Supermarket break-up: Will National’s plan work? The Bottom Line checks it out
The Herald breaks down a key election policy and asks what it will mean for New Zealand. Today, Liam Dann checks out National’s policy to break the supermarket duopoly.
What is the policy?
The National Party says it wants to force Foodstuffs to split into two genuinely separate nationwide grocery groups.
One would be its Pak’nSave business and the other would be the combined New World/Four Square business.
With Australian-owned Woolworths as the other major player, that would give New Zealand three nationwide competitors instead of the current duopoly.
In theory, that should mean more competition and lower prices for consumers.
It’s a great headline. National as the duopoly-buster. But the policy isn’t quite that straightforward.
Rather than just legislate the split of Foodstuffs outright, National says it will – in its first 100 days – amend the Grocery Industry Competition Act to give the Commerce Commission a mandate it doesn’t currently have to recommend this kind of structural separation.
It says it will give the commission $5 million and six months to test commercial viability, implementation costs, rural/regional access and impacts on owner-operators, then make a formal recommendation.
If the commission recommends it, National will then legislate the separation.
Foodstuffs is a co-operative of owner-operated stores.
National has stressed that it would not force the sale of stores by local owners. The policy would reorganise the structure so that the two Foodstuffs groups would compete against each other across both islands.
What do people say about it?
The policy has been broadly well received by those who advocate for more competition.
However, some have argued it doesn’t go far enough and that the real competition bottleneck is on the wholesale side of the sector.
Business groups aren’t impressed. BusinessNZ described it as alarming, and the Employers & Manufacturers Association called it “populist policy for a grumpy electorate”.
Others have suggested that the timing looks politically opportune, given National has had three years to address this already.
National argues that it has been actively exploring bringing new competitors to the New Zealand market but has settled on this policy as those efforts have been unsuccessful.
Foodstuffs has not yet formally commented. But in the past, it has argued that it needs scale for buying power to get the best deals from giant international food companies. It argues that this scale ultimately benefits consumers.
How does it compare with other parties’ policies?
The policy is not wildly dissimilar to the current New Zealand First policy. NZ First has said it would split Foodstuffs and also put a specialist grocery commissioner in place.
But National’s other coalition partner, Act, is vehemently opposed to any government intervention in the market. It has argued in the past that this kind of forced separation undermines investor confidence in New Zealand.
The Green Party has already announced a more extreme duopoly-busting policy that would see the creation of a state-owned “Kiwi-Mart” grocery chain.
Controversially, that policy would involve legislation to force Foodstuffs and Woolworths to sell 120 stores and two distribution centres into public ownership.
Labour has not yet released a policy on grocery competition, but did (this morning) release a new policy which would toughen laws on price-gouging across multiple sectors.
Is it likely to happen?
The Commerce Commission already reviews grocery competition regularly and has identified a lack of competition. But it has never recommended a structural separation.
National’s new policy significantly narrows the scope of the commission’s focus to rule specifically on whether a structural separation would reduce competition.
That lifts the odds that it will happen but is still not a slam dunk.
Foodstuffs will fight hard and make a case for the risk that the separation process may actually add costs to the supply chain.
A cynic might suggest that government agencies tasked with a review with a binary focus often seem to come back with an outcome that suits the prevailing view of the Government.
That, of course, raises the question of what National would actually want the outcome of the commission’s review to be.
The bottom line – would it be good for New Zealand?
Independent economist Cameron Bagrie has long been an advocate for greater competition in the grocery sector – and in other key sectors, like banking.
Bagrie says he welcomed the new policy and hoped it actually resulted in a separation.
“It’s about time they did something. They’ve been kicking the can down the road on competition policy for the past three years. I’d go further and separate the wholesale and retail arms.”
Bagrie said he was cynical about the timing of the announcement.
“You do start to wonder if this is just a bit of political grandstanding. It’s almost like they are trying to negate what other political parties are doing in that space,” he said.
“If you were serious about this stuff, you would have gone from day one.”
Bagrie said getting more competition into New Zealand’s economy was crucial if we want to be a wealthier country.
“It’s very obvious out there right now that we have a cost-of-living crisis. But we’ve actually got a bigger problem – an income crisis. Wages are too low.”
The value of good competition policy was that it linked both issues, he said.
“Competition drives down prices, but it also drives innovation, it drives productivity and it drives efficiency.”
So the bottom line for Bagrie: “Any moves that encourage greater competition in New Zealand we welcome with open arms, subject to the obvious caveat that you execute well.”
Liam Dann is business editor-at-large for the New Zealand Herald. He is a senior writer and columnist, and also presents and produces videos and podcasts. He joined the Herald in 2003.