Being small doesn't help

Photo / Greg Bowker

New Zealand's small size and a lack of outside competition to the two big supermarket chains could be behind our relatively high supermarket prices.

New Zealand Institute of Economic Research principal economist Shamubeel Eaqub said economies of scale helped to drive down prices in bigger countries.

"The markets are much bigger in the UK and the US, so the potential sales and value that the supermarkets can pass through are much larger."

Mr Eaqub suspects supermarkets in larger countries operate with much smaller profit margins.

He said US farmers had subsidies which could go some way to explaining the cheaper meats and dairy costs there. New Zealanders could expect to pay more for laundry powder and similar items because the country did not have a big chemical manufacturing industry so bulky items had to be shipped here.

Food and Grocery Council chief executive Katherine Rich said the two big supermarket chains - Progressive Enterprises (Foodtown, Woolworths, Countdown) and Foodstuffs (New World, Pak'n Save, Four Square) - were already competing hard on price.

"We maintain that groceries are more affordable now than they have been ... because of economies of scale, new trends and the massive discounting in the market.

"The focus by both supermarket chains to fight on price is, in the long term, to the detriment of the grocery sector because it is a race to the bottom but in the meantime consumers, when they shop around, can get good value."

Ms Rich said the international price comparison was "an interesting indication" but not exact because it was difficult to compare different products across different currencies and to allow for specials and promotions.