The Government is considering a “structural separation” of Foodstuffs and Woolworths to foster genuine competition.
Grocery industry experts and groups welcomed the move, highlighting the need for lower food prices.
The Government is not waiting around for New Zealand’s supermarket duopoly to improve on its own, threatening a possible break-up of the two dominant forces.
Finance Minister Nicola Willis said she was not satisfied with the status quo and was now actively looking at options for a “structural separation” of the two big players in the grocery sector.
“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.”
Those within the grocery industry responded largely positively towards Willis’ announcement.
Supermarkets respond
Woolworths NZ interim managing director Pieter de Wet said the company was considering Willis’ announcement and would work closely with the Government and the Commerce Commission.
“We’re proud to provide jobs for over 21,000 New Zealanders. Our absolute focus is on giving our customers more value, convenience and a fantastic shopping experience – and we’re committed to getting on with that.”
A Foodstuffs spokesperson said the company would be constructively participating in the Government’s Request for Information.
“We support competition that delivers great value for Kiwi shoppers.
“Any changes need to deliver real benefits for customers and strengthen the grocery sector through a clear cost-benefit analysis for consumers.
“We’re keen to discuss how competition can be improved in ways that reduce costs, complexity and delays for all players in the market while ensuring fairness for our hundreds of New Zealand family-owned businesses, which are part of co-operatives that have served local communities for over 100 years.”
‘This undoubtedly puts Foodstuffs and Woolworths on notice’
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.”
Newman has argued for breaking up the duopoly in the past, saying simply bringing in a third supermarket player isn’t enough to improve competition.
Grocery Action Group chairwoman Sue Chetwin said it was “terrific news for Kiwi shoppers”.
“Currently, we pay some of the highest prices on the planet for food, and while the many recent regulatory reforms of the supermarket sector have been worthwhile, none has been effective in curbing the duopoly’s market power,” Chetwin said.
New Zealand Food and Grocery Council chief executive Raewyn Bleakley said Willis’ announcements were a “significant development” for the grocery sector.
“It is encouraging to see that the steps announced today will be actively led by the minister, with the clear intention and commitment to thoroughly investigate options and provide directional clarity in a relatively short timeframe,” Bleakley said.
Finance Minister Nicola Willis put the supermarkets on notice this morning. Photo / Mark Mitchell
Retail NZ chief executive Carolyn Young said, “Minister Willis has announced some big initiatives on what might happen this year, but we need to keep in mind that the objective is to provide better prices at the checkout for consumers. So, the key will be to see how any recommendations will lower prices.”
Politicians across the spectrum were less convinced by Willis’ approach.
Act Party leader David Seymour expressed concern “… that if your Government is trying to attract overseas investment, threats to restructure their businesses in New Zealand might have the opposite effect”.
“Politicians seek advice all the time. That’s very different from it being Government policy, especially in a coalition.”
Labour commerce and consumer affairs spokesperson Arena Williams said the announcement was “no more than paying lip service to all of the promises they’ve been making to Kiwis”.
“This long-awaited big announcement doesn’t bring competition into the supermarket sector, introduce a new player or bring down prices for New Zealanders as promised.”
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.
Cabinet has also agreed to begin a formal Request for Information to speed up the improvement of competition in the retail grocery sector, Willis said.
Willis is wanting to hear from respondents – including existing major players and the smaller store owners who work under their brands – on a range of issues, including what the barriers are for a new third player.
Willis said she expects the responses will be a quick, formalised process taking six weeks.
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.
