It may be time to consider ‘unbundling’ some supermarket shelves

Sunday, 6 July 2025

Unbundling has been tried before, in the context of the telecommunications industry.

OPINION: The Government and specifically Finance Minister Nicola Willis appear to have taken on board the dangers of limited competition in key industries such supermarkets, electricity and banking.

Warnings from the OECD and others that a lack of competition is a drag on already moribund productivity growth, and the OECD’s advice the country might be better-off breaking up some big businesses, seem to have hit home.

But what to do exactly, given many of the options to improve competition appear difficult, draconian or even in some cases potentially counter-productive?

For about a decade, it wasn’t any of those three “problem industries” that generated the most public angst.

Instead, concerns about competition were dominated by complaints about the speed, availability and cost of broadband, under Telecom’s near monopoly.

That changed with the Government’s decision to help bank-roll ultrafast broadband (UFB) and strong-arm Telecom into breaking up into the companies now known as Spark and Chorus in 2011.

But Ernie Newman, then chief executive of the Telecommunications Users Association and an important force in lobbying for reforms in the industry, notes that marked the culmination of at least a decade-long effort to bring about more competition.

There would appear to be no equivalent of ultrafast broadband in the banking, supermarket and electricity industries.

But before we had UFB, we had the “unbundling” of Telecom’s broadband copper network.

In 2006, the then Labour government amended the Telecommunications Act to require Telecom allow rival telcos to access its telephone exchanges and roadside cabinets on terms set by regulation, so they could hook up customers to their own services themselves.

Unbundling would see the supermarket duopoly shuffle along to make way for a new competitor inside their stores.

The nearest equivalent in the supermarket industry might be to require Foodstuffs and Woolworths hand over a proportion of their supermarket shelf space — 3% or 5% to start with perhaps — to a rival concession, so it could sell what it liked at prices it controlled through their stores.

That might include cheap butter stacked high at Pak’nSave, fresh bread not baked in Australia at Woolworths, or a range of essential items sourced by a non-profit community group in the local FourSquare — whatever concessions they found worked for them in any given week.

They could serve as “guerilla” businesses designed to cannibalise excess profits from within and reverse the trend towards reduced variety and a blander shopping experience.

“Unbundling” might go some way to providing redress for the loss of local bakers, butchers and grocers that resulted in part from decades of anti-competitive supermarket leases and land covenants, while reflecting the reality that Foodstuffs and Woolworths have now built so many stores there may be no business case for a whole new third supermarket chain.

It would not be the full “break-up and divestment” that anti-monopoly campaigners such as Tex Edwards have called for.

But the flip-side of that is there is some legal precedent for such an intervention in the form of what happened to Telecom through the Telecommunications Act.

Consultant Ernie Newman says unbundling supermarket shelves is an idea worth exploring.

To borrow another Telecom-era term, it could even be the first rung in a “ladder of investment” that saw some concessions incubate with the supermarkets, before establishing themselves as fully independent stores.

To mirror broadband unbundling, the supermarket chains would need to process sales through their tills, provide warehouse space to the concessions and perhaps provide staff to restock their shelves, on terms set by regulation that allowed them to recoup their reasonable costs plus a modest profit margin.

There would be a myriad of practical challenges, but no more perhaps than there were with the fiddly unbundling of Telecom’s roadside cabinets in particular.

There could well be more gains, given broadband unbundling essentially allowed only rival telcos to sell broadly the same copper-based services Telecom already sold, at a fairly similar price.

There might need to be regulations in place that prevented supermarkets from slashing prices to undercut the concessions while still encouraging them to respond to the increased competition, preventing them reducing prices for directly comparable products below historic averages perhaps.

Concessions would probably need to be turned over from time to time, to ensure they remained genuinely disruptive and didn’t fall into a cosy accommodation with their hosts.

The supermarkets would have some incentive not to be totally obstructive.

A successful competitor within their stores might ultimately prove a lesser evil than half an aisle of empty shelves, especially if concessions were thriving within their rivals’ chains.

The Food and Grocery Council was not immediately aware of the same intervention being attempted anywhere overseas. It may well not have been.

But Newman says the more he thinks about the “crazy idea”, the more he likes it.

“I can see a ‘store within a store concept’ actually having some merit.

“The key would be absolute avoidance of the store owner having any influence over pricing and marketing.”

If too left field, it might still serve as the elusive “sword of Damocles” that the Government could threaten the supermarkets with to try to persuade them to act more in keeping with its wishes.

Another key lesson from the Telecom era, after all, was that the Government can make big businesses do pretty much anything “voluntarily”, even break-up their businesses — but only if it can find a big enough stick that it looks genuinely prepared to use.