On 8 March 2022, the Commerce Commission (Commission) announced its highly anticipated findings following its fifteen-month long market study into New Zealand’s retail grocery sector.

The Commission concluded that competition in the $22 billion a year industry is not working well for New Zealand consumers. It has recommended various changes and new regulatory measures that are designed to help improve competition in the retail grocery sector.

New Zealand’s grocery market is widely known to be one of the most concentrated grocery retail sectors in the world, effectively comprising a duopoly of two supermarket chains, Foodstuffs and Woolworths, and a range of smaller fringe competitors.

Background to the market study

The origins of this market study go back to the 2020 general election, when Labour committed to asking the Commission to conduct a market study into New Zealand’s retail grocery sector. The terms of reference for the study were published on 17 November 2020 and outlined that the aim of the study was to consider whether competition was working effectively in the sector and, if it wasn’t, what could be done to improve it.

Intensive information gathering began in early 2021 and the Commission published a draft report with preliminary findings on 29 July 2021. The Commission surveyed over 12,000 consumers in the course of its study.

Commission’s draft findings

The Commission’s draft report concluded that competition in the grocery retailer sector was not working well for New Zealand consumers, and that if competition were more effective the retailers would face stronger pressure to deliver the right prices, quality and range to satisfy a diverse range of consumer needs and preferences. The Commission found that New Zealand’s supermarket prices were relatively high by international standards.

In the draft report, the Commission tabled a range of possible recommendations aimed at improving conditions for entry and expansion (including recommendations to facilitate new entry by major retailers), tackling the power imbalance between supermarkets and grocery suppliers and empowering consumers. These possible recommendations included proposed divestment of some retail sites, and even as a “possible last resort” requiring the two main grocery retailers to structurally separate their wholesale and retail businesses.

Our previous article on the Commission’s preliminary findings in the draft report can be read here.

Commission’s final report

The Commission has today released its final findings which reinforced its preliminary findings that competition in the grocery retailer sector is not working well for New Zealand consumers. The two major grocery retailers dominate the sector, with a combined market share of 70-80% (and up to 90% of what consumers refer to as their “main shop”). The Commission found that fringe competitors are unable to compete effectively with Foodstuffs and Woolworths NZ on price, product range and store location to offer “the convenience of one-stop shopping.” However, the Commission found that, while these majors effectively only compete with each other, this competition is “muted”.

The Commission considered that the key issues impacting competition are challenges to entry and expansion, and difficulties in obtaining competitively priced wholesale supply of a wide range of groceries. The Commission also found that the major grocery retailers’ pricing strategies and loyalty programmes make it hard for consumers to make informed decisions about price.

In response to these issues, the Commission has made a variety of recommendations to help improve the conditions for competition in the grocery retail sector, including:

• Measures to improve conditions for new retailers to enter the sector and existing retailers to expand. These include freeing up land under planning laws, monitoring land banking by major grocery retailers and banning restrictive land use covenants on land and leases.

• Measures to improve access to wholesale supply, including by regulating to require the major grocery retailers to fairly consider any requests they receive to supply competitors, and requiring the criteria for obtaining supply and terms and conditions of supply to be transparent.

• Measures to improve relationships between suppliers and grocery retailers. These measures include implementing a compulsory supplier code of conduct, strengthening the prohibition against unfair standard form contracts under the Fair Trading Act 1986 and considering whether to allow collective bargaining by suppliers.

• Measures to help consumers make informed decisions, including requiring prices to be displayed in a consistent format and requiring major grocery retailers to ensure pricing practices (including promotional pricing), as well as the terms and conditions of loyalty programmes, are easy for consumers to understand.

The Commission also recommended that a new dedicated grocery sector industry regulator be brought in to provide monitoring and oversight, as well as a dispute resolution scheme to resolve supplier and wholesale supply disputes, and an information disclosure regime.

While these recommendations stop short of some of the more drastic recommendations that were on the table in the draft report, the Commission has also recommended that a further review of the grocery retail sector should be undertaken in three years to assess the impact of any recommendations that are implemented.

Where to next?

The Minister of Commerce and Consumer Affairs, the Honourable Dr David Clark, must respond to the findings within a reasonable time, and decide what recommendations from the report to implement.

Initial indications from the Minister are that the Government will act to implement many of the recommendations. For instance, media reported the Minister as commenting earlier today that "The commission's findings indicate that restrictive covenants over land are a major barrier to supermarkets accessing new sites, so I want to ban these covenants being used to stop competition”.

Get in touch

If you would like to know more about how the Commission’s findings and recommendations in the final report may impact your business, please get in touch with one of the contacts.

Special thanks to Rebecca Colby, Elsie Stone and Julia Marshall-Mead  for their assistance in writing this article.