It’s noteworthy that the initial draft report of the commission advocated a possible break-up of the supermarketswith a forced new entrant of a scalable distribution centre and the sale or rebranding of existing supermarkets to create a scalable price-competitive challenger.
This didn’t happen, instead, we got a regulator who is a sensible, experienced, and proactive ambassador for the Commerce Commission, but one without the toolbox to do the job.
If only we had a working market, he would be a brilliant addition as a market policeman - but we don’t have a working market. We have a duopoly that consists of a number of geographic monopolies.
The issue is that you can’t fix market structure problems by policing the behaviour of the supermarkets. The supermarkets behave rationally and within the letter of the law. Small players can’t achieve scale and get squeezed. That’s what the demise of Supie is highlighting.
It wouldn’t matter if you hired Rocky, or Muhammad Ali, or James Bond as the regulator - without a structural separation and a “like-for-like challenger” which has scale and incentives to compete, you won’t fix a structurally-broken market.
Ironically, Supie may have inadvertently aided the duopoly during the Commerce Commission supermarket study.
Countdown and Foodstuffs repeatedly referenced its arrival as indicating that “competition was coming”.
In other words, they used it as a stalking horse to fight for the status quo and prevent the regulator from breaking up the supermarkets.
The Supie team were well-qualified, hardworking, committed entrepreneurs on a laudable journey to create competition. They deserve respect. Yet they became pawns in the bigger game of monopoly preservation and, when their purpose was served, they were sacrificed.
Because organisations like Supie were so instrumental in defining policy decisions in the commission’s inquiry , we think its insolvency will inevitably refocus policy attention on the question of whether the supermarket duopoly should be broken up - and how do you fix the problem of there being no price competition in food distribution in New Zealand.
The private sector creates monopolies, the government’s job is to break them up.
Nicola Willis, not yet our Finance Minister, has called for a third operator. We agree. Our submissions to the commission explained what it would take for a third operator to become an effective agent forcing real price competition:
- Approximately $1.2 billion of capital;
- At least 120 supermarkets showing 18 per cent revenue share;
- A break-up of the distribution centre arrangements;
- A fracturing of the geographic monopolisation of some areas.
Tex Edwards is a spokesman for Monopoly Watch NZ and the founder of 2degrees.
We look forward to progress on this.
Essentially we need to “undo” the ridiculous three-to-two merger of 2007, which occurred when Countdown brought Foodtown. Without that, we’re going to continue to suffer higher grocery prices while we watch Supie and other similar businesses go to the wall.
For decades Kiwis have been groomed to accept inequities, to settle for less, often by incumbent monopolists, wringing their hands lamenting our status as a small, remote country.
What happened to Supie is tragic for its staff, suppliers, investors and consumers. My message to them is you did well. Keep pushing.
My message to the Commerce Commission is to ask them to shake the dust off the draft supermarket market study and revisit unbundling the supermarkets.
This is the only way consumers will get a fair deal at the checkout. Without a break-up of incumbent market power, we will continue to be fleeced and gouged each week as we pay for our groceries.
- Tex Edwards is a spokesman for Monopoly Watch NZ - a public policy group studying the impact of monopolies in New Zealand’s utility business.
