New Zealand needs a third major supermarket player – Editorial

A third major player is needed to shake up competition in the supermarket sector. Photo / Getty Images

EDITORIAL

Two years on from the Commerce Commission’s market study into competition in the $25 billion grocery sector, a new report has shown no meaningful improvement in competition.

In fact retail margins at the country’s largest supermarket brands – href="https://www.nzherald.co.nz/topic/new-world/" target="_blank">New World, Pak’nSave and Woolworths – have increased by 3.1 percentage points on average for non-fresh product categories, according to the commission’s first annual grocery report.

The commission is now proposing further tweaks, including introducing a Wholesale Code and a stronger crackdown on breaches of the Grocery Supply Code when it continues to hear of bullying behaviour.

But despite these plans, the commission believes a “meaningful improvement in retail competition in the grocery market is many years away”.

What New Zealand needs is a substantial third player.

The Warehouse has a nationwide footprint that could allow it to become this player but it will require a substantial amount of capital.

Plans by Warehouse founder Sir Stephen Tindall and an Australian private equity firm called Adamantem to take the company private and potentially expand further into supermarket retailing faltered at the first hurdle when they didn’t get a major shareholder on board.

But it’s not completely dead in the water.

The commission’s report shows competition is strongest in Auckland, where there are other players such as Farro Fresh, Tai Ping and Costco. In Auckland, the major grocery retailers have seen their market share fall from 74% in 2022 to 70% in 2023.

But grocery retailing is not an easy game. In the last year, New Zealand has seen the collapse of online grocer Supie as well as exits from in-store operators The Honest Grocer and Huckleberry.

New Zealand needs a major player like an Aldi or Lidl – supermarkets that have made inroads in Australia and Finland.

The commission believes having a third national supermarket network would be “significantly” more competitive than two and that this is achievable in New Zealand.

It plans to engage with potential new entrants and investors to better understand their views on removing barriers.

Commerce Minister Andrew Bayly says its review of the Overseas Investment Act, alongside the Government’s changes to the Resource Management Act (RMA) will make it easier for new competitors to enter the market.

He told the Herald’s Tom Raynel that he had spoken to potential third-party operators and wanted to create a welcoming environment for them.

“I’m sure everyone wants to see a third party. The trouble is, you can’t dream up a third-party operator,” Bayly told the Herald.

The tough economic environment makes it challenging for any retailer to expand. Typically, global companies retract during recessionary periods.

But for a smart player, a recession can also be an opportunity to snap up land at a cheaper rate, hire construction firms in a depressed market and be ready to go when economic times improve.

Even if a third player comes here, it will take many years to get established. Shoppers can expect no major relief at the till any time soon but pressure on the existing big players needs to continue.