Labour is dismissing a government plan to gather information on breaking up the supermarket duopoly as “paying lip service” to their promises.
But it – along with Consumer NZ – is welcoming the potential structural intervention the government may decide to make.
Economic Growth Minister Nicola Willis issued a Request for Information on Sunday to help determine possible regulatory and legislative changes that would support a third entrant into the grocery sector.
Willis said all options were on the table to introduce more competition, including the break-up or restructuring of the two existing supermarket chains, which she called a “major step”.
Labour’s Commerce and Consumer Affairs spokesperson Arena Williams said she had been expecting a “bigger announcement” and “didn’t get it.”
“National has been talking a big game on the cost of living, and that was their big election promise to Kiwis, that they’d see prices coming down, not only for groceries, but in other areas in the economy.”
Williams laughed off criticism from Willis about Labour putting certain reform mechanisms on hold, and said the “Minister of Finance Nicola Willis has taken a year-and-a-half to simply request information on what to do”.
“She should work with Labour, which has done the groundwork, to make sure that reform in the grocery sector is possible.
“The market studies and the grocery Commissioner are an important part of that.”
The request for information will come back with a wish list of things that overseas players and smaller players in the New Zealand market want from the government in terms of handouts, Williams said.
“But what we need is long term structural reform, because we can’t build a third entrant on rotten foundations in the supermarket sector.”
Labour had been talking about both “vertical integration and horizontal integration in the market being a problem”, and the party had “solutions for both”, Williams said.
“We were focusing on the vertical integration part of it by looking to split up wholesale and retail in the grocery sector.”
Labour would be supportive of the government making “long lasting, structural change”, she said.
Williams added she thought Willis’ plan was a “slow way to do it” and would take years, “but we need change now”.
“The reforms that Labor was focusing on were both vertical integration and horizontal integration in the New Zealand market. We brought in the market studies to make sure that we understood the state of play for our sector – that’s information that the minister could be drawing on now, as well as a grocery commissioner to report on the kind of competition dynamics in the sector.
“The report found that there isn’t enough competition in the sector and it’s not working as it should – that should be a clear call enough for the government to take more action now. And there are a range of steps that we could be bringing in to show that these reforms are serious, and that they have cross-partisan support.”
Consumer NZ had long said structural separation was the only way to solve the issue of getting a new entrant into the market, and was pleased with the government’s plan.
Chief executive Jon Duffy said “it’s really good to hear the minister indicate that’s very much on the table, and she’ll be working on getting a plan together for that, whilst other measures are in play”.
When it came to the information gathering process, Duffy said the government had to be “really careful it follows a fair and measured process” due to the market power the incumbents have”.
“They have big pockets, large resources. They will be able to litigate to try and stop any operation of their businesses.
“So the government needs to be really careful and measured in its approach, so as to reduce any litigation risk that might crop out of of a decision that they make, to separate the supermarkets.”
Duffy had one reservation in the plan due to “hints that the government’s hanging on to the idea the duopoly might self police here”.
It was not likely the large chains would start offering groceries at fair prices, because “they probably would have done that by now”, he said.
He also pointed to the government’s option of using divestment powers in the Commerce Act that would see the large chains “carving off some of its operations and perhaps selling them to a third party.”
“That’s interesting, but I would caution against leaving the incumbents in charge of a process that they clearly don’t want to do.
“Their behaviour post the market study shows they’re only really interested in the status quo, or very minimal changes to the status quo. So it’s my view that the government needs to step in with legislation.”
Structural separation could look different depending on where the government lands, Duffy said.
“Currently, the duopoly controls all wholesale as well as retail. So separating wholesale from retail seems logical.”
The duopoly had a massive footprint across the country, he said.
“There are some communities where there are plenty of supermarkets, they’re just tied up in the hands of of the duopoly.
“So it could be that some separation at retail level would help a new entrant come in as well, knowing that they could take over those sites.”
Duffy said a “combination of the two are probably the most appropriate next steps”.
Duopoloy reaction
Woolworths declined an interview opportunity but the interim managing director Pieter de Wet said they had noted the announcement, and would consider it in detail.
It was proud to provide jobs for over 21,000 New Zealanders, de Wet said.
Woolworths was focused on giving their customers more value, convenience and a fantastic shopping experience, and they were committed to getting on with that, he said.
Foodstuffs said it would constructively participate in the government’s request for information.
A Foodstuffs spokesperson said any changes by the government needed to deliver real benefits for customers, as well as strengthen the sector through a clear cost-benefit analysis for consumers.
Foodstuffs was keen to discuss how competition could be improved in ways that reduce costs, complexity and delays for all players in the market, while ensuring fairness for its hundreds of New Zealand family-owned businesses, it said.
