Commerce Commission's grocery market report receives praise from suppliers, frustration from health experts

Reaction to the Commerce Commission's report into competition within the grocery sector has been extremely mixed, with some suppliers pleased, health experts disappointed, and opposition political parties keeping their eyes on the Government.

The variety of responses may perhaps be because the commission has taken a "middle of the road" and pragmatic approach, as Infometrics principal economist Brad Olsen described it on AM, not taking the drastic action some expected.

The commission's report, released publicly on Tuesday after a 15-month inquiry into the $22 billion sector, raised a number of proposals for the Government to consider in seeking to enhance competition and ultimately bring down grocery prices for Kiwis. 

It found the "intensity of competition" between the main retailers, Woolworths NZ and Foodstuffs, is "muted" and that others wanting to enter the market face challenges. That means the sector is "not working well for New Zealand consumers", the commission said. 

In its preliminary report last July, the commission did raise the option of creating a new major retailer by forcing the current duopoly to sell some of their stores. That, however, isn't one of the commission's final suggestion

Instead of recommending the Government take those "very interventionist moves", the commission has focused on ideas around freeing up more land, improving access to wholesale supply, and making it easier for consumers to understand pricing, Olsen said.

He said the commission hasn't gone to the "extreme point" of recommending the major retailers are broken up or for the Government to fund a "Kiwimart".

"The three major points the Commerce Commission has settled on is, one, that need to enhance competition through providing essentially better access into the market, but not taking that step to actually intervene and get its hands dirty itself. 

"The second one is around suppliers, making sure that they have fairer terms in a more transparent, focused way of going about selling to the supermarkets. 

"And then thirdly, for consumers making sure that some of the discounts, the promotions and similar are quite transparent about how they operate, and also that consumers can see what they're paying for quite quickly."

Brad Olsen.
Brad Olsen. Photo credit: AM.

He said the initiatives proposed won't lead to immediate price drops - they're currently only proposals for the Government to potentially take action on - but could do in the future.

"This is going to take time to get a new competitor and price," Olsen told AM. "In effect, what we've got here is still an indirect way. There's still going to be someone out there across the world that's looking at this report and going, 'look, maybe if I can get the groceries, if I can get the land, I can make a supermarket work'. 

"What you're also likely to see, though, is that those supply terms that are being discussed could well put more pressure on some of the prices that people might pay because suppliers feel like they're not always getting the best deal. 

"Importantly, though, going forward, you would hope that this will not only allow for a bit more competition but also allows consumers when they're in the supermarket to make a better pricing decision."

Anna Rawlings, the Commerce Commission chair, on Tuesday morning said if there was greater competition in the sector, it would be expected that "consumers would pay lower prices for a given range or quality of groceries that they buy today".

Addressing the decision not to push the divestment option, Rawlings said the benefits of it did not outweigh the costs and complexities associated. The commission hopes the focus on land and wholesale supply will instead stimulate competition and allow another retailer into the market.

Anna Rawlings.
Anna Rawlings. Photo credit: Newshub.


Given the report was only released on Tuesday morning, Woolworths and Foodstuffs are taking time to thoroughly review it. 

In a statement sent to Newshub, Woolworths New Zealand managing director Spencer Sonn said it was clear from the market study process that "some changes are not only required, but expected of us". 

"We support the changes the Commission has recommended and we’ll continue to engage constructively with the government to make them happen," said Sonn.

"Supplier partnerships are a very important part of our business, which is why we support the introduction of a mandatory grocery code to ensure all retailers are held to the same standards."

He said the retailer supported "greater clarity and consistency" around unit pricing and promotions.

"We support making changes to land covenants to help free up sites for more supermarkets to be developed.  We agree with the Commission’s finding that planning law changes could also play an important part in this," Sonn said.

"We hear the concerns raised about improving the wholesale supply to third party retailers, and we are committed to working with the government on what this could look like."

Retailers are carefully reviewing the report.
Retailers are carefully reviewing the report. Photo credit: Getty Images.

Foodstuff said it will comment when it's had time to consider the findings and recommendations.

"We’ve been actively engaged in the market study process over the past 16 months and have already committed to meaningful change to improve outcomes for our customers."

Following the preliminary report last July, Foodstuffs said it would be freeing up some of the land it owned and fixing what it admitted was "complex and confusing" promotional schemes. However, it denied it was ripping Kiwis off and didn't believe its profits are excessive. 

