The Government has put supermarkets on notice, urging them to change at pace to increase competition and be prepared for regulation.
It comes as part of the Government's response to the Commerce Commission's market study into New Zealand supermarkets, which found they earn $1 million a day in excess profits.
The Commission made 14 recommendations, including introducing a mandatory code of conduct to establishing an industry regulator and ensuring loyalty programmes are easy to understand and transparent. The Government accepted 12 of the recommendations and said it is taking stronger action on the other two.
Minister of Commerce and Consumer Affairs David Clark said on Monday the two recommendations not accepted relate to implementing a voluntary wholesale access regime and to a review of competition in three years.
Clark said these issues "can't be kicked down the road" and the underlying drivers of the lack of competition need to be addressed now, so the Government has rejected the three-year review timeframe and is urging supermarkets to strike good-faith wholesale deals with their competitors.
"I spoke with both supermarket companies this afternoon to make this very clear. They know what is expected from them and the length of time we are prepared to give them to change before regulation kicks in," Clark said.
"Given the pressure New Zealanders are under due to global inflation and cost of living increases, we can't afford to wait three years. Budget 2022 delivered a cost of living payment for about 2.1 million Kiwis to help with the impact of rising prices and fixing our supermarket sector is another action the Government can take.
"Our supermarkets know they're in the spotlight, and we've recently seen some posturing around price rollbacks. However, it doesn't fix the systemic problem at large - which is a lack of genuine competition in the sector."
Clark said the supermarket duopoly - which is Foodstuffs and Woolworths - needs to change.
"The Government and New Zealanders have been very clear that the supermarket industry doesn't work. It's not competitive and shoppers aren't getting a fair deal. The duopoly needs to change, and we are preparing the necessary legislation to do that."
He said that alongside the retail stores, supermarkets also have wholesale arms. Because of this, the Government is calling on the supermarket duopoly to open these up to would-be competitors at a fair price.
"Do this knowing the Government is determined to get a regulatory backstop finalised by the end of the year," he said.
"If supermarkets do not strike good-faith wholesale deals with their competitors - our regulatory measures will make it happen for them. We are not afraid to unlock the stockroom door to ensure a competitive market."
Competitors not having proper access to wholesale goods mean there's no real incentive to enter the market, Clark said, and the New Zealand market "clearly needs more competition".
He added that the Government is also looking at how to implement compulsory unit pricing on grocery products to give shoppers the ability to better compare products. They are also getting ready to launch consultation on the code of conduct that retailers will have to adhere to.
The Commerce Commission will take on these responsibilities temporarily while the Government establishes the industry regulator. Once established, the 'watchdog' will help keep pressure on the grocery sector by providing annual state-of-competition reviews to keep supermarkets honest, as opposed to the check-in after three years recommended by the Commission, Clark said. It will also facilitate a resolution scheme to mediate disputes between suppliers and retailers.
"This work will sit alongside my Budget night legislation to ban supermarkets from using restrictive covenants on land, and leases to block competition from setting up shop in certain suburbs and shopping centres. This Bill is currently with select committee," he said.
"It is important to get this right and I look forward to continuing to engage with the grocery industry as we move forward with this suite of changes through the Grocery Industry Competition Bill which I intend to introduce to the House later this year."
Clark added that the Ministry for Business, Innovation and Employment is also doing further work around requiring major grocery retailers to divest some of their stores or retail banners. He said that is a longer-term piece of work due to its complexity.