The Commerce Commission has released its final market study into the local retail grocery sector this morning, stating that competition in the grocery sector was not working well for New Zealand consumers.
Grocery prices are high compared with international standards, the level of innovation is less than expected, and the profitability of the major retailers appears higher than expected, said Commerce Commission Chair Anna Rawlings.
“If competition was working well, consumers would be paying lower prices than they are today,” said Rawlings.
The Commerce Commission has recommended formal regulation, monitoring and oversight by a grocery regulator, as well as a dispute resolution scheme in its final report into the $22bn grocery market.
The Commerce Commission said the current retailer duopoly appears to have up to 90% market share of the grocery sector in New Zealand, with high barriers to entry.
“While there is an increasingly diverse fringe of other competitors in the sector, they are unable to compete effectively with Woolworths NZ and Foodstuffs on price, product range, and store location to offer the convenience of one-stop shopping for the many different kinds of shopping missions that consumers undertake,” said Rawlings.
The commission recommended a suite of changes to help improve the conditions for competition in the sector, including the introduction of a grocery sector regulator and the following.
- Making more land available for new grocery stores and banning the use of restrictive covenants and exclusivity clauses on land and leases that prevent retail grocery stores from being developed.
- Improving access to the wholesale supply of groceries at competitive prices and introducing more transparency with a regulatory regime that would be monitored by the grocery sector regulator.
- Monitoring strategic conduct by the major grocery retailers, such as the use of ‘best price’ clauses and exclusive supply agreements.
- Introducing a mandatory code of conduct for grocery supply relationships and ban unfair conduct.
- Considering whether to allow collective bargaining by some suppliers.
- Help consumers make more informed purchasing decisions, and stimulate competition between retailers, by displaying unit pricing in a consistent format.
The Commission also recommends a review of industry competitiveness three years after its recommendations were implemented.
The report is now before the Government for a final decision on its recommendations.
