News
20 October 2021

It’s time to fix our broken supermarket industry

Consumer NZ and the New Zealand Food & Grocery Council are calling for a major shake-up of the supermarket industry.

They argue the duopoly of Foodstuffs and Woolworths New Zealand is holding consumers and suppliers to ransom and putting a massive drag on the economy.

The two organisations have penned a joint open letter to parliament asking for significant changes with the rules governing supermarkets in New Zealand. They want the industry giants to have less power over suppliers and shoppers. According to data from Statistics NZ, the cost of the average weekly shop for a typical household is about 15–20% of a median or low-income earner’s income.

That kind of spend is proving too much for many Kiwi households according to Consumer NZ chief executive Jon Duffy.

“The general consensus is that grocery expenditure should sit between 5-15% of total household income. What we're hearing from many New Zealanders is that they're having to spend too much of their pay packet to keep themselves fed. Whatever way you slice it, the cost of groceries keeps going up and the duopoly’s profits are persistently high,” Duffy said.

Consumer NZ’s Sentiment Tracker – which asked New Zealanders to rate their most pressing issues – found concerns over the cost of groceries are weighing more heavily on mind than those about fuel, healthcare, energy, insurance and phone bills.

“With the lack of any real competition between the two supermarket chains, they’ve been able to maintain staggering profit margins which are not enjoyed anywhere else in the world,” New Zealand Food & Grocery Council chief executive Katherine Rich said.

The open letter calls for:

  • A mandatory code of conduct for supermarkets to govern dealings between suppliers and supermarkets, address the power imbalance and make business relationships fairer. Similar codes are already in place in Australia and the UK.

  • An increased role for the Commerce Commission including monitoring retail prices and store margins, setting consumer information standards to require unit pricing and prevent confusing pricing and promotional strategies, and limiting the adverse effects of loyalty programmes.

  • Prohibiting restrictive land covenants and exclusivity covenants entered into for anticompetitive reasons, with immediate effect on existing covenants.

  • The right for suppliers to bargain collectively to redress the power imbalance between suppliers and supermarkets.

  • Increasing wholesale access to a wide range of groceries at competitive prices.

  • If the commission isn’t satisfied that increasing wholesale access will work either now or in the future, then full enforced structural separation between wholesale and retail and/or compulsory divestment of a significant proportion of supermarkets to arm’s length third parties.

Read the full letter here (2.3 MB).

Member comments

Get access to comment

Brian J.
03 Nov 2021
Full Service Supermarkets During Covid

I shop at a New World supermarket in Auckland and during L3 and L4 lockdowns the staff put my groceries through the checkout as per usual, although they are
wearing gloves, but there is no one to place them into my trolley as they usually do, so I get to do this myself.
(I've had the odd glare when I haven't been quick enough!)
When I asked the reason for this they told me it was because of Covid L3/4, although I fail to see the logic in this!
It seems that it's ok for the checkout operator to handle my groceries, but not a packer.
Which means that this so called full service supermarket is saving on wages for at least six staff per shift who would normally pack peoples' trolleys.
While at the same time, grocery prices continue to increase at an alarming rate.
I know it's a minor issue, but I can pack my own trolley at Pak n Save and get cheaper prices at the same time!
Although my nearest P & S is a fair bit further away from where I live.
Another way for supermarkets to rip off their customers??
Brian,
Auckland.

I

Michael
30 Oct 2021
Buy seasonally!

Most of the horror stories about prices that are regularly trotted out by the credulous media reflect out-of-season pricing for items like avocados. Where are the counter-balancing stories about incredibly cheap in-season produce (like avocados currently)? Furthermore, if prices are too high as you claim, why are competitors not setting up to take advantage of the supposed super-profits? The Warehouse tried, and largely failed, although it still does carry some items usually found in supermarkets, so the problem can't be because competitors are unable to secure suitable locations for their premises. And why do we see dairy owners buying items in supermarkets to re-sell at a higher price if the supermarket pricing is too high as you claim? The reality is that we are a tiny population that is unable to support even two supermarkets in many towns.

Tony I.
26 Oct 2021
Greedy

Just too greedy - they need stripping of their liquor, home brand, freight and any other interests that would give businesses a fair go. Claiming vertical integration ensures lower prices is false, it only increases their profits and screws suppliers and servicers into unstainability. They are also gradually limiting consumers choice and small producers the opportunities in business and innovation to offer consumers that choice.

Doug M.
24 Oct 2021
Possible unintended consequences

Yes, certainly the big two retailers have the market mostly to themselves in NZ.

I have been to a place in OZ where there was Woolworths and ALDI. Woolworths had a great range of stock and you could get most products you were after. ALDI had a poor range and not much in small sized containers. I'd go to Woolies any day.

Also tried to go into Costco in Docklands in Melbourne to have a look around. I wasn't allowed to go into the store unless I had a Costco customer card.

