Supermarket sector competition 'not working well for consumers'

Kate Nicol-Williams
Source: 1News

The Commerce Commission has announced a suite of recommendations to improve competition in the supermarket sector.

A file photo of fresh meat at a supermarket.

Chair Anna Rawlings said the commission has reinforced its initial finding that competition within the industry, which is based on a duopoly of Foodstuffs and Woolworths with a fringe of other retailers, is not working well for consumers.

Foodstuffs and Woolworths have a combined 90 per cent share of the market for Kiwis' main food shop.

The key issue the Commerce Commission has found is that competitors wanting to enter the grocery market face significant challenges, starting with accessing land.

“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,” Rawlings said.

Food prices are high compared to international standards, the Commission has concluded, and have been for five years prior to the Covid-19 pandemic.

Its estimate of supermarket profit returns is higher than expected.

It recommended making more land available for new grocery stores, new planning laws, the banning of land covenants and exclusivity clauses, improving access to the wholesale market, requiring major retailers to fairly consider requests to supply competitors, and monitoring the likes of "best price" clauses and exclusive supply agreements.

“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,” Rawlings said.

It has also recommended introducing a mandatory code of conduct for grocery supply relationships to improve transparency and ban unfair conduct, strengthening the existing law prohibiting the use of unfair terms in standard form contracts and considering whether to allow collective bargaining by some suppliers.

It also wants to see retailers ensure promotional and pricing practices, and terms and conditions of loyalty programmes are easy to understand.

The Government will now review and consider the recommendations.