The Commerce Commission has drawn a line under its inquiry into how groceries are supplied to wholesale customers, and its conclusion will not comfort anyone hoping for a genuine third supermarket. In closing the review, the competition watchdog said the roughly $6 billion that suppliers pay the major chains each year through rebates, discounts and in-store charges is holding back competition and keeping a lid on any real challenge to the duopoly that dominates New Zealand grocery shopping.
The Commission identified more than 50 different types of payment that flow from suppliers to the big supermarkets, from promotional support to charges for shelf restocking and other in-store services. Taken together, those payments add up to around $6 billion a year, which the Commission put at about 26 percent of the combined retail sales revenue of the major chains. It described the arrangements as raising concerns that were, in its words, substantive and potentially systemic.
The problem, as the Commission sees it, is not simply that these payments exist. It is who can get access to them. When a supplier hands the big two a rebate or a discount to reduce the shelf price, the benefit tends to stay locked inside the two dominant retailers because they buy in the largest volumes. A smaller grocer or a would-be wholesale customer buying far less cannot secure the same terms, so it starts every negotiation on the back foot and struggles to match the prices shoppers see at the big banners.
Grocery Commissioner Pierre van Heerden did not soften the point. He said the way the market is built makes it very hard for anyone new to break in. “Our market structure makes it really difficult for competitors to get into the market because the big two have really tied things up,” he said. He also described the tangle of payments that sits behind the price on the shelf, noting there is “the component where the supermarkets ask for it and then there’s the other component where suppliers provide money in order to reduce the price and fund specials”. Unpicking who is paying whom, and why, is part of what makes the system so difficult for outsiders to read, let alone compete against.
The backdrop to all of this is a market that has been under official scrutiny for years. Roughly four out of every five grocery dollars in New Zealand are spent through two operators, Foodstuffs and Woolworths, with Foodstuffs split into its North Island and South Island cooperatives. That concentration was the subject of the Commission’s original market study, and it led to the creation of a dedicated Grocery Commissioner and a set of rules meant to open the door to competitors. Among those measures was a requirement for the major chains to supply groceries to other retailers on fair wholesale terms, so that a rival could stock its shelves without being squeezed out before it began.
The latest review was a stocktake of how well that requirement has worked in practice, and the answer is mixed. The Commission found the major chains had made some changes for wholesale customers, with better delivery arrangements, lower minimum order sizes and a wider range of products on offer than before. What has not shifted is the thing that matters most to shoppers, which is price. Wholesale customers told the Commission that the prices they are offered remain uncompetitive, which means any retailer relying on the big two for supply cannot pass on savings that would draw customers away from the incumbents.
Not every chain has moved at the same speed. The Commission said Woolworths New Zealand had taken the most comprehensive approach, setting up a dedicated wholesale business with support for the customers buying from it. Foodstuffs North Island was described as making incremental improvements, while Foodstuffs South Island was found to have progressed more slowly. The uneven effort underlines how much of the change so far has been left to the goodwill of the very companies the rules are meant to discipline.
For now, the Commission has chosen persuasion over fresh regulation. Rather than launch another lengthy process to write new rules, it plans to focus on compliance with the existing Grocery Supply Code and to issue guidance aimed at simplifying the web of supplier payments and making sure the benefits are passed through to wholesale customers. The regulator has kept the option of tougher action on the table, but its immediate preference is to press the chains to lift their game under the framework that already exists. More detail on the grocery rules and the Commissioner’s work is set out on the Commerce Commission grocery pages.
The findings land at a moment when the cost of the weekly shop is still one of the sharpest pressures on household budgets. Food prices have been a stubborn part of the inflation story, and the promise of a third major grocery player has been held out for years as the fix that would finally sharpen prices. The Commission’s own assessment is a reminder of how far that promise remains from being met. As long as billions of dollars in payments flow through channels that only the two dominant chains can fully use, the terms new entrants are offered will keep them at a disadvantage, and the choice at the checkout will keep looking much the same.
What happens next depends on whether the major chains respond to guidance and pressure, or whether the Commission eventually decides that only firmer rules will change behaviour. For shoppers, the practical question is simpler. It is whether any of this ever shows up as a lower total at the bottom of the docket.
Newswire has since argued that the wholesale problem will not be fixed while the warehouses belong to the retailers, and made the case for public ownership of supermarket distribution, run at cost and open to every grocer.
What do you make of the Commission’s findings, and have you noticed any real change in grocery prices? Share your thoughts in the comments below.
This article was written by AI, briefed to report the facts, hopefully without some of the bias people bring to the job 🙂
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