Supie, an online supermarket platform, said the commission's recommendations won't deliver a positive outcome for either consumers or suppliers. 

"This process was the opportunity to make a meaningful change to set up a fair food future and a better outcome for every New Zealander. Fairer access to food will not improve, the cost of food will continue to rise and we as a country will continue to be treated unfairly by the status quo, being the supermarket duopoly. The sector still needs to improve and positively contribute to everyday Kiwi consumers."

The suggestions could lead to lower prices for consumers.
The suggestions could lead to lower prices for consumers. Photo credit: Getty Images.


Responding to the report on Tuesday, Katherine Rich, the chief executive of the New Zealand Food & Grocery Council, which represents suppliers, said she was "delighted" with the report, describing it as a "victory for suppliers in terms of fairness, competition, and common sense".

"The findings and recommendations confirm what we have been saying for years - competition in the market is not working well, stifling innovation, consumer choice, and genuine competition, and creating an environment where suppliers are treated unfairly," Rich said.

She believes there needs to be two or three more "sizeable players" in the market for there to be "genuine competition".

"It remains to be seen if recommendations to improve wholesale distribution and land availability will be enough to encourage new entrants."

Rich said suppliers will welcome the commission's recommendation of a mandatory code of conduct for grocery supply relationships to improve transparency and ban unfair conduct as well as a regulator for the sector. 

"Everyone benefits from a flourishing food industry where suppliers have a genuine chance to negotiate and receive fair terms, and which ultimately benefits consumers in terms of innovation and range," she said.

"It’s been 12 years since we first pushed for a Code of Conduct, and we are now closer to having this vital tool."

Nadine Tunley, the HortNZ chief executive, also praised the commission's recommendations and said a code of conduct and disputes resolution scheme would "help reverse the imbalance of power that the commission identified in its investigation".

"The improved relationship along with greater transparency should ensure that growers get a better return on their investment, so they will continue to invest in fruit and vegetable growing so New Zealanders can eat healthy, locally produced food," she said. 

"The greater transparency should also enable consumers to understand better the price they pay for New Zealand-grown fruit and vegetables."

Rich, a former National MP, said the big question now will be how the Government responds to the commission's recommendations. 

"We hope there will be cross-party support in the Parliament to put this report into action."

Suppliers are welcoming the report.
Suppliers are welcoming the report. Photo credit: Getty Images.


While the commission has laid out a large number of potential changes to the sector, it's ultimately up to the Labour Government, which first commissioned the inquiry in November 2020, to decide where to go from here.

David Clark, the Commerce and Consumer Affairs Minister, said on Tuesday morning that the report clearly highlighted that "competition in the retail grocery sector is not working" and that action would result in consumers getting better prices, range and quality.

"I know there is a desire to see us act swiftly on this too, and I want New Zealanders to know this will be the case," he said. "From today, we will immediately progress work to address the Commission’s recommendations."

The minister specifically mentioned exploring how a code of conduct could be developed and what role a regulator could place. He is also committed to banning "restrictive covenants over land" that stifle competition by acting as a "major barrier to supermarkets accessing new sites".

"The report sets out a clear justification for change in the grocery market," Clark said. "The status quo will not deliver fairer prices for consumers and a better deal for producers and wholesalers, and I hope the sector will constructively engage in the changes that need to be made."

He is also not ruling out other options that the commission "tabled while developing its report if consumer benefit is not achieved from the changes recommended in the report". The commission has recommended reviewing the effectiveness of any changes three years after their implementation.

David Clark.
David Clark. Photo credit: Getty Images.

The Green Party suggests the Government should do more than what the commission laid out on Tuesday, saying Kiwis face an "inequality crisis" every time they visit the supermarket.

Ricardo Menéndez March, the Greens' spokesperson for commerce and consumer affairs, said the current structure of the grocery sector isn't "delivering for everyday people". 

"The Commerce Commission's recommendations do not go far enough to address this," he said.

"It is good to see recommendations for a mandatory code of conduct for grocery supply relationships, and consideration of collective bargaining. But regulatory change focussed solely on supermarkets, while necessary, will not do enough to help people put fresh, affordable food on the table."

Menéndez March wants to see a national food strategy "that supports local growers, locals and Papakāinga to provide kai to their own communities". 

