Ben Kepes: Fixing supermarkets with inspiration from Isaac Newton

New Zealand's supermarket industry was rocked by the Commerce Commission report. Photo / Getty Images

OPINION:

As legend has it, Isaac Newton sat under an apple tree, only to have an apple fall on his head.

From this bruising experience, Newton went on to formulate his theories around gravity and, in doing so, moved ahead humankind's understanding of the world around it immeasurably. Now I wasn't around in Newton's day, but I'm pretty certain apples (not to mention pears and plums and other fruit) have been falling out of trees since the beginning of time. The point of the Newton example, however, is that sometimes things that are obvious, are only obvious when they're right in front of us.

It strikes me that we have a similar sort of situation in New Zealand currently. Last week, the Commerce Commission released its draft report into the supermarket sector in New Zealand. In what will come as no surprise to anyone who either produces food to sell to supermarkets or alternatively buys groceries from supermarkets, the report found that the duopoly is terrible on many levels. ComCom found that the duopoly uses its supersized power to drive down prices from suppliers, often to the point where those suppliers are run into the ground.

Additionally, the report said that, because we have a duopoly that can essentially do what it wants, and which doesn't really compete with each other, grocery prices are far higher for New Zealanders than they need to be. A double whammy, indeed - or, to use my previous metaphor, like the apple that fell on your head turning out to be rotten and tasting bad.

Essentially between the food producers and the food consumers, we're doing a great job of delivering supernormal profits to the supermarket chains. If they were a charity doing good things for the world we could all feel a warm glow of satisfaction and smugly beat our chests about helping the greater good. Unfortunately, they're not - all they're doing is concentrating wealth. Taking from those less able to afford it, and lining the pockets of those who can.

The report talked about the need for more competition in New Zealand. I'd like to suggest that the competition we need isn't necessarily another widespread chain of big ugly supermarkets, with huge carparks and stressed out people trying to find somewhere close to the doors. What we need is a new approach to supermarket shopping which takes advantage of the way people increasingly do things. This takes me to Supie, a company I've written about before and which (full disclosure) I'm excited to be a part of.

Supie has all of the producer connections that you'd expect of a supermarket, and a big, impressive logistics warehouse. But, rather than investing in central city real estate in every town across the country, Supie is building out an online-only approach towards supermarket shopping. In the same way that we tend to browse and buy books online rather than in-store, Supie does the same for grocery items.

But this is where Newton's apocryphal apple comes in. Let's face it, building out a nationwide chain of distribution centres with all of that complexity is a big and expensive task. Sure, it's cheaper than building physical storefronts, but it's still expensive. Supie has done an awesome job and has attracted some investment from some people who understand its mission, but it's time for the big players to come in.

This is where the New Zealand Government comes in. The Government has numerous funding bodies, Callaghan Innovation, New Zealand Growth Capital Partners etc, all of whom deal with a slightly different angle on funding early and mid-stage companies. You'd have thought that given our Government is focused on solving the supermarket issues, that these agencies would be rushing to support companies like Supie trying to make a difference.

Not so, alas, the powers that be within these Government funders have a fairly narrow mandate. They apparently focus on four distinct sectors (business to business software, agritech, heatlhtech and deep technology initiatives). In their infinite wisdom, these agencies have decided that real Kiwis being able to buy groceries at fair prices is way less investible than rocketships and software startups (not to mention yachting regattas).

Which was the apple moment for me. Imagine if, in addition to funding these high-profile "sexy" areas, organisations like NZGCP also funded things that were driving direct positive outcomes for New Zealanders. Imagine if there was a "net benefit for all New Zealand" test to these decisions.

Now that's something that you don't need to be a genius like Isaac Newton to understand.

- Ben Kepes is a Christchurch-based investor and entrepreneur.