NEW ZEALAND | Breaking up New Zealand's major supermarket groups or introducing new competitors could strengthen competition, but will not necessarily lead to cheaper groceries, according to new research from the New Zealand Institute of Economic Research (NZIER).
The report, The Supermarket Puzzle: What's Holding Back Competition at the Checkout?, examines the barriers to stronger grocery competition and whether proposed interventions are likely to deliver better outcomes for consumers.
NZIER senior economist Susie McKenzie said grocery prices reflected more than the level of competition between supermarkets, with production, transport, distribution, and other underlying costs contributing to what consumers pay.
“High grocery prices are a real concern for households, but they reflect more than just the level of competition between supermarkets. Production, transport, distribution and other underlying costs all contribute to what consumers pay,” said McKenzie.
The research identifies wholesale access, purchasing advantages held by established supermarket groups, and difficulties securing suitable retail sites as barriers that policy could help address.
Wholesale access remains a particular concern. Despite the introduction of a regulated wholesale access regime in 2023, NZIER said uptake had been negligible, with smaller retailers continuing to struggle to obtain groceries at commercially competitive prices.
“Improving wholesale access could make it easier for smaller retailers to compete without having to establish their own expensive distribution networks,” said McKenzie.
“But it won't necessarily overcome the other challenges of operating in a small and geographically dispersed market.”
NZIER also examined structural interventions, including separating existing supermarket businesses into independent competitors, separating wholesale and retail operations, and establishing a publicly supported supermarket chain.
While these approaches could increase competitive pressure, the research warned that they could also involve significant costs and reduce existing purchasing and distribution efficiencies.
“At the heart of the supermarket puzzle lies a tension between economies of scale and competition,” said McKenzie.
“Large supermarket groups can operate more efficiently by spreading their costs across extensive networks. But those same advantages can make it difficult for smaller competitors to enter and expand. The challenge is to strengthen competition without unnecessarily sacrificing those efficiencies.”
NZIER found no precedent among the countries it examined for requiring established supermarket groups to separate into independently owned wholesale or retail businesses. It also noted that highly concentrated grocery markets were common in other smaller economies.
The research comes as New Zealand's two major supermarket groups continue to account for approximately 82 percent of national grocery sales, according to NZIER.
“More supermarket chains won't necessarily mean cheaper groceries. What matters is whether competition becomes more effective, and whether the benefits of intervention outweigh the costs. Ultimately, success should be measured by better outcomes for consumers, not simply by the number of supermarket chains,” said McKenzie.
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