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‘Extraordinary profits’: New Zealand considering breaking up supermarket monopoly | New Zealand

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The New Zealand government will consider breaking up the supermarket duopoly to secure more affordable food prices for shoppers, following a unused report found grocers were making vast profits and charging some of the highest prices in the OECD.

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David Clark, Minister of Commerce and Consumer Affairs, said on Thursday that the government would “do everything in its power to make sure New Zealanders get a sincere deal on exit”.

“There have been extraordinary profits that have been made in this sector over a period of time compared to the international community… We want everyone to triumph, not just one part of the sector to be super profitable,” Clark said.

A draft of the unused report of the Trade Commission, the government agency that regulates competition, monopolies and sincere trade, finds that New Zealand shoppers are faced with some of the most expensive groceries in the Organization for Economic Co-operation and Development.

While comparing international grocery prices is firm, the panel said datasets showed New Zealand was the sixth most expensive grocery market, and had the sixth highest per capita spending on groceries. New Zealand’s wages do not match those heights – the average wage in the country is 19 in the OECD. In the year to June 2019, food was the second largest cost to New Zealand households, with an average spending of $234 per week.

The commission also found that gain margins in New Zealand supermarkets were consistently higher than those in grocery chains internationally. The government recommended lowering obstacles for unused competitors and, if that fails, a third major grocery chain to be created to begin up the market and possibly force existing chains to sell out. The committee will now receive submissions from the public and industry prior sending the final recommendations to the government.

“Without intervention, we currently see little potential for a unused or expanded competitor competent to effectively constrain key retailers, improving competition in this sector,” Commission Chair Anna Rawlings said in a statement.

New Zealand’s grocery market is dominated by two vast supermarket groups, Foodstuffs and Woolworths. Together, its chains dominate about 85% of the whole market. The commission found that these retailers “apparently avoid competing aggressively with one another, particularly on price.” He concludes, “The fundamental problem is market structure. Competitively, the two major retailers, Woolworths NZ and Foodstuffs, have a monopoly, and while there is an increasing variety of other grocery retailers, they have limited impact on competition.”

“We have consistently observed lofty profits being generated by major grocery retailers. If competition works better, we would expect these profits to attract unused entry and expansion by other grocery retailers, bringing profitability back to a more competitive, or ‘average’, level.” Rawlings said.

“Some of the options outlined will have wide-ranging implications,” the food company’s head of corporate affairs, Antoinette Laird, said in a statement, and that the company would take time to fully absorb the report prior placing orders.

Woolworths managing director, Spencer Sonn, issued a similar statement saying: “In terms of confront value, some options will have significant implications and we will need time to work through them and understand the impact.”

Laird also challenged the commission’s findings on the chains’ profitability, saying, “In its draft report, the Commerce Committee acknowledges that understanding the profitability of the two cooperatives has been firm. Our view is that the agency’s initial calculation of food profitability is not correct.”

Clark did not comment on specific timelines for implementing the report’s final recommendations, but said “we want to see action. This is something we’ve campaigned for, it’s something Labor cares about — making sure people get a sincere deal.”

“That’s my goal as a minister, I want to make sure that New Zealanders don’t overpay for the odds of buying groceries on a weekly basis”

The report was requested as part of an election promise by Jacinda Ardern’s government.


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