Cheat sheet: How the Government plans to bust the supermarket rort

Monday, 30 May 2022

When it comes to supermarket options, New Zealand has few and far between.

It’s fresh, and if it works it could be choice. The Government is finally doing something to break the supermarket duopoly.

Is this the final countdown for shoppers thirsting for cheaper groceries? Could it mean more competitors, potentially from overseas? One thing is for sure, we’re in for an interesting time at the checkout.

What’s the problem?

Food prices really suck right now, right?

* Tough talk on supermarket competition, but don't get hopes up

Consumers are being hit by rising food bills due to inflation, while our supermarket duopoly also reduces price competition.

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But while many people struggle to fill their trolley with affordable kai, the Commerce Commission says supermarkets are making their two owners (Foodstuffs and Countdown) more than $1 million a day in pure profit.

The Government believes that’s too high (potentially 50% too high) and it wants another supermarket chain – or more – to open up and create a price war.

Shoppers aren’t getting the best deals right now.

How’s it going to do that?

There are competitors who do want to come here.

Costco has shown more than a cursory interest over the past few years. A Māori-owned supermarket was mooted last year.

Frustratingly, international supermarket giant Aldi has said ‘no’ to New Zealand more times in the past few years than shoppers have had salmon dinners.

Commerce Minister David Clark says the big problem is that wholesalers of food are stuck in contracts they can’t get out of with Foodstuffs and Countdown. Those wholesalers then can’t guarantee supply for a new supermarket.

As Clark says: “You can’t run supermarkets with empty shelves.”

It’s why Clark announced the Government would progress a wholesale grocery access regime.

The Government says it will 'urgently pursue: options to generate more competition in the supermarket sector, but is it focusing on the right areas?

This aims to create an even playing field for new and emerging grocery retailers.

Major grocery retailers will offer wholesale supply of groceries to other retailers – and if they can’t work out a way to do this on a voluntary basis, the Government is threatening regulation.

This new wholesale supply of groceries is believed to offer a stepping stone for larger-scale new entrants to the market, as they grow and develop their own relationships with suppliers.

It would give them access to the scale needed to stock their shelves for a wholesale price that would allow them to charge a margin and still remain competitive.

It’s a bold threat that goes further than the Commerce Commission’s recommendations for busting the supermarket duopoly. The commission suggested a voluntary, “good will” regime earlier this year.

The Commerce Commission wanted a regulator to review competition in the supermarket sector in three years – Clark says the Government will make it happen annually.

It will also introduce an industry watchdog, a mandatory code of conduct, compulsory unit pricing and more transparent loyalty schemes.

I just want my grocery bill to drop. Will that actually happen?

The Government reckons the threat of regulation has already contributed to the price rollbacks at supermarkets that are in place for the winter.

That’s a pretty dubious assertion as specials are a time-honoured supermarket tradition.

But there’s little doubt that if this is successful in the medium term in allowing a competitor to set up, that prices will be lowered.

Basic economics suggests that fiercer competition leads to better deals – imagine for example if there were just two car companies (Mercedes and BMW) allowed to sell in NZ.

If Toyota came in, it’d be bound to shake up the market.

Twenty years ago, Australia was in a similar position to us. The A$122.5 billion ($127.98b) industry was dominated by two main players – Woolworths and Coles.

But then Aldi arrived and everything changed and, sure enough, Australia now has cheaper groceries in comparison to Aotearoa.

Is my supermarket bill so high because the Government didn’t do this sooner?

It’s not just supermarket greed – and a lack of action by politicians against them – that’s ramped up prices at the checkout.

Climate change, the war in Ukraine, fuel prices, pandemic supply issues and other inflators are all playing a part.

One of the big concerns for the Government is that this won’t work quickly at unwinding the supermarket duopoly. It could be years before a third supermarket chain opens.

And by then, we might not even notice the price drop.

TLDR: Does the Government want to control the food I eat now?

Give it a rest with the control narrative. This is about lowering prices. Maybe have a Snickers? You’re not you when you’re hungry.

* CORRECTION: This story has been updated to say the Government’s plan applies to the wholesale supply of groceries to other retailers. An earlier version incorrectly referred to the growers of food when describing the plan. (Amended May 30, 2022, 8.30pm.)