Opinion: Everyone wants to break the supermarket duopoly. But what would actually work?

If there is one thing New Zealand’s political parties can apparently agree on this election, it is that something has gone badly wrong at the supermarket. What they cannot agree on is what to do about it.

ACT wants to make it easier for another supermarket chain to enter the country. Labour wants to prise open the wholesale networks controlled by the existing giants. National and New Zealand First want to split Foodstuffs in two. The Greens would go further still, forcing both major supermarket groups to sell stores to create a publicly owned competitor called KiwiMart.

Of those proposals, KiwiMart is the most direct attempt to deal with the structural problem everyone is complaining about: New Zealand does not have enough serious supermarket competitors.

After years of trying to coax more competition out of one of the most concentrated grocery markets in the developed world, most of the alternatives still rely on some version of the same hope: change the conditions and eventually somebody will come along to challenge Foodstuffs and Woolworths.

The Greens start from a more bold conclusion: if nobody is coming to break the supermarket duopoly, perhaps we actually have to break it ourselves.

New Zealand does not literally have two supermarkets; it has two dominant supermarket groups.

Foodstuffs operates PAK’nSAVE, New World, and Four Square, while Woolworths operates its namesake supermarkets and the FreshChoice franchise network. Together, the two groups still account for more than 80% of the grocery market.

This is hardly a new discovery. In 2020, the Labour Government asked the Commerce Commission to investigate the grocery sector. Its resulting market study found competition was not working well for consumers and identified access to suitable land and competitively priced wholesale groceries as major barriers facing prospective competitors.

Successive governments have consequently spent years looking for supermarket number three without finding it.

So there is a useful question for evaluating the policies being offered this election: does the proposal actually create another competitor capable of challenging the duopoly, or does it create conditions in which we hope one eventually appears?

ACT has the simplest answer: make New Zealand easier to enter. It wants to coordinate government approvals and council consents for prospective supermarket chains, allow alcohol licensing issues to be resolved earlier, and recognise food labels approved by trusted overseas regulatory systems.

However, recognising an American nutrition label does not give Aldi 100 supermarket sites. A faster liquor licence does not build a national distribution network. Streamlining resource consents does not give a new entrant Foodstuffs’ purchasing power.

ACT may remove some barriers but leaves the biggest decision to somebody else. An international supermarket still has to decide that establishing a nationwide New Zealand operation is worth the enormous investment.

Perhaps one will. But after years spent trying to attract another chain, “perhaps Aldi will come” is starting to look less like a supermarket policy and more like insanity. 

Labour’s proposal goes substantially further. Instead of waiting for an international competitor, it wants to weaken one of the advantages protecting the existing supermarkets: wholesale supply.

Labour would separate the wholesale operations of Foodstuffs and Woolworths from their retail stores. Independent grocers would be guaranteed access to a core range of products on fair terms, while restrictions preventing retailers from sourcing cheaper products elsewhere would be removed.

There is a strong logic behind this. A small supermarket cannot meaningfully compete with PAK’nSAVE if it has to buy the same products for substantially more. Opening wholesale supply could give independent supermarkets a better chance of growing.

But after all that restructuring, New Zealand still would not actually have another major supermarket. Foodstuffs and Woolworths would remain the dominant retailers. Labour’s policy instead bets that smaller competitors, newly freed from their wholesale disadvantage, will grow until they exert meaningful pressure on them.

They might. But Labour creates the conditions for a third competitor rather than the competitor itself.

There is also a question about whether forcibly separating wholesale and retail could introduce inefficiencies of its own. Grocery distribution benefits enormously from scale. Creating standalone wholesale businesses only works if those businesses retain enough volume to operate efficiently.

Labour’s policy attacks a real structural problem. But it leaves consumers waiting to see what grows in the space it creates.

National and New Zealand First have reached a more interventionist conclusion: if New Zealand cannot attract a third supermarket, split one of the existing two. Both propose separating Foodstuffs so PAK’nSAVE operates independently from New World and Four Square. National would first require the Commerce Commission to determine that doing so would produce a net benefit for consumers.

It is a much more direct response than hoping another international supermarket eventually arrives. Instead of two dominant groups, New Zealand gets three.

