Chasing foreign supermarkets won’t lower food prices – Bruce Cotterill

The Finance Minister wants new supermarket players to enter the New Zealand market, with the aim of lowering prices through competition. Photo / 123RF

THE FACTS

• The Finance Minister aims to introduce new supermarket players to increase competition and lower prices.
• The Government plans to streamline consent processes, reducing the time to build new supermarkets.
• Critics argue the strategy may not significantly impact prices due to market size and existing efficiencies.

I sometimes wonder if our politicians put themselves in the headlines without thinking things through.

This week the supermarket industry has been back in the spotlight. Our Finance Minister is making it her business to keep it there as she attempts to deal with the cost-of-living crisis.

Like her pursuit of Fonterra a few weeks back, and before that the banks, she is going after what she thinks might be political points on offer for uncovering a manufactured scandal.

This week she announced the next step in her quest to pull the existing supermarket duopoly into line. Her strategy is to do so by introducing additional players into the retail grocery game here.

She believes an additional grocery operator will increase competition and decrease prices. So her preference is to attract one of the big international operators to take on the might of Woolworths and Foodstuffs.

That strategy gathered steam this week with the decision that the Government is planning to make it easier for new supermarkets to get consent.

Apparently it’s been taking up to four years to get through the red tape. The new goal is for supermarkets to be built in half that time.

I know that her work is well-intentioned. Like most Kiwis, I’m concerned about the increased costs of living. But I can’t help but think the Finance Minister is chasing a rainbow that isn’t there.

The increased cost of living is made up of a number of elements. Our rates bills are part of the problem. So too is the annual invoice most of us receive from the insurance company.

Electricity costs are making winter a bit more difficult. And our weaker dollar means any imported goods are a little further out of reach than they were just a couple of short years ago.

We are “regulation heavy” in this little country, which makes everything we do more expensive. We’ve also aggressively pushed up the minimum wage over the last eight years, the impact of which hits every price tag.

During the last few years, interest rates have made the lives of those with a mortgage a little tougher, too. Although they’ve moved too late yet again, it seems the Reserve Bank has finally heard the message and a massive suppressant to the economy is gradually being lifted.

So the annual grocery shop is just a part of the household spend that’s hurting us. Admittedly it’s a substantial portion, at just under 20%, but it’s not the only problem.

The grocery market is not unique in this country. When we jump online to book a flight, we are likely to feel more at risk of being “price gouged” by our national airline than we do when entering the local supermarket. The two industries share a common challenge – our market size.

With a population of 5.4 million, spread over a country the size of Japan or the UK, we’re not exactly heavily concentrated. That population size can only support two airlines, one of which is a discount operator from Australia. It can only carry 2.5 telcos: a couple of major ones and a perennial challenger that’s been challenging for two decades now.

We also only have room for two major national supermarket chains.

The early rhetoric in the supermarket campaign suggested we could attract a major international player that would bring 50 or more new stores.

Names like Aldi and Lidl, both headquartered in Germany, were mentioned. Despite the Government scouring the world for someone to play with, no one turned up.

The Finance Minister's targeting of the supermarket duopoly is an attempt to address the rising cost of living. Photo / 123RF

The best they can do is America’s Costco, a giant “pile it high, sell it cheap” operator that opened its first and so far only New Zealand store in 2022.

In her various press announcements during the week, the Finance Minister repeatedly referred to conversations with Costco as her reference points.

I am quite sure Costco can see additional opportunities to establish new stores in this country but I reckon they would max out at four. Not 50. Four.

Costco’s model needs big populations, something we don’t have too much of. Could they put a store into South Auckland and maybe another between Hamilton and Cambridge? Probably. What else? A South Island shop, perhaps – but that’s probably it.

And therein lies the problem.

We should be careful what we wish for. A Government-assisted new entrant to the market is highly unlikely to smother the country the way our existing Woolworths and Foodstuffs businesses do.

For a start, that national coverage comes at a cost. There is no question a few stores in our most populous areas couldn’t be competitive on price. But unless you’re asking those companies to deliver same-price product to stores in Tūrangi or Tekapo, the playing field isn’t level.

Compared to many developed countries, New Zealand offers a grocery shopping experience that is world-class. That experience is consistent too, whether you’re in Kaitāia, Botany or Rangiora.

The produce is fresh and the prices are consistent across the country. The reason the supermarket companies can do that is the scale they operate at.

Any attack on that duopoly will almost certainly result in economies of scale reducing and prices increasing, the exact opposite of what the minister wants.

I even heard Nicola Willis say in a radio interview that she would be keen to attract Walmart. Have you ever walked into a Walmart store? Compared to the New Zealand grocery industry, the customer experience is appalling.

Untidy, dirty floors, empty shelves and rubbish-laden carparks are a feature. Do we want that in our backyards? I don’t think we do.

The other question we should ask is, “what problem are we trying to fix?” The minister seems to think supermarket prices are too high and the Woolworths – Foodstuffs duopoly is the cause of that.

So, here’s a few facts.

According to our own Commerce Commission, in their Annual Grocery Report, New Zealand shoppers enjoy cheaper prices than many in the 38 surveyed countries.

We sit at 13th in the OECD, slightly more expensive than Spain and the Netherlands but cheaper than Italy, Australia, Germany, Sweden and 25 others.

In a 2022 market study, the commission compared us with Australia, Finland, Ireland, Israel and Iceland. New Zealand was the cheapest. Of the countries with similar populations to ours, we were the cheapest.

Don’t forget that those price comparisons include our 15% GST too.

Separate studies show the duopoly we’re complaining about occupies just 70% of the Auckland market and 82% of the national grocery market.

That means 30% and 18%, respectively, of grocery product sold in New Zealand is sold by operators outside the big guys. Keep in mind Auckland is one of the most racially diverse cities in the world. Such a statistic delivers a need for ethic shopping experiences the majors don’t cater for. That multicultural layer will only increase.

In addition, the much-talked-about success story that we apparently want to see here, Aldi, has just 12% market share in Australia. That’s supposed to be a game-changing impact. It isn’t.

The Finance Minister continues her tactic of threatening to enforce a break-up of the two big grocery chains. In other words, if she doesn’t succeed in attracting a major foreign entrant to the market, she’ll force the incumbents to sell a portion of their stores to a new entrant, making it easier for the newcomer to gain a foothold.

That’s a new entrant which, like the banks, will take any profits overseas. An entrant that hasn’t spent 100-plus years invested in the development of our communities and our country.

An entrant that will come in with a chequebook, steal market share and personnel, push prices and wages up (in this writer’s opinion) and settle down in a three-operator market with shoppers no better off than we are today.

New Zealand’s grocery market is dominated by two players, Foodstuffs and Woolworths, which have 82% market share between them. Photo / Supplied

Therein lies another matter that should be of concern to most Kiwis. This Government is supposed to be the natural friend of business.

Yet we have two massive organisations who serve us well, employ thousands of people and donate millions to our charity sector being threatened by our Government.

One of those companies is owned by an Australian-listed company. The other is a co-operative, which is owned, store by store, by New Zealand families having a go at running their own businesses.

That business-friendly Government of ours is threatening to break down those businesses.

What messages do such actions send to the other overseas companies we want to attract? What does it say to the owner–operator working 16-hour days with his house on the line, in exchange for a better life for his family?

The cost of living has increased. There are multiple reasons for that. It’s a global problem that isn’t going away any time soon. If you’re going to solve big problems, you have to look in the right places. We’re not doing that.

It seems ironic that a government spending more money than any that has gone before it, and borrowing to do so, is so aggressively suggesting someone else needs to get their house in order.

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