Commerce Commission New Zealand
Mar 8, 2022 12:25:02 PM
In November 2020, the Government asked the Commission to take an independent look at the factors affecting competition in the $22 billion a year industry.
Commission Chair Anna Rawlings says the final report has concluded that competition in the grocery sector is not working well for New Zealand consumers.
“We have found that the intensity of competition between the major grocery retailers who dominate the market, Woolworths NZ and Foodstuffs, is muted and competitors wanting to enter or expand face significant challenges,” says Ms Rawlings.
“While there is an increasingly diverse fringe of other competitors in the sector, they are unable to compete effectively with Woolworths NZ and Foodstuffs on price, product range, and store location to offer the convenience of one-stop shopping for the many different kinds of shopping missions that consumers undertake.”
The Commission has also identified that the nature of retail pricing and promotional strategies, and the major grocery retailers’ relationships with suppliers, indicate that competition is not working as well as it could. In addition, it has highlighted that New Zealand’s retail grocery prices appear comparatively high by international standards, the profitability of major retailers also appears high, and while consumers benefit from a range of innovations, there is scope for more.
The Commission has recommended a suite of changes and new regulatory measures to help improve the conditions for competition in the sector.
It has also proposed a dispute resolution scheme and an industry regulator responsible for monitoring and oversight to help ensure those changes have the desired effect.
“The best way to improve competition in the retail grocery sector is through measures that will make it easier for independent grocery retailers to set up and expand,” says Ms Rawlings.
“We found that the biggest challenges facing competitors are a lack of suitable sites for store development and difficulties in obtaining competitively priced wholesale supply of a wide range of groceries.”
To address these challenges, the Commission has recommended:
The Commission has also identified that competition is not working well for many of the businesses that supply groceries to the major grocery retailers.
“Many grocery suppliers fear having their products removed from store shelves if they do not agree to accept some costs, risks, and contractual uncertainty. This can reduce the ability and incentive for suppliers to invest and innovate, reducing choice for consumers,” says Ms Rawlings.
The Commission has recommended:
Recommendations to help consumers make more informed purchasing decisions, and stimulate competition between retailers, include:
“The market study has brought an increased focus on the sector and the major grocery retailers have publicly committed to address some of the practices covered by our recommendations.
“Nevertheless, the Commission has recommended formal regulatory requirements, monitoring and oversight by a grocery regulator, and a dispute resolution scheme to resolve wholesale and supplier disputes. These regulatory measures will help deliver the changes to competition that we have identified are needed,” says Ms Rawlings.
“In addition, we have recommended a review of competition three years following the implementation of any changes to evaluate their effectiveness.”
The final report and recommendations are now with the Government to review and consider.
In November 2020, the Government asked the Commission to study the factors affecting competition in the retail grocery market. The full terms of reference for this study can be found here.
What is a market study?
A market study examines whether competition is working well and, if not, what can be done to improve it. It looks at the structure, conditions and performance of a sector rather than whether there has been any breach of the laws that the Commission enforces. If information collected during a market study suggests that it is warranted, the Commission may separately consider what further action may be required utilising our compliance or enforcement functions and powers.
What can be the outcomes of a market study?
Outcomes of our work may range from a ‘clean bill of health’ for the sector, to recommendations for changes to enhance market performance. The Commission’s recommendations are non-binding, but the Government must respond to any recommendations within a reasonable period.
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