But there is an obvious question: why only Foodstuffs? Woolworths remains intact. We decide supermarket concentration is sufficiently serious to justify extraordinary government intervention, then leave one half of the original duopoly largely as it was.

There is another potential problem. Foodstuffs’ size is not only what gives it market power. It also gives it purchasing power.

Shared distribution and enormous collective purchasing volumes can reduce costs. Divide those operations badly and New Zealand could theoretically end up with more competition between supermarkets that are each more expensive to operate.

Three competitors should exert more pressure than two. But three more expensive supermarkets are not necessarily better for consumers than two.

This is what makes the Green proposal different. KiwiMart starts from the conclusion the other policies keep circling: New Zealand needs another supermarket with enough scale to compete immediately.

The Greens would require Foodstuffs and Woolworths to divest at least 120 stores and distribution capacity to create KiwiMart, a publicly owned supermarket chain with around 15% of the grocery market.

The clever part is that KiwiMart avoids the chicken-and-egg problem that has frustrated attempts to create supermarket competition for years.

ACT’s hypothetical entrant needs to find supermarket sites. KiwiMart gets existing ones. Labour’s independent retailers need to grow until they have meaningful purchasing power. KiwiMart starts at scale. National creates another major player by dividing one incumbent. KiwiMart takes assets from both.

Price also matters. Private supermarkets ultimately exist to generate commercial returns. That is not a moral criticism; it is what businesses do.

In a competitive market, the desire for profit can work remarkably well for consumers. If one supermarket charges too much, another can undercut it and steal its customers. The problem comes when consumers have too few realistic alternatives. Creating a third private competitor should strengthen that pressure.

KiwiMart goes one step further because the Greens propose giving it an explicit mandate to prioritise affordability.

That does not mean ignoring costs. KiwiMart would still need to buy food, pay staff, operate trucks, refrigerate stores, and maintain buildings. Public ownership does not magically make a $5 block of cheese cost $3 to supply.

The interesting possibility is much less magical: KiwiMart could remain commercially sustainable without attempting to maximise the return extracted from every trolley.

Suppose a supermarket can sustainably sell something for $4 but weak competition allows it to charge $5. Another profit-seeking competitor may constrain that price. A competitor explicitly instructed to prioritise affordability potentially constrains it further.

If KiwiMart can sustainably sell an equivalent basket for less, Woolworths, PAK’nSAVE, and New World suddenly have a problem. They can lose customers or lower their prices.

There are nevertheless good reasons to be sceptical. A government-owned supermarket could become inefficient. Political interference could produce terrible commercial decisions. A future government could demand dividends rather than lower prices. And $2.8 billion invested in supermarkets cannot simultaneously be spent somewhere else.

Most importantly, there is a huge difference between accepting lower profits and losing money. If KiwiMart sells groceries below their sustainable cost while taxpayers continually cover the difference, food has not really become cheaper. Part of the bill has simply moved from the checkout to the tax system. KiwiMart therefore has to stand on its own feet.

But every proposal contains a gamble. ACT gambles that removing regulation finally attracts an international competitor. Labour gambles that wholesale reform allows smaller competitors to grow. National and NZ First gamble that splitting Foodstuffs increases competitive pressure without destroying efficiencies that currently keep costs down.

The Greens gamble that a publicly owned competitor can operate efficiently enough to remain commercially viable while accepting lower returns in exchange for lower prices.

None is guaranteed. But only one starts with 120 supermarkets.

After years of reports, reforms, and attempts to entice overseas chains, perhaps the strangest thing New Zealand could do is continue designing supermarket policy around the possibility that somebody eventually decides to compete with our duopoly.

KiwiMart tackles the obstacle the others cannot guarantee they will overcome: actually getting another large competitor into the market.

There are legitimate questions about its $2.8 billion price tag, its governance, and whether it could maintain lower margins without becoming a taxpayer-supported money pit. Those questions deserve scrutiny.

But New Zealand does not have a shortage of supermarkets because nobody has thought of opening one. It has a market where becoming a nationwide competitor requires stores, land, distribution infrastructure, and purchasing scale that the existing giants already possess.

The Green proposal is the most direct attempt to change that structure. Instead of hoping another supermarket assembles those things eventually, KiwiMart would take some of them from the companies whose dominance created the problem in the first place.

After years spent waiting for supermarket number three, there is a certain appeal in simply building it.