The Commerce Commission just released a draft report on the retail grocery sector, which indicates that NZ is the sixth-most expensive grocery sector in the OECD.

According to the report, food is the second largest expense for New Zealand households, with an average spend of $234 a week (2019 data). Our own survey of BayBuzz readers, reported in our Jan/Feb 2021 special ‘Food’ edition, indicated that our respondents spent $99 per person weekly  on their food budget. And another $33 person weekly on food/drink consumed outside the home.

The Commission, given its charter, looked at the situation through the lens of market competitiveness (actually, lack thereof) and the relationship between basically two main supermarket chain ‘buyers’ – Woolworths NZ (owners of Countdown supermarkets) and Foodstuffs (Pak’nSave and New World) – and their disadvantaged suppliers.

“If competition was more effective, retailers would face stronger pressures to deliver the right prices, quality and range to satisfy a diverse range of consumer preferences,” said Commission Chair Anna Rawlings. 

Adding: “Our preliminary view is that the core problem is the structure of the market. In competitive terms, the major retailers, Woolworths NZ and Foodstuffs, are a duopoly, and while there is an increasingly diverse fringe of other grocery retailers, they have a limited impact on competition. This is because they are unable to compete with the major grocery retailers on price and product range in order to satisfy the widespread consumer demand for a main shop at a single store.”

The report noted: “We have observed consistently high profits being earned by the major grocery retailers. If competition was working better, we would expect these profits to attract new entry and expansion by other grocery retailers, bringing profitability back to a more competitive, or ‘normal’, level. While it is difficult to compare grocery prices internationally, it appears that New Zealand prices are relatively high by international standards.”

With this impact on consumers: “If competition is working well for consumers in the long term, we would expect to see grocery retailers competing to deliver consumers the range and quality of products at the right price to satisfy their preferences. In a competitive market, businesses are also incentivised to innovate and there is ongoing pressure on firms to attract and retain consumers. These dynamics mean that firms’ profits are limited over time.” 

What to do? The Commission wants to promote or – if need be – force competition.

The most radical proposition floated is Government establishment of a third  supermarket competitor – a sort of Kiwibank for groceries. An option not ruled out by Commerce and Consumer Affairs Minister David Clark. BayBuzz would welcome your views on that!

Lacking in this report is any more complete examination (beyond lack of supermarket competition) of why food costs what it does – the entire farm-to-plate value chain including on-farm production (with rising energy and fertiliser costs), distribution and processing, marketing and the store infrastructure and labour cost.

Lots of tickets getting clipped along the way. Those with the least leverage – the individual farmer/grower and the individual consumer. Farmers Market anyone?

Commerce Commission report here.

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1 Comment

  1. The major issue here is that our regulatory environment may not fit for purpose.

    The facts are we had three major grocery retailers and the Commerce Commission allowed a take over which reduced this to two.

    We have also seen in recent years Z Energy ( ex Shell ) was allowed to acquire Caltex increasing their market share to well over 60% if I recall correctly – again with ComCom approval – just what were they thinking ?

    How did anyone think that these two takeovers were not going to result in decreased competition ?

    We also need to consider New Zealand is a very long geographically drawn out country with major logistics issues and very low population densities – both of which are major drivers of delivered costs.

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