Growth Minister Nicola Willis outlines how she is getting advice on a possible supermarkets de-merger. Video / Mark Mitchell
The Government is considering a possible break-up of New Zealand’s supermarket duopoly in an effort to boost competition as high grocery prices continue to sting Kiwis.
Finance Minister Nicola Willis, in an announcement this morning, said she was concerned “significant action may be required to foster genuine competition ... Ihave commissioned specialist external advice on the ways in which the existing supermarket duopoly could be restructured to improve competition”.
Willis says she has commissioned external advice on ways in which the existing supermarket duopoly could be restructured to improve conditions, including a de-merger of existing brands.
“I do not take this step lightly ... Today, I am putting the supermarkets on notice.”
“I am not waiting – that’s why I am, in real-time, taking advice on what structural separation could look like.”
Structural separation can involve splitting up wholesale and retail parts of sector. Telecom (now Spark) was separated from Chorus, for instance, when the latter won contracts to build the bulk of New Zealand’s fibre broadband network.
Veteran competition consultant and expert in grocery policy Ernie Newman earlier said the Government needs to be realistic about our “truly broken” market.
Newman said the notion there is anything we can do now that would suddenly attract an international investor is wishful thinking.
“The Government needs to be realistic here. Our market is well and truly broken,” Newman said.
“The solution is to fix what we’ve got and to not go down rabbit holes trying to attract an entrant into a market that’s well and truly buggered.”
Newman said the problem with a new entrant is that supermarkets are a business of scale.
“You’ve got to have, especially in a relatively small market like this, sites within people’s reasonable driving distance. So that means somewhere around 150-200 sites to kick off. You can’t come in with half a dozen sites and think, ‘Wow, job done’.
“You’ve got to come in and be ready to do a few years of making a loss and pretty much have a national coverage from day one in order to have any show.”
The report built on the findings of its 2022 Market Study, which said competition was “muted” and “competitors wanting to enter or expand face significant challenges”.
New Zealand's duopoly supermarket sector is under the spotlight.
Newman says the duopoly of Foodstuffs (Pak’nSave, New World and Four Square) and Woolworths (Countdown – being rebranded to Woolworths) must be broken up.
“The only thing that I think is going to fix this is to unravel the problem we have created, which is a duopoly market,” Newman said.
“Break them up [Foodstuffs and Woolworths] and turn them into completely separate companies, with no interlocking directorships or anything of that kind. That would be a really good start.
“You’d need to legislate it. It would need to be done pretty much on a similar basis to the whole saga around Telecom. The Government actually needs to strengthen its anti-trust legislation and pass [legislation] that says that Foodstuffs and Woolworths, or one or the other, are to be broken up and divested into separate businesses.”
Newman said in terms of a new supermarket player, his dream solution would be The Warehouse, in conjunction with iwi.
“You take the existing Warehouse sites around the country, which are mainly metropolitan, and you add to that the regional and rural sites that many Māori groups have got … Put some iwi money in there, and then I think you’d have a viable third entrant.
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.
