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Supermarkets could be forced to sell their wholesale businesses or some sites to boost competition.

Competition in the retail grocery sector "is not working well for consumers", the Commerce Commission's study into supermarkets has concluded.

The finding comes as part of the competition watchdog's draft report on the level of competition in the $22 billion supermarket sector.

"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," chair Anna Rawlings said today.

The Commission's draft findings are preliminary and still subject to consultation prior to its final report being published in late November this year.

Rawlings said the market could be best described as a "duopoly" with a fringe of other competitors. The two major supermarket groups, Progressives and Foodstuffs, considered only each other when considering prices.

The two groups did not tend to compete head-on, Rawlings said.

"Our preliminary view is that the core problem is the structure of the market. In competitive terms, the major retailers, Woolworths NZ and Foodstuffs, are a duopoly, and while there is an increasingly diverse fringe of other grocery retailers, they have a limited impact on competition.

"This is because they are unable to compete with the major grocery retailers on price and product range in order to satisfy the widespread consumer demand for a main shop at a single store," Rawlings said.

"All things being equal" Kiwis were likely to pay less for groceries if competition was stronger.

It is a sector dominated by two companies. Foodstuffs, which counts New World, Pak n Save and...
It is a sector dominated by two companies. Foodstuffs, which counts New World, Pak n Save and Four Square among its subsidiaries, and Australian-owned Woolworths, the owner of Countdown. PHOTOS: ODT FILES

"The major retailers appear to avoid competing strongly with each other, particularly on price. Meanwhile, competitors wanting to enter the market or expand face significant challenges, including a lack of competitively priced wholesale supply and a lack of suitable sites for large scale stores," Rawlings said.

The commission that the levels of profit being earned by both groups were "persistently high". Both groups were earning a return on capital of more than 20 per cent.

"If competition was working better, we would expect these profits to encourage other players into the market" or expansion by smaller players, to share in those profits.

"We haven't seen that," Rawlings said.

David Clark. Photo: ODT
David Clark. Photo: ODT
Shortly after the election, Commerce and Consumer Affairs Minister David Clark announced the competition watchdog would undertake a market study into supermarkets to determine "whether the sector is as competitive as it could be".

The market study is the second of its type under new powers to compel companies to provide detailed financial information, following an examination into petrol companies ordered by Prime Minister Jacinda Ardern in 2018.

For months, the Wellington-based competition watchdog has been receiving evidence and interviewing witnesses, sometimes under oath.

Like many industries in New Zealand, it is a sector dominated by two companies. Foodstuffs, which counts New World, Pak n Save and Four Square among its subsidiaries, and Australian-owned Woolworths, the owner of Countdown.

The market study is set to take around 12 months but even the draft report is likely to run to hundreds of pages and make recommendations to improve competition levels.

Multiple parties are speculating that among its recommendations would be a binding code of conduct for supermarkets to adhere to, the regulator could urge the government to consider requiring a break-up of some parts of the sector.

Katherine Rich, chief executive of the New Zealand food and grocery council. Photo: Supplied
Katherine Rich, chief executive of the New Zealand food and grocery council. Photo: Supplied
The study has been a long time coming. In 2014, Shane Jones, then a Labour MP, used Parliamentary privilege to assert that Countdown was treating many of its suppliers poorly.

Katherine Rich, the former National MP and long time chief executive of the Food and Grocery Council has been providing materials to the commission including research that suggests most suppliers believe the supermarket groups engage in anti-competitive behaviour.

This week, Rich launched a stinging attack targeting Foodstuffs' North Island business, claiming that even on the eve of the draft report, its members were facing the threat of having their products removed from shelves as part of negotiating tactics, demands for a "display fee" which did not promise any actual prominence or contribution to staff wages.

Foodstuffs were "either not reading the political environment or dismissing government concerns which led [Clark] to call for the Study," Rich wrote on her LinkedIn page.

Foodstuffs did not respond to a request for comment on the claims.

 

Comments

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Why were my grocery bills in the Europe, UK and Australia 30% lower? Real competition from four or more large chains, supplemented from farmers' markets. Taxes and regulations add to that cost everywhere.

Any man and his dog can see NZ is being ripped off. I can't see this study changing much. If the Govt decides to do something, it will likely be just tinkering around the edges...

I doubt many Kiwis will be surprised by this report, even those who are relatively ignorant of market economics.
Return on capital of 20%!
That is phenomenal in a country where the interest on a term investment in a bank is currently less than 2% and anyone currently investing in the stock market considers themselves lucky if they get a return of 10%.
Supermarkets literally have a licence to print money.
And that's only one aspect. Their treatment of their suppliers is looking extremely suspect as well with suggestions of commercial extortion going on and blacklisting anyone who speaks out about their tactics.
Be angry NZ, you are being treated as a fool.

We need Lidl and Aldi. We are totally ripped off in all areas.

You're right a 3rd or 4th player in the field should improve the situation.
It happened when Weishman Albert Gubay brought his 3 Guys supermarkets to NZ in the early 1970's and caused a revolution in retail grocery competition. It didn't last though and the duopoly was back in control after a few years. The problem is that our market is too small. Also I read somewhere recently that Aldi had decided against entering the NZ market, not worth their while.

Coming soon Kiwi Shop, State owned supermarkets and mandated pricing. The expansion of the socialist state continues...

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