Now in NZ we need to be careful about any changes that affect the profitability of supermarkets in smaller towns. If they become economically marginal I can see some closing and then the local residents will have to travel to larger centres to do their main shopping. There will still be the dairies in small towns who sell goods at high prices.

As another person commented, NZ is only 5m people and spread over a large geographic area, and we, except for greater Auckland, may not be attractive to other retailers. They will still need to set up warehousing infrastructure, distribution networks, etc, and this all adds cost.

Ralph S.
24 Oct 2021
Reducing Competition Still Further Is Not the Answer

I was a little surprised and disappointed to see item 4 on your list of outcomes: “The right for suppliers to bargain collectively to redress the power imbalance between suppliers and supermarkets.” Isn’t this what we would ordinarily call supplier collusion or price-fixing? Is reducing competition still further really the right answer to insufficient competition in the market for groceries? Is this the kind of remedy that we as consumers really want to see?

Isobel R.
24 Oct 2021
Too much control

The supermarkets have too much control of our food - in what brands they allow, what quality they allow, what suppliers they allow, what margins they make and what competition they allow. More and more of their own brands on their shelves too.

David P.
23 Oct 2021
We need more competition through the whole supply chain

The supermarket duopoly is clearly bad for consumers but so are the other impediments to competition among suppliers and importers. If NZ retail prices are high but supermarket margins are comparable to other markets perhaps the problem is also inefficient or uncompetitive suppliers? It’s also hard to see how protecting suppliers more will reduce prices for consumers.

Winston F.
23 Oct 2021
Land Restrictions/Covenants are common - difficult to mess with

There are large retailers who building owners want as anchor tenants, to attract other tenants with them. The Warehouse etc will insist on being exclusive to the property and pay more to get that. Engineers, accountants etc do the same.

Unfortunately this reality shows why new buildings ever get started and changing our land laws would have unexpected consequences.

James B.
23 Oct 2021
The whole truth?

There appears to be little explanation as to why their perceived margin is so low. Maybe, we need to look at the confidential rebates with money being returned by suppliers and manufacturers by way of self billed tax invoicing. Add to that commercial discounts, additional product deals and the fact that their own massive PDC's being separate cost centers also clip the ticket on the way through and there is great mechanics for a massive rort.

Andrew M.
23 Oct 2021
Separate

Structural separation is the best way to restore some power to suppliers and engender genuine competition. It will also help pave the way for new entrants.

John Boyes
20 Oct 2021
Grocery gripes.

With such a small population of 5m and a large area to service why oh why would outside interests bother?. There is more population in Sydney so.. lower fuel costs big population and economy of servicing. Even in Australia two dominate the scene, Woolworths and Coles the rest are also rans. A breakup in NZ would destroy efficiency and increase prices. The government should cut the 15% GST tax on all food items that would be the biggest saving

Paul W
23 Oct 2021
Cut GST

While cutting GST off these items seems good the savings would only last a month or two before the prices get hiked up to the GST inclusive price. The retailers won't miss a chance to make more money from us.

Brian R.
23 Oct 2021
Choices

My local Paknsave has an independent green grocer and also a bakery (bread, etc.) outside their front door. And they are usually cheaper than the supermarket. But most peope still buy the fruit a veges and bakery goods at the supermarket. What does that tell us?

Stephen T.
23 Oct 2021
Costco is coming

With the pending arrival of Costco in NZ I think we will see a shift in the duopoly's thinking. Just as the arrival of Chemist Warehouse is now forcing a re think in the pricing of chemist or pharmacy type items.

Sam M.
20 Oct 2021
Need more than two companies

With two only companies dominating the market, it is hard to call it competition. Subliminally the two collude to fix prices whether we like it or not. Land banking should be outlawed and incentives given to third and fourth companies to enter the NZ market. We should also have a national drive to support green grocers and encourage them to plug in gaps insofar the items they sell e.g. canned and frozen foods as well as fresh meat and fish.

Susan L.
20 Oct 2021
Shop wise

For 2 adults and the cat we average out at $35 a day for food and groceries.
This includes a huge box of organic veges delivered fortnightly, cooking from scratch, no meat, but fish and occasional chicken.
Probably works out at 13% of combined take home pay.

Wal Marshall
23 Oct 2021
Better education of shoppers part of the picture

Completely agree that bad food choices is part of the problem. Just look at the whats in the supermarket trollies.. Prepackaged "instant"over priced garbage, high sugar and fat "treats" etc etc. For two people we average less than $100 a week for everything and could survive on half if that if necessary by making all our meals from basic ingredients.

Gillian C.
20 Oct 2021
Supermarkets

I definitely support all the recommendations in your letter.
I avoid the major supermarkets for my weekly shop - using moore wilsons, commonsense, 4 square and farmers' markets instead.