How Government's plan to force supermarket duopoly into sharing wholesale supplies could backfire

The Government's plan to reshape the supermarket sector has been met with mixed reactions, with some saying it won't lead to lower prices. 

The Government plans to force Countdown and Foodstuffs to open up their wholesale arms to more competitors, but industry experts fear that will only increase the duopoly's power. 

Deputy Prime Minister Grant Robertson unveiled plans on Monday to introduce a mandatory code of conduct for supermarkets, a watchdog to make sure the code is lived up to, as well as more transparent pricing and loyalty schemes. 

It all comes after the Commerce Commission in March said the supermarket duopoly was not serving customers well and that more competition was needed. 

Some of the Government's proposals have been welcomed. 

"We do think that the mandatory code of conduct and other regulations that the Government announced yesterday is positive for the industry," Sarah Balle, founder of online supermarket Supie, told Newshub. 

It's another proposal that's been met with scepticism. 

New Zealand's two main supermarket chains dominate the wholesale market and supply most of it to their own stores. The Government wants them to open up their wholesale arms to more would-be competitors at fair prices, to increase competition.

"We're also looking at a regime that will enable some of the smaller operators already in New Zealand to be able to expand their offering," Robertson told reporters on Tuesday. 

The problem is, the increased demand could see the duopoly raise their wholesale prices.

Auckland University of Technology senior research fellow Richard Meade said one solution could be a new supermarket retailer with its own wholesale arm, like US chain Costco, which has signalled plans to launch in New Zealand. 

But Dr Meade said more regulation might put them off.

"We were told by the Commerce Commission there was something like $400 million-plus of excess profits being made in the sector," he told Newshub Late.

"If that's the case, that's what makes it worthwhile for Costco to enter. If the Government says it's going to regulate those profits, then what is there for Costco to gain by entering?"

Balle agrees. 

"We think that regulating wholesale supply will actually provide the duopoly with more power than what they already have," she told Newshub. 

"It is disappointing from our perspective."

Dr Meade said the Government is trying to look like it's doing something about the rising cost of living, with inflation at a 30-year-high. 

"The Government, I guess, is anxious to be seen to be doing something about it but these measures aren't going to do anything short-term."

Neither Countdown nor Foodstuffs would be interviewed by Newshub but the supermarket chains have both sent out media statements.

Countdown said it doesn't have the capability to offer large scale wholesale supply, but it's working out how to make it happen. 

"We know things are tough right now, and we're continuing to try and provide food and groceries at the lowest prices we can - this remains our absolute focus," said Woolworths New Zealand managing director Spencer Sonn.

"We accept that change is needed, and we're committed to playing a positive role in a competitive grocery market for Kiwis."

Foodstuffs said it supports the Government's request and is committed to being an active wholesale participant.

It also supports the Government's legislation banning the use of restrictive agreements on land use, to allow more competitors into the market. 

"Our two co-operatives, Foodstuffs North Island and Foodstuffs South Island, are focused on delivering better value for all New Zealanders and addressing the proven issues raised through the market study," said Chris Quin, Foodstuffs managing director. 

"We already have a comprehensive work programme underway to achieve this, and we're making good progress."