There is little question that the forced sale of private businesses in New Zealand's supermarket industry would constitute a radical solution to feeble competition.
And whether the patient, as it were, is sick enough for this most extreme therapy, with the potential for very serious side-effects, remains the subject of hot debate before the country's Commerce Commission.
In an online conference on Monday, the Commission heard the views of interested parties, many of them in conflict, on the mooted forced divestment of grocery industry assets as a remedy for competition deficiencies in the current duopoly market.
The situation is without precedent; it is the first time the Commission, responsible for the regulation of competition, has considered forced divestment in the context of a market study. Any divestments the Commission has previously mandated have been in voluntary contexts, primarily related to mergers and acquisitions.
The two main supermarkets, Foodstuffs and Woolworths, argued that forced divestment--of retail stores or of the wholesale divisions of their businesses--would need to be a remedy of last resort, and anyway would be so drastic as to be disproportionate to the scale of the problem.
Chris Quin, CEO of Foodstuffs North Island, said that forced sales would amount to the "confiscation" of "privately owned businesses...family stores" which would be "unprecedented in New Zealand".
Tim Donaldson, general manager retail, Foodstuffs South Island, echoed the sentiment. Forced divestment, he said, would amount to the "confiscation of private property".
The grocery sector is controlled by Foodstuffs NI and Foodstuffs South Island and Woolworths New Zealand. Foodstuffs NI and SI co-operate together and do not compete, and each is co-operatively owned by its member stores. Foodstuffs banners include New World, Pak'nSave, and Four Square stores, Woolworths banners include Countdown and Fresh Choice.
In a draft market study of the grocery sector released in July the Commission found that competition in the $22 billion a year grocery sector is not working well.
It found that prices to consumers are "consistently high" and among the most elevated in the OECD and New Zealand's two key supermarkets are enormously profitable, as measured by a shockingly fat 'return on average capital employed' (ROACE) of some 22-24 per cent.
Both Foodstuffs and Woolworths dispute the Commission's figures.
Speaking on Monday, the most vociferous proponent of retail store divestment was businessman Tex (Simon) Edwards, founder of telecom 2degrees. Northelia, the recently incorporated business Edwards represents, is interested in entering the grocery market as a third major competitor, if the Government decides ultimately to force asset sales.
Edwards said there is no simple number for how many exisiting supermarket stores need to be sold (or in the case of Foodstuffs separated from central control) to allow another competitor, or possibly several competitors, to enter the market.
The range is between 125 and 200 stores, he said, and the right number would vary depending on factors like geographic location and store size. He said it would be important that a new entrant have sufficient scale within the overall industry.
Edwards told the Commission that Northelia has had investment interest and discussions with Iwi, though he declined to identify the groups and he has not disclosed where Northelia's capital would come from and who else is involved.
The Commission is also considering whether to and how to facilitate greater competition in grocery wholesaling. The absence of a significant independent wholesaler currently is seen as a considerable barrier to the entry of new entrants to the retail market.
Foodstuffs and Woolworths say they currently incorporate wholesale purchasing from suppliers, including the likes of logistics, in an integrated way within their overall businesses. They are not set up with discrete wholesaling divisions and their preference is for the status quo.
But Matthew Lane, general manager of niche player Night'nDay (51 convenience stores) told the Commission that the current system, with little wholesaling outside the huge supermarkets, puts his business at a large disadvantage.
He said he currently contracts with Woolworths for supply, but desperately needs "access to non-conflicted wholesale" to grow and compete.
By way of example, he said that in the worst of the supply panics of Covid-19 his chain was rationed to "a maximum for $800 orders for our stores to try and supply our vulnerable customers."
The Commission's options fall across a spectrum of possibilities ranging from less to more intrusive.
More modestly, it could require Foodstuffs and Woolworths to separate their wholesale functions operationally.
This would require the companies to define wholesale business units, which would have their own leadership within the overall company. Those units would be subject to set rules and principles and required to sell to third parties accordingly.
The Commission is also considering more thoroughgoing structural separation of large supermarkets' wholesale units. Such segregation would require that wholesale businesses have their own boards of directors, though they could be owned by the same shareholders as the retail arms of the supermarkets. Alternatively, mandated divestment of wholesale operations is also an option.
Many suppliers to supermarkets are also deeply dissatisfied with the grocery market status quo and have argued that the massive market power of the duopoly puts them at a disadvantage. However their many industry body, the Food and Grocery Council, has not taken a definitive position on forced divestment.
The conference closes on Tuesday, when the Commission will consider the government's role in facilitating the entry of new players into the grocery market.
The Commission will make a final report to the Government on March 8, 2022.