The Commerce Commission draft report into a supermarket duopoly in New
Zealand has been described as a "warning shot" by a Tauranga business expert.
And a Rotorua budget advisor says anecdotally, he's noticed the cost of groceries increasing lately.
Supermarkets could be forced to sell their wholesale businesses or some sites to boost competition after the commission warned competition in the $22 billion grocery sector "is not working well for consumers".
The commission's draft market study into supermarkets did not say how much cheaper groceries should be, however, it said it would expect consumers to pay less if the competition was better.
"If competition was more effective, retailers would face stronger pressures to deliver the right prices, quality and range to satisfy a diverse range of consumer preferences," Commerce Commission chair Anna Rawlings said.
Rawlings said the market could be best described as a "duopoly" with a fringe of other smaller and increasingly diverse competitors.
However, the commission found the other players were doing little to boost competition, as the two major supermarket groups, Woolworths (Countdown) and Foodstuffs (New World and Pak'nSave), considered only each other when considering prices.
Tauranga Chamber of Commerce chief executive Matt Cowley believed this report was a "warning shot" for supermarkets to find ways to review their supplier agreements and customer pricing strategies.
He said supermarkets had to ensure there was "fair value" shared along their supply chain to support small businesses.
"The farmers, the producers, the transporters and the supermarkets need to earn a fair amount of value for their efforts."
Rotorua Budget Advisory Service manager Pakanui Tuhura said the price of fresh meat, vegetables, butter and milk "wildly" fluctuated. However, the cost of other types of groceries remained "fairly static" over the past couple of years.
Rotorua Business Chamber chief executive Bryce Heard said any moves to intervene in the grocery market should be "positively focused, rather than punitive".
"Care must be taken to avoid unintended consequences such as shifting the problem elsewhere," he said.
"Any intervention should be based on the premise of encouraging the smaller players to grow rather than punishing the larger players for being successful."
University of Waikato School of Marketing & Management lecturer Roy Larke said the draft report was "wholly unsurprising".
"It is to be expected that the government should be concerned about competition within retail in New Zealand."
Larke hoped they would introduce policies to expand competition within retailing and encourage retailers to meet consumer needs.
Incentives needed to be put in place for retailers to increase product variety, he said.
"From a consumer perspective, a greater variety of product would be an improvement with a greater variety of retail brands. As that expands you would expect the variety of prices to increase."
Consumer NZ chief executive Jon Duffy welcomed the recommendations in the draft report.
"With the supermarket, trade carved up between them, the two big chains are in a cosy position and there are significant barriers to potential rivals establishing a presence. That won't change without regulatory intervention," Duffy said.
Head of corporate affairs at Foodstuffs NZ Antoinette Laird said although this was a draft report, some of the options outlined would have "wide-reaching implications".
She believed the commissions initial calculation of Foodstuff's profitability was not accurate.
Woolworths New Zealand managing director Spencer Sonn said he was now taking time to read the draft report to provide feedback.
"We note this is only a draft report but on face value, some of the recommendations would have significant implications and we'll need time to work this through and understand the impact."
After the news, he urged kiwis to exercise kindness when shopping in stores.
"We appreciate that many Kiwis will have strong thoughts and feelings about the report and would ask that they keep it kind when shopping in our stores."