Source: New Zealand Government
Today I am announcing next steps in the Government’s mission to deliver better grocery prices for Kiwis.
Our Government knows that the cost of living is a major concern for New Zealanders. We are focused on delivering changes that will bring down the cost of living, now and in the years ahead.
One major driver of the cost of living is the high prices many Kiwis pay for their basic groceries. After housing, food is the second-most expensive item in Kiwis’ household budgets.
The current situation
New Zealand grocery prices are high by international standards. Kiwi shoppers are being poorly served by extremely low levels of competition in our grocery sector.
This lack of competition is the result of a series of mergers that have occurred over the past 30 or 40 years, reducing a sector once characterised by a number of grocery chains to a market now dominated by just two major players per island: Foodstuffs North Island, Foodstuffs South Island (with the New World, Pak ‘n Save and Four Square brands) and Woolworths (with the Countdown and Fresh Choice / Super Value brands).
These incumbents exhibit significant market power and act as an effective island duopoly, with many communities experiencing what could be characterised as a localised grocery monopoly, as they have no other store to choose from near their homes.
It’s noteworthy that Foodstuffs argued in the courts that the merger of Progressive Enterprises and Woolworths NZ was not in consumers’ interests.
This dynamic was acknowledged by a 2022 market study and led to a series of reforms.
In September last year the Commerce Commission published its first annual report into the grocery sector, which provided an update on the impact of reforms so far.
It concluded that competition in the grocery sector had not materially improved.
The Commerce Commission did note pockets of improved competition due, for example, to Costco entering the Auckland market, and the Warehouse expanding its range of grocery offerings. But these incursions have not fundamentally changed the competitive dynamics in the market.
There has been no reduction in market concentration, with evidence of increasing margins for major supermarkets, and ongoing levels of profitability much higher than would be expected in a workably competitive market.
There have also been recent examples of firms struggling to compete in the market. Organic grocer Huckleberry, which owned three stores in Auckland, went into liquidation in 2024. Online grocer Supie was put into voluntary administration in October 2023.
The Grocery Commissioner has noted the disappointing impact of new wholesale regulations, and ongoing problems with the Grocery Supply Code.
The simple reality is this: Despite good intentions, the last Government’s reforms have not improved grocery competition or delivered better prices for Kiwi supermarket shoppers.
I am advised that without further action, meaningful changes to competition will be some time away.
Progress Update
Last month I announced my desire to see another competitor enter the supermarket scene to deliver more effective competition in the grocery sector, disrupt the major players, drive down prices and increase options for Kiwi shoppers.
I made clear then that the Government wants to help remove barriers that could get in the way of a new entrant, including potentially removing a range of regulatory hurdles.
Since February, I and my officials have engaged with a range of interested parties who’ve shared their views of what might be needed to help their entry or expansion into the New Zealand grocery market.
These engagements have been instructive. My key findings have been:
To achieve the best outcomes for consumers we need at least one competitor entering or expanding to operate at a national scale. The Commerce Commission’s first grocery report supports this view, stating that success in the grocery industry “requires a third major network of supermarkets, offering a full range of groceries nationwide”.
That the Government’s work to replace the Resource Management Act, and changes to the Overseas Investment Act can help to ease the path for new grocery stores.
That the Commerce Commission’s work to target multiple other issues – including on wholesale supply of groceries, monitoring of anti-competitive behaviour and strengthening information and protections for consumers and suppliers – must continue at pace.
That further bespoke regulatory intervention could help some potential entrants – including by addressing potential barriers in food labelling and import standards that could prevent the importation of competitor products.
That even with all these changes, major commercial and regulatory barriers could still prevent a third player from being able to enter or compete at a national scale.
A competitor at scale
This final point is very important.
I want to see a new grocery competitor that can introduce competitive pressure not just in one niche or region but across the country, so that it improves shopping choices and prices for as many Kiwi shoppers as possible.
International experience suggests that for this to occur, a new player would probably need to reach a scale of at least 10% of the existing market and do so relatively quickly.
There are a range of views about what additional interventions could be needed to make that possible. Some suggest that progressing the current Commerce Commission work programme, in conjunction with consenting and investment reform may be sufficient.
Others advocate more significant changes to the structure of the New Zealand grocery market.
These include splitting existing brands currently housed under one umbrella back into separate businesses (horizontal separation or demerger); splitting wholesale and retail provision of groceries (vertical separation); divestment approaches explored but ultimately put on hold by the previous Government, or a combination of these approaches.
In light of this work, and the advice and views I have considered to date, I have now made recommendations to Cabinet about the next steps needed to improve competition in the New Zealand grocery sector.
Issuing a formal “Request for Information” to support a supermarket competitor
Today I am announcing that Cabinet has agreed to commence a formal Request For Information (RFI) process to accelerate improved competition in the New Zealand retail grocery market.
The RFI I am releasing will help the Government identify the next regulatory and legislative steps needed to support a significant national-scale competitive challenge to the New Zealand supermarket duopoly.
We want to know what it would take for one or more new grocery retailers to enter the grocery market on a national scale, or existing competitors to grow to sufficient size to generate a material increase in the level of competition in the New Zealand grocery sector.
We want to hear from firms or groups who have the capability and capacity to provide New Zealand consumers with a full range of grocery products, at scale, nationwide.
