Government refrains from making grocery giants sell supermarkets - for now

Research has found requiring grocery companies to divest their assets could put an extra $9.2 billion in consumers’ pockets over 20 years. Photo / 123rf

The Government has decided not to require the supermarket giants to divest their assets to make way for competitors – for now at least.

Documents released by the Ministry of Business, Innovation and Employment (MBIE) show a cost-benefit analysis was done last year on requiring the major grocery retailers to sell portions of their supermarkets.

The Commerce and Consumer Affairs Minister at the time, David Clark, suggested further work be done “at sufficient pace to allow the Government to deploy a divestment remedy as early as 2024, if necessary”.

However, six months later, in June, Cabinet decided to keep this work “in reserve”.

It agreed it would “actively monitor” the impact of existing reforms aimed at improving competition in the sector before attempting to break up the grocery giants, including Foodstuffs and Woolworths.

Commerce and Consumer Affairs Minister Duncan Webb told the Herald, “I expect the supermarket sector to work in good faith and at pace to implement the new legislation, and to see gains for consumers.

“If this does not occur all options including divestment will be considered.”

The documents released by MBIE show the cost-benefit analysis found that requiring grocery companies to divest their assets “could” be positive overall.

It found divestment could put an extra $9.2 billion in consumers’ pockets over 20 years, with the potential for benefits to also accrue to some suppliers.

It said divestment could cost supermarket chains between $4.5b and $7.4b over 20 years – sums of money worth less than the “excess profits” they made.

The analysis found divestment could involve “uncertainties and significant risks, including a potentially complex implementation pathway, adverse impacts on some or all consumers (including regional variations), the possibility of legal challenges… and the potential failure of an incumbent or new entrant”.

Clark concluded some of the issues could be ironed out by policymakers.

However, his successor Webb – in June – preferred taking a less assertive approach because of “uncertainty about the nature and sequence of the benefits and risks to consumers of divestment; the financial costs and other resources required to implement divestment, [and among other things]; the risk that pro-competitive actions by third parties (such as innovators or new entrants) would be disincentivised by divestment”.

Ultimately, Webb said he wanted to allow time for recent government interventions in the sector to take effect.

A law was passed last year preventing supermarkets from using restrictive covenants on land and leases to block competitors from setting up shop in certain suburbs and shopping centres.

A Grocery Commissioner has been appointed to monitor the industry.

Unit pricing on groceries is being made compulsory so consumers can easily compare prices, and the big supermarket companies have to open their wholesale arms to competitors.

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.