Market study into supermarkets

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

This 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. The suite of actions and reform includes:

  • Passing amendments to the Commerce Act to prohibit restrictive and exclusive covenants over land and leases to address a key competition issue in this sector. The Commerce (Grocery Sector Covenants) Amendment Act was passed on 29 June 2022.
  • Commencing work on the Grocery Industry Competition Bill to progress several key regulatory changes, which will be introduced later this year.
  • Opening consultation on how to implement mandatory unit pricing on grocery products, so consumers can make informed purchasing comparisons and decisions. This consultation and information on how to have your say is available on our website.
  • Opening consultation on a mandatory code of conduct between major grocery retailers and their suppliers. This consultation and information on how to have your say is available on our website.
  • Progressing further work on recommendations to improve access to sites through planning law reform.
  • Establishing a grocery sector regulatory role and dispute resolution scheme to deal with disputes between suppliers and retailers. On 6 July 2022 the Government announced that the Commerce Commission had been appointed to this role. A Grocery Commissioner will be established within the Commission to provide a strong and ongoing focus on this sector. The Grocery Industry Competition Bill will enable the Commission to take on its new regulatory role for this sector.
  • Implementing the Commission’s recommended wholesale access model, while developing a regulatory wholesale access regime to provide a ‘regulatory backstop’.
  • Undertaking further work to examine additional potential steps to improve competition, like requiring major grocery retailers to divest some of their stores or retail banners.

The bulk of the remaining changes are expected to be implemented by early 2023. Updates will be provided as this work progresses.

Government response to the Commerce Commission’s final report on the New Zealand retail grocery sector [PDF, 306 KB]

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

Find out more about the retail grocery sector market study:

Notice amending the Public Release Date for the Final Report for the Competition Study into the Retail Grocery Sector(external link) — New Zealand Gazette

Notice for a Competition Study into the Retail Grocery Sector(external link) — New Zealand Gazette

Last updated: 29 July 2022