Failing this, she has given her strongest signal yet she’s serious about taking a drastic step in breaking up the duopoly – on her terms.
Willis is seeking advice from a consultancy that in 2021 told the Commerce Commission this was the only real answer.
“If you want competition in traditional supermarkets in any meaningful timeframe, you will need to force separation [at Foodstuffs] or divestment [at Woolworths/Countdown],” Tim Morris of Coriolis said.
While Willis stressed Cabinet hadn’t yet formed a view on whether “structural intervention” would be needed, the writing appears to be on the wall.
Indeed, she isn’t quietly getting advice on the matter, or taking an “under-promise, over-deliver” approach.
On Sunday, Willis stood boldly at the podium at the Beehive’s theatrette to make the announcement, which doubled as another public invitation to potential new entrants and a prompt to existing players to make a move to avoid the palaver that would ensue if they were forced to split.
But here’s the thing – Willis attempting to climb Mount Everest under the watchful eye of voters, categorically sick of paying too much for their groceries, is fraught with risk.
The consultants she is getting advice from at Coriolis stressed this in a joint report prepared for the Ministry of Business, Innovation and Employment (MBIE) in 2022, when the Labour Government considered requiring the supermarket giants to sell their assets.
Coriolis, Sense Partners and Cognitus Economic Insight concluded: “Supermarket divestment could be net beneficial, but only if several key factors aligned well and several key risks could be adequately mitigated.
“And even then, any net benefits are not enjoyed equally by all households.”
The consultants said the risks associated with breaking up the duopoly were skewed to the downside.
“Divestment of the nature being considered here is unprecedented in New Zealand. The risks of unintended consequences are not trivial.
“There are significant implementation challenges to be overcome ...
“Further, detailed analysis is required ... ”
The consultants concluded it was best for Foodstuffs (which has the retailers New World, Pak’nSave and Four Square) and Woolworths (which also operates under the Fresh Choice and Super Value brands) to sell some of their stores to reduce their market shares to a level specified by the Government.
The consultants said the approach should be industry-led, rather than government-led. In other words, supermarket companies should come up with a divestment plan for the government to approve.
The consultants said the aim could be to ensure there were either three different supermarket retailers in every pocket of the country, or four different retailers nationwide.
They couldn’t guarantee the benefits of divestment, in terms of this spurring more competition and lower prices, would outweigh the costs.
Their modelling suggested outcomes could vary a lot if the assumptions they used didn’t eventuate.
The consultants were unsupportive of breaking up Foodstuffs and Woolworths’ wholesale businesses.
They said this could significantly disrupt the existing vertically integrated grocery market structure and create large costs, which could ultimately be borne by consumers.
To put another spanner in the works, Coriolis’ Morris, in his 2021 submission to the Commerce Commission, said there was a range of factors that pushed food prices up in New Zealand beyond a lack of competition in the sector.
He pointed to New Zealand’s small population, lack of productivity and long supply chains, concluding: “Supermarket competition is a small part of this puzzle.”
Having more groceries companies in New Zealand – be it organically or through the riskier path of coercion – is one thing. Ensuring this does in fact put downward pressure on food prices is another.
If Cabinet decides to break up the duopoly, Willis wants the necessary legislation introduced to Parliament later this year and passed next year, before the election.
She would undoubtedly be rewarded for this at the polls.
But it would take some years for it to become clear whether making groceries more affordable was her legacy.
Jenée Tibshraeny is the Herald’s Wellington business editor, based in the Parliamentary press gallery. She specialises in Government and Reserve Bank policymaking, economics and banking.