Supermarket concentration benefits stores, not shoppers
The proposed听听raises the prospect of even less choice for New Zealanders in what is an already heavily concentrated market. But will regulators prevent it from happening?
New Zealand currently has just three major supermarket entities: the two Foodstuffs cooperatives (member-owned companies) and Australian-owned Woolworths. These three control听听and almost 100 percent of the supermarket sector.
The Commerce Commission will release its听听in October.
Less choice in NZ than overseas
The dominance of Foodstuffs and Woolworths gives the New Zealand supermarket industry a concentration ratio of almost 100 percent 鈥� calculated by adding the top four firm鈥檚 market share of an industry.
By comparison, the supermarket sector concentration ratio in Italy is 58.3 percent, in Spain it鈥檚 67.4 percent, in the United Kingdom it鈥檚 61.2 percent, and in the United States it鈥檚 58.5 percent. These lower ratios point to markets that are more competitive.
础听听has raised concerns over the concentration in the New Zealand market. And suppliers have warned they are being听听of these retailers.
听has long shown听听听the market听.
Our听听.
In 2022, the Commerce Commission听听on New Zealand鈥檚 grocery sector. It found competition was not working well for consumers in the retail grocery sector. Recommendations included establishing a dedicated grocery regulator to provide monitoring and oversight, which was done by the then Labour government听.
To better balance the market, regulators need to ensure local markets are competitive. This will require not just the rejection of Foodstuffs鈥� merger but, also, the possible split or demerger of the existing entities.
The most logical step is split the Pak'nSave and New World brands, ensuring they are independent of each other.
Otherwise there is a risk of precedent being set, which establishes an example for other sectors and markets to follow. It also raises the question of the point of the market study, if 鈥� despite the knowledge of concentration 鈥� the market was allowed to concentrate further.
Research shows the high price we pay
New Zealand鈥檚 size and low population density are often听.
But our ongoing听听shows low population density in developed markets is not a predictor of supermarket market concentration.
Highly concentrated markets have lower store availability for consumers, driving up population per store and reducing choice.
New Zealand has four times more population per store than Germany, and more than two times the UK and US. New Zealand also has the highest revenue per store across 25 developed markets, ahead of the United States.
Foodstuffs North Island, for example, generates听.
Individual store owners are听. In 2018, three Foodstuffs supermarket owners entered the听.
Anti-competitive claims against Foodstuffs
The proposed merger of the two Foodstuffs cooperatives is not the first time the company has joined together geographically disparate entities.
In 2013,听听regions to become Foodstuffs North Island. This merger concentrated an already small market further.
The cooperatives鈥� increased market and bargaining power after the 2013 merger has resulted in complaints from听听over Foodstuffs North Island鈥檚 tactics.
Despite being two separate entities, Foodstuffs has admitted to听. And since 2020, Foodstuffs North Island and South Island have released joint annual corporate social responsibility reports.
In a submission on the merger to the Commerce Commission earlier this year, one industry insider claimed the two Foodstuffs cooperatives were behaving as听. Foodstuffs has听.
But the听听into both Foodstuffs South Island and Foodstuffs North Island over pricing and promotional practices. It is also investigating Woolworths New Zealand for the same issues.
And the regulator recently听听against Foodstuffs North Island, alleging that anti-competitive land covenants were lodged by the supermarket operator. The commission claims Foodstuffs did this with the purpose of blocking competitors from opening rival supermarkets at particular sites.
Splitting the Foodstuffs brands
New Zealand is not the only country facing increasingly concentrated supermarket sector, though it is, arguably, one of the worst.
In Australia, concerns have been raised about the dominance of Coles and Woolworths. These two companies听听between them. The Queensland Greens have called on the government to introduce a听.
In May, the Australian government outlined a听听to address anti-competitive behaviour. It is clear Australia is attempting to prevent further concentration of its grocery market, highlighting just how much of an outlier New Zealand is.
In contrast, the UK鈥檚 two largest supermarkets, Tesco and Sainsbury鈥檚,听. An听听by the country鈥檚 competition watchdog found inflation was not driven by weak retail competition.
Operating profits in the sector in the UK fell 41.5 percent in 2022-23, with average operating margins falling to 1.8 percent from 3.2 percent. This suggests retailers鈥� rising costs were not passed on in full to consumers.
The UK grocery sector shows how competitive a grocery sector can be 鈥� if consumers and regulators are vigilant. But the merger of the two Foodstuffs cooperatives is taking New Zealand in the opposite direction.
Instead, the commission should reject the merger. It should also look at the demerger or divestment of the Foodstuffs banners to foster real competition and a better outcome for consumers.
Lisa Asher is a retail expert, PhD Candidate & Sessional Academic at the University of Sydney.听Associate Professor Catherine Sutton-Brady听teaches and researches international marketing and business to business marketing. This story was first published on . Hero image: Adobe Stock.
