Cabinet in October to consider requiring supermarket giants to sell stores

Commerce and Consumer Affairs Minister David Clark announcing the Government's response to the Commerce Commission's supermarkets report with Finance Minister Grant Robertson. Photo / Mark Mitchell

Government officials are doing a cost-benefit analysis around potentially requiring dominant supermarket companies to sell retail stores to make way for new players.

Officials from the Ministry of Business, Innovation and Employment will spend until September exploring whether such Government intervention would be worth it, and would enhance competition in the supermarket sector.

Their work will inform options Commerce and Consumer Affairs Minister David Clark plans to take to Cabinet in October.

Any moves to require supermarket companies to divest their retail stores or banners will be consulted on publicly in early 2023.

Clark detailed these plans in a just-released Cabinet paper on the Government's response to a major Commerce Commission study on competition in the supermarket sector.

Details around exactly how the Government could require divestment were redacted from the publicly available paper, on the basis of confidentiality.

Clark noted the Commerce Commission didn't do a cost-benefit analysis around requiring supermarket companies to sell retail stores, because it didn't recommend the Government make such a structural intervention in the market.

He said the Commission "did not have sufficient information to conclude the benefits of retail divestment would outweigh the costs".

Accordingly, Clark said a "high burden of proof" would need to be met before the Government pushed ahead with plans to require divestment.

Clark said the Government would need to figure out exactly how divestment would be done. Consideration would also need to be given to "understanding the potential impacts of retail divestment on retailers' operations, economies of scale, property rights and supply models".

"Ensuring divested stores have access to wholesale supply will be a key issue to consider – either through a regulatory wholesale grocery access regime or considering how certain wholesale functions could be divested with retail stores to supply these stores," Clark said.

Food and Grocery Council chief executive Katherine Rich welcomed "any moves to introduce genuine competition into the grocery retail sector".

She said divestment would "make a huge difference".

"It clearly signals how serious the Government is about fostering competition, but it's a complex piece of work and won't happen in a hurry," Rich said.

The research underway on divestment follows Clark last week announcing actions the Government is taking more imminently in response to the Commerce Commission's report.

It is calling on the two main supermarket companies – Foodstuffs and Woolworths – to open their wholesale arms to would-be competitors at a fair price, or be made to do so via regulation.

It is banning supermarkets from using restrictive covenants on land, and leases to block competition from setting up shop in certain suburbs and shopping centres.

Clark has also committed to introducing an industry regulator, mandatory code of conduct, compulsory unit pricing on groceries so consumers can easily compare prices, and more transparent loyalty schemes.