Market study into supermarkets

On 30 May 2022, the Government released a comprehensive response to improve competition in the retail grocery sector.

The Government response follows the Commerce Commission’s market study into the retail grocery sector. The market study found that competition is not currently working well for consumers in this sector, and that improved competition would place stronger pressures on retailers to offer New Zealand consumers with better prices, quality, range and service in their supermarket shop.

To address these findings, the Commission has made 14 recommendations aimed at improving competition in the New Zealand retail grocery sector.

Government response to market study

The Government has accepted 12 of the Commission’s 14 recommendations, implemented one of them (relating to covenants) and is progressing work to deliver on the others at pace.

Passing the Commerce (Grocery Sector Covenants) Amendment Act

The Government has passed amendments to the Commerce Act to prohibit restrictive and exclusive covenants over land and leases to address a key competition issue in this sector. 

Progressing the Grocery Industry Competition Bill

The Government has introduced the Grocery Industry Competition Bill to Parliament. The Bill is intended to improve competition in the grocery industry for the long term benefits of consumers.

Key features of the Grocery Industry Competition Bill include:

  • establishment of a Grocery Commissioner and grocery sector regulator function in the Commerce Commission to provide a strong oversight and ongoing focus on this sector.
  • regulation of wholesale supply, including a regulatory backstop. The major grocery retailers will be incentivised to develop competitive wholesale offerings and consider requests for wholesale supply in good faith. At the same time, the regulatory backstop will also provide a toolkit of additional regulatory powers for the Grocery Commissioner and the Government to use if these wholesale offerings are not consistent with what would be expected in a competitive wholesale market.
  • implementing supplier-focused protections such a Grocery Supply Code, protections against the use of unfair contract terms and opportunities for collective bargaining.
  • providing for a dispute resolution scheme for suppliers and wholesale customers of the major grocery retailers.

Follow the progress of the Bill(external link) - parliament.nz

Read the Bill(external link) - legislation.govt.nz

Progressing a standard for mandatory unit pricing

The Government is progressing work on a standard, consistent display of unit pricing for grocery products.

Unit pricing is the price per unit of measure for a product, such as the cost per kilogram or litre, and is usually displayed together with the retail price. Implementation of mandatory unit pricing will help consumers make informed purchasing decisions, support inter-brand competition, and encourage grocery retailers to compete on metrics such as price and transparency.

MBIE held a public consultation from May – July 2022 to seek feedback on the design and scope of mandatory unit pricing for grocery products.

Have your say: Mandatory unit pricing for grocery products

Following this, the Government has agreed to introduce unit pricing requirements through a consumer information standard under the Fair Trading Act 1986. Under this new standard, unit pricing will be mandatory for grocery products sold in grocery stores with a floorspace above 1,000 square metres and that sell the minimum range of grocery products. It will also be required in online grocery stores with a minimum product range and in some forms of advertising.

MBIE is developing regulations that will put this new unit pricing standard in place. To ensure the rules are appropriate and fit-for-purpose, the regulations will be released for public consultation early in 2023.

Further work that is underway

  • Development of a Grocery Supply Code to govern relationships between major grocery retailers and their suppliers. The Code will be implemented through regulations made under the Grocery Industry Competition Bill once it is passed. Public consultation on the content of a Grocery Supply Code closed on 10 August 2022.
  • Examining additional potential structural options to improve competition, like requiring major grocery retailers to divest some of their stores or retail banners.

Further updates will be provided as this work progresses.

Minister's announcements to date

New measures will help shoppers make informed decisions at the checkout(external link) — Beehive.govt.nz

Another step towards improved supermarket competition(external link) — Beehive.govt.nz

Major grocery shake-up to drive cheaper prices(external link) — Beehive.govt.nz

New supermarket watchdog latest action to give Kiwis fairer deal(external link) — Beehive.govt.nz

New law paves way for greater supermarket competition(external link) — Beehive.govt.nz

Commerce Commission empowered to crackdown on covenants(external link) — Beehive.govt.nz

Government acts on supermarket duopoly(external link) — Beehive.govt.nz

Govt helps supermarket shoppers get a fair deal(external link) — Beehive.govt.nz

Commerce (Grocery Sector Covenants) Amendment Bill(external link) — New Zealand Parliament

Recommendations for industry

The Commerce Commission also made a number of recommendations directly to major grocery retailers. On 8 March 2022, the Minister of Commerce and Consumer Affairs, Dr David Clark, wrote to the major grocery retailers, Woolworths NZ and Foodstuffs, to ask that they progress work on a number of initiatives to improve consumers’ ability to make informed decisions. In particular, these recommendations are for the major retailers to:

  • Ensure their pricing and promotional practices are simple and easy to understand
  • Ensure information on loyalty programmes and data collection is clear and transparent
  • Cooperate with price comparison services.

Commerce Commission final report

On 8 March 2022, the Commerce Commission released the final report of its market study into the retail grocery sector.

Read the final retail grocery market study report(external link) — Commerce Commission

Consumers to benefit from a more competitive retail grocery market(external link) — Beehive.govt.nz

Background

On 17 November 2020, the Government announced that it would conduct a market study into supermarkets.

The study allowed the Commerce Commission to investigate any factors that may affect competition for the supply or acquisition of groceries by retailers in New Zealand.

This topic was chosen as the candidate of the study because of public concerns about a high level of concentration in the market for groceries. In addition, research conducted by the Productivity Hub indicates that competition levels in the sector have weakened over time.

Competition in New Zealand: highlights from the latest data [PDF 1.7MB](external link) - New Zealand Productivity Commission

The Government had also heard that unequal bargaining power between supermarkets and suppliers pushes prices unreasonably low for suppliers, which could impede investment in innovation and quality. While low prices benefit consumers, it is unclear how much of this is being passed onto consumers, with the cost of food making up 17% of household weekly expenses.

The study also made inquiries into the supplier side of the grocery market. This means that if competition problems are found, small business suppliers are likely to benefit from any recommendations.

Further information

Last updated: 19 December 2022