The report, released in September last year, used data from 2023 and showed New Zealand’s biggest supermarkets “all experienced an increase in price-cost margins”.
The margin is the difference between the cost of a product and the price at which it’s sold. The final price covers what the supermarket pays a supplier for the product, the wages it pays its staff, and the gross profit.
The products where that margin was the biggest in 2023 included general merchandise, bread, cooking needs, health products and toiletries - over 19.6%, according to the Commerce Commission’s analysis.
For cleaning products, condiments, paper goods, pasta and rice, pet products and other foods - such as international foods or holiday foods like Easter chocolate - the price-cost margin was 17.3% to 19.6%.
For chilled and frozen goods, canned foods, prepared foods, snacks and liquor, it was 13.6%, and for baby products, beverages, biscuits, breakfast foods, confectionery and tobacco the price-cost margin was below 13.6%.
The report’s writers noted that Kiwi shoppers had experienced “rising prices for many grocery goods over the past few years”.
While supermarkets pointed to rising costs from suppliers and the “general cost of doing business” as the reasons for that, the commission said higher prices were “not fully explained by higher costs for retailers”.
“Higher RGR [regulated grocery retailer] margins and profitability show that price competition has not been able to limit margin growth in the retail market.”
Shamubeel Eaqub, chief economist at Simplicity, told the Herald in December 2024 that “what the Commerce Commission found is that the corporate margins in New Zealand are too high”.
Products like flour had the biggest price-cost margin in 2023. Photo / Sylvie Whinray
“There’s a real spotlight on what’s driving the cost of food in our supermarkets and rightly so - if they’re ripping you off and making lots of money, that’s not a good thing.
“They should have a fair return, but not excessive returns... we want our competition authority laser-focused on making sure New Zealanders are getting a good deal.”
In a statement to the Herald, a Foodstuffs spokesperson said, “Over the past five years, both Foodstuffs co-ops’ net profit after tax of the shelf-price of retail goods sold has averaged less than 4 cents per dollar.
“Around two-thirds of the shelf price covers the cost of buying the products from the suppliers, 13 cents is GST, and the rest is our cost of doing business – which includes paying wages, investing in our stores and running our supply chain network, and paying interest on borrowings and taxes.
“We think less than 4 cents per dollar is a fair and reasonable profit, and because we’re 100% NZ-owned, any profits not invested in value and innovation are distributed to our NZ family grocers.”
Fresh food like fruit and vegetables is more expensive in New Zealand than in other countries, partly because of GST. Photo / Getty Images
A Woolworths spokesperson told the Herald, “We report on our gross margin as part of our financial reporting. Out of our gross margin, we then have to cover paying our team, running our stores, operating our supply chain, interest and tax.”
The spokesperson said that in the financial year ending in 2024, Woolworths made “a loss of 0.5 cents for every dollar customers spent in our stores”.
“Our profit declined by 157% compared to FY23 resulting in a loss after tax of $43m, excluding $1.633bn of impairments.”
Eaqub noted that in New Zealand, food prices were noticeably higher than in other countries, partly due to GST - goods and services tax.
“They don’t have [GST] in places like Australia, so when you compare our food prices with Australia, you can see that the big differences tend to be really around the fresh food, which is 15% more expensive in New Zealand because of GST,” Eaqub said.
Additionally, the “big surge in inflation” over the past few years had led some shoppers to cut back on basics or make swaps at the supermarket to save cash.
“Not everybody has the disposable income to be able to just put up with those price increases, [so] some people are making the decision to buy things less frequently or buy less of it.
“A lot of people are trading down from the Wattie’s to the Pams, from the fresh fruit and veg to the frozen veg - not that there’s anything wrong with frozen veg - or they’re not going to restaurants, they’re getting a fancy meal in ingredients from the supermarket [instead]."
However, we could be optimistic going into 2025 as food prices had peaked, he said.
“We’re not seeing increases anymore, so things are generally improving. So we are going to see more people being able to afford those nicer things in life as well as the basics.”
