Commerce Minister: We can’t dream up a new supermarket competitor

Thursday, 14 March 2024

Commerce Minister Andrew Bayly says competition from Costco isn’t likely to be massive and Aldi is unlikely to come to NZ.

Commerce Minister Andrew Bayly says the Government’s promise to look at options to address the lack of a third entrant in the supermarket industry doesn’t commit it to ensuring a new player enters the market.

However, Bayly told The Post he was having discussions with the Commerce Commission about how it could increase competition and one of the reasons he would travel to Australia later this month was to have conversations about its groceries sector.

Anger in Australia over a perceived lack of supermarket competition has come to a head in recent months.

In January, Australian prime minister Anthony Albanese ordered Australia’s ACCC competition watchdog to hold a year-long investigation into supermarket pricing and allegations of price gouging, one of several concurrent inquiries into the industry there.

The National Party’s coalition agreement with NZ First states the two parties will explore options “to improve competitiveness and to address the lack of a third entrant to remove the market power of a duopoly”.

But Bayly indicated they shouldn’t be judged on whether or not they succeeded in bringing in a new player to compete head on with New World and Pak’nSave owner Foodstuffs and Woolworths NZ.

“The Government can't do that. What we can do is make sure that the landscape for a potential competitor is as attractive as it could be,” he said.

A group of iwi led by Waikato-Tainui and advised by former PwC consultant Tina Kilmister-Blue have been working on a plan to set up a new supermarket group that could have British-based groceries giant Iceland as one of its key suppliers.

The Commerce Commission concluded in 2022 that Foodstuffs’ and Woolworths NZ’s profits were high, but Bayly says he is not sure anyone has a definitive view.

However, there has been no word yet on whether they will commit to the investment.

Bayly said it was “pretty hard to conjure up who that third competitor might be”.

“Costco have got ambitions in New Zealand, but I’m not sure they are going to be massive — significant, but not massive — and Aldi is very unlikely to come to New Zealand.

“So the big question is how do you get to a stage that you can attract someone in? The best we can do is make the conditions more attractive for a potential competitor, but we can’t actually dream up a competitor.”

Competition advocate Tex Edwards has argued that because New Zealand has a relatively high number of supermarket stores per person — each enjoying something of a local monopoly — Woolworths NZ and Foodstuffs would need to be forced to sell at least 120 of them to a new rival to make way for a new like-for-like competitor.

Bayly noted the Government had not said it would go down that route.

“I think there are other options we can pursue,” he said.

Albanese appeared to rule out a forced break-up of any Australian supermarket groups last month, despite arguing there was effectively a duopoly in large parts of Australia, saying “we're not the Soviet Union”.

Bayly said the grocery sector was “a key driver of the cost-of-living crisis we’ve got in New Zealand at the moment”, but went on to express uncertainty over whether profit margins were higher than they should be.

That is despite the Commerce Commission’s 15-month-long market study into the sector in 2022 concluding the profitability of Foodstuffs and Woolworths NZ appeared high and that grocery prices also appeared high by international standards.

“There's obviously been a lot of commentary around that,” Bayly said on the issue of profit margins.

“What I’ve urged the Commerce Commission to do is make sure they have a proper understanding of that, because I'm not sure that anyone has a definitive view on it and I think it's very important that we do have a definitive view.”