"We have found that the intensity of competition between the major grocery retailers who dominate the market, Woolworths NZ and Foodstuffs, is muted and competitors wanting to enter or expand face significant challenges," Rawlings said.
"While there is an increasingly diverse fringe of other competitors in the sector, they are unable to compete effectively with Woolworths NZ and Foodstuffs on price, product range, and store location to offer the convenience of one-stop shopping for the many different kinds of shopping missions that consumers undertake."
The report stopped short of recommending the sector be forced to create an independent wholesale operator.
But it said major grocery retailers Woolworths and Foodstuffs should offer wholesale supply to other grocery retailers voluntarily, subject to some limited regulatory measures.
Commerce and Consumer Affairs minister David Clark signalled back in May that wholesaling was in regulators' sights.
"Our supermarkets know they're in the spotlight, and we've recently seen some posturing around price rollbacks. However, it doesn't fix the systemic problem at large – which is a lack of genuine competition in the sector.
"Alongside the retail stores, supermarkets have wholesale arms. We are calling on the duopoly to open these up to would-be competitors, at a fair price. Do this knowing the Government is determined to get a regulatory backstop finalised by the end of the year.
He said if supermarkets did not strike good-faith wholesale deals with competitors, regulatory measures would make it happen for them.
"We are not afraid to unlock the stockroom door to ensure a competitive market," he added.
"We are taking these actions because if competitors don't have proper access to wholesale goods, there's no real incentive to enter the market. You can't run supermarkets with empty shelves. And the New Zealand market clearly needs more competition."
Last month the Government said it would set up a new watchdog to make sure supermarkets were not ripping off shoppers.
The Grocery Commissioner would hold the sector to account and ramp up competition, Clark said.
The watchdog would be based within the Commerce Commission and review competition in the sector annually.
The Government also released a draft code of conduct to ensure suppliers to supermarkets got a fair deal.
The Government has put in place legislation to ban supermarket chains from blocking competitors trying to secure land for new stores.
Consumers have been battling high food prices.
Food price inflation was up 6.6 per cent in June 2022 compared to June 2021.
Grocery food was the biggest contributor to the movement, but, prices rose across the board.
For the 12-month period, grocery food prices increased 7.6 per cent.
Restaurant meals and ready-to-eat food prices increased 6.3 per cent; meat, poultry, and fish prices increased 6.8 per cent; fruit and vegetable prices increased 5.5 per cent; and non-alcoholic beverage prices increased 4.8 per cent.