"The Government must also support regenerative and organic agriculture, and community-based food initiatives such as food co-operatives, community gardens, public fruit orchards, heritage seed banks and farmers' markets.

"A publicly-owned competitor, that seeks to put the wellbeing of the communities and the environment before profits, should also be considered further."

ACT said the Government-commissioned report said "what we could have told Government for free" about how difficult it is to build and do business in New Zealand.

"It’s little wonder there is not more competition in New Zealand, entering the market is nearly impossible considering the regulatory barriers faced in New Zealand," leader David Seymour said. "If it’s too hard to build a house, imagine a supermarket"

He also said some of the recommendations would create extra bureaucracy.

"There’s no doubt the Kiwis are being squeezed at the supermarket – but the Government who ordered this report now needs to admit that it’s the inflation it caused that’s hurting Kiwi battlers," Seymour said.

"There are solutions to the cost of living crisis in New Zealand, they are less tax, less regulation, and more freedom to get things done."

The Government could do this, Seymour said, by reducing the middle income tax rate from 30 percent to 17.5 percent and cutting wasteful spending. 

David Seymour.
David Seymour. Photo credit: Getty Images.

National's also keeping its aim directed at the Government.

Nicola Willis, the deputy leader, called the commission's recommendations "broadly sensible" but doesn't believe they "address the underlying cost of living crisis that New Zealand faces". 

"With 6 percent inflation, that is the major driver of increased grocery costs and the Government continues to not only deny the existence of that crisis, but is failing to put forward any real solutions for Kiwis struggling to get ahead."

The party's commerce and consumer affairs spokesperson, Andrew Bayly, said Kiwis are paying more for food in New Zealand than citizens in other countries. 

"This is partly a result of the lack of competition in the grocery sector, with the lion’s share of the market being held by the two retail chains," he said.

"Given the impact high grocery prices have on household budgets, having a dynamic grocery sector will be of benefit to New Zealanders."

But he also said Labour needed to address inflation quickly. 

"Kiwis are going backwards under Labour because wages aren’t keeping up with rampant inflation," he said.

"The cost of living crisis is sending the cost of basics like food, petrol and housing through the roof. Inflation is at a 30 year high and the average Kiwi family is worse off than they were 12 months ago.

"The Government needs to explain how they will arrest the cost of living crisis in Budget 2022 – and they should start by making the tax adjustments National proposed on the weekend."

Andrew Bayly.
Andrew Bayly. Photo credit: Newshub.


A statement from Health Coalition Aotearoa (HCA) said health policy experts and nutritionists are "disappointed" by the commission not proposing splitting up the two major retailers.

"What many people don’t realise is, structural market measures are also desperately needed health interventions," said Leanne Young, Registered Dietitian and Nutrition Researcher. 

"You can’t replace nutrients lost in the developing years, when health and eating habits are being set up for life. The right to healthy food is too important to be left to an effective duopoly. While many of the other recommendations like increasing access to wholesale supply and a mandatory code of conduct will help, it doesn't go nearly far enough."

Dr Lisa Te Morenga, HCA food policy expert panel co-chair, said the "lack of action disproportionately affects Māori and Pasifka whānau".

"Our poorest children are most vulnerable to the uncompetitive practices of our grocery players," she said.

"Many Māori and Pasifika kids live in suburbs who don’t have access to big supermarkets. Poorer families are often dependent on small corner stores in walking distance. The food in small corner stores is overpriced, in part because large grocery chains control food wholesalers in a way that’s not healthy for our communities.

"All children have the right to affordable healthy food that sets them up for the rest of their lives. This is just not happening for our poorest kids, many of whom are tamariki Māori and Pasifika, and these recommendations aren't enough for them."

Dr Young said while there is no magic bullet to fixing "unhealthy food environments", "splitting up the grocery market is a major piece of the puzzle". 

"Other important nutrition policies will form layers of protection for children’s health, for example healthy food in schools and protecting kids from junk food marketing."

There's also been some response online to the report. Former National MP Tau Henare said "after all the hype and the money spent" that the report was a "damp squib".

"Mind you, it did say that competition isn’t working. Mum and Dad already knew that."

One person said the recommendations were "toothless", another said they doubted anything would change in the end, while a third called for chain Aldi to come to New Zealand. 

"If this, if that, recommend this, recommend that, etc, etc. Talk is cheap and money buys the whiskey. Stop suggesting and do something about it."