This is about obtaining detailed information about how the Government can support a new supermarket competitor, using the full range of legislative and regulatory tools available to us.
We are asking respondents to set out the ideal conditions that would need to exist for them to enter and grow in the New Zealand retail grocery market. I also want to hear about barriers, both commercial and regulatory, and what the Government can do to improve conditions to allow them to set up and better compete with the incumbents.
For example, they may face barriers securing appropriate sites to build on, or they may have issues accessing supply, or there may be fundamental issues with the structure of the market.
I expect that a new competitor would need to have, buy or build a substantial physical store network. That is a big ask. We can’t just cross our fingers and wait for that to happen. Nor am I satisfied that we’ve yet flushed out everyone who might be up for the task – if we get the conditions right.
As such, I have asked officials to seek responses from firms which already have a presence in the New Zealand market, such as Costco and the Warehouse as well as established overseas grocery firms, such as Coles, Aldi and Lidi. Investors for targeting will include general investment funds, specialist infrastructure investors and iwi groups.
I have also asked officials to seek views from the existing major players, alongside the smaller store owners who work under their brands, to ensure their perspectives are heard.
The scale of the challenge
The challenges facing a major new competitor should not be underestimated.
My engagements to date have suggested that for so long as the current duopoly structure continues, and even with targeted regulatory action, potential investors may perceive that the commercial barriers to success in the NZ grocery market are just too high.
Initial research suggests a new or expanding national-scale grocery competitor would require significant upfront capital. It’s expected that the RFI will expose the “J Curve“” for investment, that is the potential for upfront losses that would be incurred during set-up followed by larger returns down the line.
Any large new supermarket business would need to compete with what are large, well-established retailers, with strong brand recognition, substantial market power and significant efficiencies of scale.
Concerns include the difficulty in obtaining suitable store sites at scale and pace, the potential for existing players to use their market power to block or squeeze out new entrants and the potential for existing players to place pressure on suppliers to offer less advantageous terms to new entrants.
I want potential participants in the Government’s RFI to know I understand the mountain we are asking them to climb.
It’s important they take this opportunity to articulate potential challenges as plainly as possible.
Further options for Government Intervention
I acknowledge that we can’t just wait for another competitor to arrive.
In order to make the New Zealand grocery sector more competitive sooner it’s possible more significant reform of the underlying grocery market structure may be required.
I have therefore advised Cabinet that when I report back to them later this year I will potentially recommend progressing additional intervention options for the New Zealand grocery market, including new legislation, should I view this as necessary to achieve the increased levels of grocery competition we are seeking for New Zealand shoppers.
I am actively anticipating what that may involve.
Accordingly, I am also announcing today that I am considering a possible structural separation of existing entities in the New Zealand grocery sector.
To support this, I have commissioned specialist external advice on ways in which the existing supermarket duopoly could be restructured to improve competition, including advice on options for ‘de-merger’ of existing brands, the potential impacts of structural separation of existing entities, and concepts for how this could be achieved.
It’s important this work, and any recommendations I make to Cabinet, are informed by the responses the Government receives to the Request for Information we are issuing today.
And that resulting recommendations properly consider the potential benefits – and costs – of intervention.
In considering potential design options I consider any newly created market structure would need to deliver net consumer benefits from greater competition, be enduring, ensure the market is dynamic and efficient and ensure that any transaction costs are kept to a minimum.
I do not take this step lightly.
In a global context, the New Zealand grocery market has experienced exceptional consolidation, a point that the OECD and other international experts agree is major cause for concern.
This is a $27 billion sector – roughly the size of New Zealand’s tourism and dairy sales combined – so it’s crucial that we get this market working effectively.
Doing so will deliver benefits into every shopping trolley and create new business opportunities up and down the supply chain.
I want to emphasise once again that this Government is not looking to run a supermarket chain: there will be no KiwiShop.
Next steps
I know that while this work progresses, Kiwi shoppers, feeling the pinch at the checkout, will remain impatient.
They have already waited too long for more competitive grocery offerings.
We need to move fast, and also with due care.
The RFI will proceed at pace, with information sought in the next six weeks. Work on market structure options will continue while this occurs, as will the Commerce Commission’s work to complete its wholesale inquiry, its analysis into land-banking issues and its second grocery report.
In mid 2025, once I have considered the evidence coming in from the RFI, and the Commission’s work, I will bring further recommendations to Cabinet. Depending on what I hear, I may seek Cabinet’s mandate to progress further design work on structural options to improve competition in the grocery sector.
If legislation is needed, I would want to introduce it before the end of the year and pass it during this parliamentary term, with rapid implementation shortly thereafter.
I am determined that this be a thorough and considered process. It’s vital we get this right.
As I said, I take seriously the need to weigh carefully not only the potential benefits of further intervention, but also its potential costs. And, it’s important to note, Cabinet has not yet formed a view on whether structural intervention will, in fact, be needed.
The RFI we are issuing today is a crucial step for informing our future deliberations. I can’t yet predict the detailed recommendations I will make as a result.
It could also be the case that the incumbent supermarkets propose actions that would prevent the need for any new legislation – for example through voluntary divestment undertakings under section 69A of the Commerce Act.
My key message is this: if further intervention is needed to drive competition in the grocery sector, then I’m up for it.
I’m putting all options on the table.
I’ll now take your questions.
