely support – and where the real problems may lie.
The New Zealand Initiative is a non-partisan research and advocacy group funded by over 100 members, including a range of corporates and other organisations, including two supermarket chains. Its membership can be found on its website.
