Editorial: Smashing the supermarket duopoly is a safe bet for Labour

New Zealanders spent $22b on groceries last year. Photo / Mike Scott

EDITORIAL:

Legend has it that when Foodstuffs held one of its Christmas parties on the Hauraki Gulf an armada of superyachts could be seen leaving Auckland Harbour.

It was this image of supermarket owner-operators enjoying the fruits of their grocery trade that is said to have driven suppliers to first voice their concern about excessive profits being made in the sector by the two main grocery players.

Now, a decade later, the Commerce Commission has finally done a thorough analysis of what is a complex issue affecting consumers and producers alike.

The initial findings are unsurprising: Kiwis are paying too much for their groceries due to a lack of competition in the market and supermarket profits are persistently higher here than at overseas counterparts.

What's important is what happens next and what kind of change can be reasonably expected in an industry that reaps $22 billion in sales annually.

The industry is totally dominated here by two groups - Foodstuffs, the co-operative behind New World, Pak'n Save and Four Square, and Australian-owned Progressive, which owns the Countdown chain through Woolworths.

The commission says the structure of the market has led to excessive profits with both Woolworths NZ and Foodstuffs' North and South Island businesses enjoying returns on capital in excess of 20 per cent, several times higher than the capital costs of the sector.

Furthermore, the commission says it is aware of allegations of suppliers being threatened with having products delisted if certain requests aren't met.

In other words, at least in some cases, retailers are using their strong bargaining position to transfer risks to suppliers.

On the consumer side, supermarket complaints increased through the Covid-19 pandemic lockdowns, including complaints about alleged "price gouging" and low stock levels.

The report does put forward a range of significant recommendations but don't expect any rapid movement. The draft findings are preliminary and subject to consultation prior to a final report being published in November.

Among the recommendations is the idea of forcing the supermarket groups to sell off part or all of their wholesale businesses similar to the way Telecom was forced to do in 2011.

The commission also talks about making it easier for new competitors to enter and making land more available through changes to planning laws and restrictions on the use of covenants.

And it also raised the potential prospect of "facilitating" or "sponsoring" a new independent wholesaler through a competitive tender process.

Exactly what that means is not made clear in the report but it is something the likes of Costco, already setting up a first big box store in West Auckland, will no doubt be interested in hearing more about.

Perhaps German discount supermarket chain Aldi might prick its ears up at the suggestion.

The supermarket duopoly is a safe target for the Labour Government, and Commerce and Consumer Affairs Minister David Clark was quick to front media on the topic yesterday, even if he skirted many of the questions.

Clearly, New Zealanders are paying too much for their food and groceries.

And with inflation on the way voters are sure to be supportive of any measures to increase competition.