Why Willis is dead serious on supermarkets reform

Monday, 31 March 2025

ANALYSIS: This is not a drill.

Nicola Willis is on a mission. The finance minister and still relatively new “economic growth” minister has lobbed a huge bomb into the groceries sector: the threat of de-mergers.

In ordinary parlance, Woolies and Foodstuffs might be compelled to sell of some of their supermarket brands or split up their wholesale and retail operations. Foodstuffs North and South Island owns Pak’nSave, New World and Four Square, while Woolworths own Woolworths, (and any remaining Countdowns). It also owns FreshChoice and Supervalue through its Wholesale Distributors Ltd division.

But let’s not get ahead of ourselves. That is the potential second step. The first step is to put out an official Request for Information for any supermarket operators or investors who might be interested in setting up a big supermarket chain here: The Warehouse and Costco are current players, others internationally have shown some interest.

Willis stepped through her reasoning and next steps in a longish - but well-reasoned - speech.

Essentially, the timing of Sunday’s announcement was about speed. Instead of just calling for the RFIs, seeing what that shakes out and then moving onto the next thing, WIllis has essentially done both concurrently. If the RFI identifies some regulatory fixes or interventions that can help a third player, great. But if that doesn’t work, or they come back talking about the market power of the current duopoly, work is already underway for more serious surgery to the market’s structure in the sector.

The politics of it are simple. For years Governments have grizzled about the duopoly and its prices and introduced codes of conduct and the like. Willis is now making the case that there is too much concentration in the market, it is too expensive for consumers and that there is market failure.

To add ballast to her argument about market concentration, Willis even cunningly noted that back in 2005, “Foodstuffs argued in the courts that the merger of Progressive Enterprises and Woolworths NZ was not in consumers’ interests”.

Simpler times.

Willis is now moving. NZ First is basically on the same wavelength, but ACT is decidedly unconvinced, with ACT leader David Seymour pointedly telling The Post on Sunday exactly why.

'Politicians seek advice all the time, that's very different from it being Government policy, especially in a Coalition,“ he said

'One obvious concern is that if your Government is trying to attract overseas investment, threats to restructure their businesses in New Zealand might have the opposite effect.'

This is part of the more general ACT view that any cure could be worse than the disease and that Governments intervening can make things much worse. Plus big interventions can create sovereign risk concerns.

So while it might strain coalition relations, the Government could well be in receipt of opposition support for this move. The devil is always in the detail, but Hipkins’ Labour Party for its part would be highly likely to vote in favour of structural separation, divestment or de-mergers in the sector, should it come to that. Indeed, many in Labour thought the last Ardern Government - and then minister David Clark - should have done something similar.

The Greens would also look at any such legislation favourably.

Given that forcing large companies to sell off bits of their businesses would be a radical move, some level of bipartisanship may well prove desirable.

The big supermarket chains - Foodstuffs and Woolworths - released what could best be described as holding statements on the issue, while they digest what it actually means and assess how serious Willis - and the Government overall - really is on this matter.

While it was expected that Sunday’s announcement would talk about a third player, with demergers or structural separation of businesses in the background, neither the sector, nor market watchers in general, expected the spectre of splitting up their businesses to be raised yet.

Support for Willis has now come from all sort of surprising places.

“The fact that she mention significant market power, the fact she mentions ‘scale’ eight times in the first two pages, and references the ‘J curve’ means she is talking to big institutional capital,” Tex Edwards, founder of 2Degrees and research director at Monopoly Watch told The Post.

“Her open-mindedness is so encouraging. Incumbent supermarkets would be nuts if they didn’t submit a voluntary break-up plan.”

It will be interesting to see where Woolworth shares go when the ASX opens on Monday morning. The New Zealand bit of the business is an important one and is already considered to have been underperforming in Australia.

Meanwhile, this does amount to Willis putting a significant amount of political capital on the line for what she herself describes as “potentially massive changes”. And even if it is the right thing to do, big changes like this do make regulatory risk a big and real thing for large corporates invested in highly regulated industries with often concentrated ownership: Think banking, energy, airlines.

This is best viewed as a minister trying to save capitalism from itself, in some small degree. In plainer language: centre-right parties won’t thrive if ordinary people perceive that the system is stitched up against them by powerful interests - whether that belief is true or not.

Since becoming finance minister Willis has become increasingly convinced that a lack of competition in key sectors in New Zealand is a driver of both less choice and higher prices. She is convinced of the intellectual case for change and it dovetails with what she clearly considered is a favourably political economy for moving - and fast.

Australia’s centre-right Liberal Party leader Peter Dutton proposed doing the same thing in Australia (the Aussies have just had their own supermarkets competition study), prompting Labour Prime Minister Anthony Albanese to describe the idea of forced divestment as “communist” and Dutton as a “super-Marxist”.

Willis rubbished this by saying that the Government would not be owning or running a supermarket under any policies she is pursuing.

“And I’d note that one of the first people to put divestment powers into law was Maggie Thatcher - and no one’s accusing her of being Communist!”

So two steps: finding out what it would take to get a third entrant, and then legislating to restructure the sector more fulsomely. And, of course, it may well turn out that any potential third players in the market think that the best way to get them in is to have some of a supermarket chain already sliced off and ready to buy - although it will be put in more technical language than that.

When Willis pressed the starting gun on supermarkets reform in February, she knew she would have to deliver something. Despite not being much of an issue even six months ago, the politics now demands that her actions meet her words.

And it will likely end with a far more radical outcome than the centre-right finance minister imagined.

Now to see how the supermarket sector responds.