The OECD’s 2024 New Zealand Survey identified a critical structural weakness in our economy, namely that insufficient competition means large firms face weaker pressures to innovate or provide lower prices to customers, despite recording high profits.
This systemic issue manifests most acutely in our supermarket sector, where dominant players face minimal pressure. Without impactful policy intervention, both New Zealand consumers and suppliers will continue bearing the economic costs of this problem.
The urgency for action was underscored on March 30 when Economic Growth Minister Nicola Willis took an uncompromising stance, saying she was "putting all options on the table".
Framing the challenge in personal terms, she added: "If further intervention is needed to drive competition in the grocery sector, then I’m up for it."
The extent of market concentration in New Zealand’s grocery sector necessitates transformative structural reforms — not merely incremental adjustments.
To fundamentally reshape the competitive landscape, policymakers must reduce existing market power through targeted interventions, dismantle barriers to enable meaningful new entry, and implement durable safeguards against future anti-competitive consolidation.
Without such systemic measures, the status quo will persist, disadvantaging consumers through higher prices, stifling innovation across supply chains, and perpetuating the productivity gap that plagues New Zealand’s economy.
Why competition matters and why New Zealand falls short
Robust competition is the lifeblood of a well-functioning economy. Decades of economic research confirm competitive markets force firms to align prices with costs, pursue efficiency, and innovate relentlessly.
The inverse is equally clear: weak competition grants firms unchecked market power, enabling them to sustain artificially high prices, suppress wages, and stagnate on innovation — all at the expense of economic welfare.
New Zealand’s supermarket sector epitomises this failure. There are numerous anecdotes of grocery prices of New Zealand products being higher. We face some of the OECD’s highest grocery prices and profit margins yet suffer from limited product ranges and stagnant innovation.
This is not accidental; it is structural. Foodstuffs and Woolworths New Zealand control over 80% of the market, creating a bottleneck for suppliers and consumers alike.
The supermarket squeeze — higher prices, fewer choices
But the harm goes beyond inflated checkout bills. Dominant retailers also wield excessive buyer power over suppliers, squeezing producers while passing costs and risks down the supply chain. As Ms Willis noted in her February 2025 NZ Economics Forum speech, this imbalance distorts the entire economy.
Australia is also suffering from a power imbalance between the supermarket oligopoly and suppliers. Like New Zealand, its grocery sector is highly concentrated, with Coles and Woolworths dominating industry revenue.
The Australian Competition and Consumer Commission (ACCC) highlighted this issue in its "Supermarkets Inquiry: February 2025 Final Report", noting the duopoly’s substantial buyer power, particularly over fresh produce suppliers.
This imbalance is most severe in fragmented, perishable supply chains (e.g. fruits and vegetables), where growers lack bargaining power and market transparency.
With limited alternative sales channels, many suppliers absorb additional costs and risks to meet the demands of Coles and Woolworths, stifling competition and hindering long-term investment in the sector.
Retail expert Lisa Asher and Dr Drew Franklin have highlighted another dimension: reduced store accessibility.
In a 2024 article in The Conversation, they wrote: "In New Zealand there is one supermarket for every 12,871 people, while in Germany there is one for every 3009, and one for every 5563 in Ireland, a similar-sized island nation."
This scarcity limits consumer convenience and entrenches the supermarkets’ advantage.
Can policy fix this?
Ms Willis has called for a new nationwide competitor to disrupt the sector, arguing: "International experience suggests that for this to occur, a new player would probably need to reach a scale of at least 10% of the existing market and do so relatively quickly."
But as Asher, Franklin and Associate Prof Catherine Sutton-Brady’s latest Conversation article warns, even a global discounter like Aldi could take several years or more to establish a meaningful presence.
This is specifically mentioned in the ACCC’s report where it notes Aldi’s entrance to the Australian market in 2001 has had a significant impact, with a low-cost business model that enables it to offer groceries at a materially lower price than Coles and Woolworths.
However, the report notes it took more than 20 years for Aldi to gain a material national market share and rival the two major chains.
Given this timeline, more radical interventions are on the table:
— Structural separation: Compelling the divestiture of Foodstuffs and Woolworths, New Zealand’s subsidiary brands, into truly independent competitors, rather than maintaining their current illusion of competition under common ownership structures.
— Wholesale reform: Legislating the complete separation of wholesale and retail operations within dominant grocery chains, creating a regulated wholesale market that ensures equitable access for all retailers — particularly new entrants and independent operators.
While such reforms may appear ambitious, New Zealand’s exceptional market concentration may demand more assertive interventions than those adopted in comparable jurisdictions.
In Australia’s case, the ACCC proposes 20 recommendations focused on consumer empowerment and supply chain efficiencies, while avoiding any proposals for divestiture or structural separation of Coles and Woolworths.
New Zealand’s market concentration eclipses even Australia’s concerning duopoly. Where Woolworths (38%) and Coles (29%) collectively control 67% of Australia’s grocery market, New Zealand’s Woolworths NZ and Foodstuffs duopoly commands over 80% market share.
This disparity becomes even more pronounced when considering Australia’s competitive counterweight: Aldi’s 9% national market share, achieved since its 2001 entry, demonstrates how a disciplined discounter can constrain duopoly power.
New Zealand lacks any comparable third competitor, leaving its market without this vital competitive discipline.
While the ACCC’s recommendations appropriately focus on consumer empowerment (through enhanced price transparency) and supply chain efficiencies (via fairer supplier relationships) for Australia’s relatively more competitive market, New Zealand’s extreme concentration creates a qualitatively different challenge — one that likely requires either creating conditions for meaningful new entry through comprehensive wholesale access reforms, or direct restructuring of existing market players via divestiture powers.
The problem extends well beyond the supermarket sector. New Zealand’s banking industry exhibits strikingly similar concentration, with four Australian-owned institutions (ANZ, ASB, BNZ, and Westpac) collectively controlling about 90% of domestic bank lending.
These concerns were explicitly acknowledged by acting Reserve Bank Governor Christian Hawkesby in his March 31 opening remarks to the finance and expenditure committee: "We care about competition because it promotes efficiency, productivity and, importantly, innovation in the financial services sector."
Mr Hawkesby further emphasised advancing competition and innovation in the financial sector would take a team effort across government agencies, regulators and the industry itself.
This recognition at the highest policy-making levels underscores the systemic nature of New Zealand’s competition deficit.
— Dr Murat Ungor is a senior lecturer in the University of Otago’s department of economics.
