Supermarket reforms: Five options in front of Nicola Willis

Sunday, 3 August 2025

ANALYSIS: Economic Growth Minister Nicola Willis warned this month that overseas interest in setting up a new nationwide supermarket group to compete with Foodstuffs and Woolworths NZ had not been as high as she would have liked.

If she sticks to the messaging she set out in March, that means her next step should be to consider Government-led reforms, including a possible break-up of the existing duopolies to bring about more competition.

Willis has ruled out the Government setting up its own “Kiwishop” supermarket company.

So what are her other options, what are the chances of them happening, and would they actually work?

1. Divestment: the nuclear option

Under a plan championed by competition advocate Tex Edwards, the Government would force Foodstuffs and Woolworths to sell two of their six distribution centres and about 120 stores to a new venture.

That would become the country’s third supermarket group.

Edwards disputes it is the nuclear option, arguing that was how the Government’s decision to allow a supermarket duopoly in the first place should be described.

Rather, his ambitious break-up plan should be seen as “clearing up the nuclear waste”, he argues.

Would it work: It should. Competition studies suggest markets with three or four players tend to be more competitive than those with only one or two. After that, the competition gains of bringing in extra players tend to drop off quite quickly, research suggests.

But each store could still have a decent amount of local market power, unless shoppers had more than one store within easy reach.

How risky is it? High risk. Forced divestment would almost certainly result in a legal challenge. Foodstuffs and Woolworths could be expected to argue a break-up would reduce their own efficiencies and drive up prices. The transition could also be difficult to manage.

What are the chances of it happening? Less than 1%. There is no indication with Government has engaged seriously with Edwards or anyone else on this idea.

2. A “voluntary” break-up

A concept that has been touted by former National Party senior minister Steven Joyce.

The Government could “incentivise” or arm-twist Foodstuffs into separating out its New World and Pak’nSave chains by making it some kind of offer it couldn’t refuse.

One variant on the concept would see some Woolwooths stores tipped into each, to create three similar-sized supermarket groups operating under the three familiar banners.

Would it work? Probably. In theory this could be almost as effective in bringing about extra competition as forced divestment.

How risky is it? Medium risk. One drawback is that it could result in Pak’nSave and New World ‘converging in the middle’ as they tried to become all things to all people, resulting in three fairly bland supermarket chains that all looked a bit like Woolworths stores.

What are the chances of it happening? Less than 5%. It is not clear the Government has either the carrots or the sticks to persuade Foodstuffs to agree to such a break-up, let alone to encourage Woolworths to tip in some stores — other than to pretend option one above is a serious threat.

3. The unbundling option

Floated in The Post and encouraged by former Telecommunications Users Association chief executive Ernie Newman, this would see Foodstuffs and Woolworths forced to lease perhaps 3% to 5% of the shelf space in their supermarkets to rival retailers on a cost-plus basis, and then process their sales through the supermarkets’ own tills.

Modelled on telco reforms in the early 2000s, the “unbundled grocers” would choose their own product lines and set their own pricing, effectively cannabilising excess profits and supporting retail innovation from within supermarkets’ existing stores.

Would it work? It should do, to a degree. This would bring competition closer to the point of market power; the supermarket stores shoppers visit, which are often a local monopoly. But the exact impact could be somewhat unpredictable.

How risky is it? Low to medium risk. In theory this intervention could be rolled out on a small scale, dialled up or down and more easily reversed if it didn’t pan out. The 2006 Telecommunications Act could set a legal precedent. But it would still be a fairly hefty and somewhat awkward intervention, with a lot of work to get the details right.

What are the chances of it happening? Less than 2%. It’s a Johnny-come-lately concept that hasn’t come from the normal policy beltway and lacks advocates who have the minister’s ear.

4. The do-nothing option

This would involve the Government dialling down the expectations Willis previously ramped of action and keeping its options open.

The justification might be that excess supermarket profits were not large enough to justify major risky interventions, the two supermarket chains do compete reasonably effectively, and that new innovations and customer trends were likely eat away at supermarkets’ market power over time.

Would it work? Not in the short-term as there is little sign of supermarkets’ dominance of the groceries market being seriously challenged any time soon, but some problems do go away of their own accord in time.

How risky is it? Politically risky, especially if inflation escalates, the economy remain sluggish and people don’t feel they are getting ahead. Those feelings of powerless and despair can tend to crystallise when staring at a price label in a supermarket.

What are the chances of it happening? Less than 12%, as it has no significant advantages over option five, other than being less work and requiring no agreement between the Government’s coalition partners on any matter.

5. The ‘look like you are doing something’ option

A bit harsh perhaps, but there are several interventions the Government could consider that might not make much difference to the competitive landscape but which would at least give the appearance of action.

These might include allowing the “Fast-tracking” of resource consents for new supermarkets and banning pocket-pricing by preventing Foodstuffs and Woolworths reducing their pricing below their national average in suburbs or towns where rivals set up shop.

Building on the previous government’s over-egged wholesale regime and attempting to make it easier for rival retailers to buy supplies from Foodstuffs and Woolworths on regulated terms might fall into this category also.

A variant with perhaps a bit more promise — may be it should be labelled “Thunderbird 6” — would be for the Commerce Commission to issue an interpretation of competition law that gave owners of Foodstuffs franchises, such as FourSquare owners, more rights to operate as more independent businesses, sourcing groceries from where they wanted and setting their own prices and expansion plans.

Grocery commissioner Pierre van Heerden made clear last year he thought that could be a step forward for competition.

Would it work? Ministers will have heard directly from potential new entrants that any approach that simply revolves around reducing red tape will achieve little. Other than perhaps, at the margins, speeding up an investment by CostCo in a couple more stores in major cities perhaps.

How risky is it? Low risk but low reward, depending on the exact measures.

What are the chances of it happening? Greater than 80%. The challenge of getting coalition agreement for alternative options, the risks involved in more major structural interventions, and the political difficulties involved in doing nothing at all, would seem to make this the tempting option.