Earlier this year the country’s biggest supermarket operator proposed bringing the divisions together to create a national cooperative.
The boards of Foodstuffs North and South Island divisions currently operate separately and run a number of well-known brands including New World, Pak’nSave and Four Square.
On Tuesday, the Commerce Commission declined the proposal saying it would substantially lessen competition.
In a statement, chair Dr John Small said it would reduce the number of buyers of grocery products in New Zealand from three to two giving it greater buying power.
“As a consequence of the substantial lessening of competition and the associated increase in buyer power, the merged entity would likely be able to extract lower prices from suppliers and/or otherwise adversely impact suppliers in the relevant markets.
“We are also concerned that the consolidation with the proposed merger would lead to reduced investment and innovation by suppliers, meaning reduced consumer choice and/or quality of grocery products in New Zealand for consumers.”
He said it would also make it harder for other retailers to grow, potentially depriving consumers of a more competitive grocery sector in the future.
Foodstuffs’ proposal required Commerce Commission and High Court approval.
The Commission can only grant clearance to a deal when it is satisfied it will not result in a substantial lessening of competition.
