Two of the dominant players in New Zealand’s supermarket sector – Foodstuffs North Island and Foodstuffs South Island – have to officially join forces.
Authors
Lisa M. Katerina Asher
Retail Expert, PhD Candidate & Sessional Academic, University of Sydney
Drew Franklin
Senior Lecturer in Marketing, University of Auckland, Waipapa Taumata Rau
In a decision announced yesterday, the Commerce Commission declined to green-light the merger between the two cooperatives. The watchdog said it was not satisfied the move wouldn’t result in reducing competition in the New Zealand grocery sector.
But it needs to go further.
Instead of adjudicating on a merger, the commission should be given the power to break up the two Foodstuffs entities themselves. Local competitors, such as the Warehouse or others, should also be encouraged to ensure shoppers get the best deals.
Seeking a dominant union
In their December 2023 , the two cooperatives said they would be more as one entity.
Foodstuffs North Island and Foodstuffs South Island argued the levels of competition in the supermarket sector would not decrease with the merger.
The two entities admitted to already sharing information and not meaningfully competing against each other in the same regions. This is set to continue with the failure of their application to merge.
Multiple submissions to the Commerce Commission, such as those from academics and , claimed Foodstuffs’ unwillingness to compete with each other demonstrated a worrying precedent in New Zealand.
The Grocery Action Group also claimed the two Foodstuffs’ entities breached consumer trust because one is an actual cooperative (Foodstuffs South Island), while are owned by four people who do not own physical stores.
This is an issue, as they continue to claim they are both owner-operated cooperatives, when only Foodstuffs South Island legally is.
Further submissions by industry bodies representing suppliers and Consumer NZ included concerns a merger would reduce competition.
The concentrated supermarket sector
has long found competition is good for prices.
But New Zealanders have less choice of where to do their grocery shop . The sector is dominated by the Foodstuffs entities – which include Pak’nSave, New World and Four Square – and Australian-based Woolworths (which also owns Fresh Choice).
In New Zealand there is one supermarket for every 12,871 people, while in Germany there is one for every 3,009, and one for every 5,563 in Ireland, a similar-sized island nation. New Zealand supermarkets generate the at US$27.9 million, versus $19.56m in the United States, $7.7m in Germany and $17.02m in Ireland.
Foodstuffs North Island’s current market share is just over 40%. Merging with Foodstuffs South Island would have increased the single entity’s national market share to 55%.
The , set up in response to the Commerce Commission’s study of the supermarket sector, recently released its .
It found there was no meaningful competition in the sector and more competition was needed. It further highlighted that profit margins had increased since the 2022 market study.
Challenging mergers
New Zealand is not the only country where regulators are pushing back against supermarket mergers.
In August, the US Federal Trade Commission brought an blocking the merger between supermarket giants Albertsons and Kroger.
The US$24.6 billion proposal would have been the , with a combined market share of just under 20%.
The court case, which is yet to be decided, included revelations of . Albertsons is Kroger’s primary price competitor, meaning absorbing them would remove competition and the need to compete on price.
The Albertsons-Kroger merger would substantially lessen competition and trigger price increases.
In the United Kingdom, the Competition and Markets Authority . At the time, the authority said shoppers would be worse off if the two supermarkets, with a combined market share of 31%, merged.
Time to break up the sector further
As we see in foreign markets, the push for market power to return higher profits is likely to continue. But when those businesses provide basic necessities, such as food, more competition is required, not less.
The proposed merger process has into the structure of Foodstuffs North Island and Foodstuffs South Island – including where the two organisations already work together.
As argued in some of the submissions to the Commerce Commission, the next logical step would be to and encourage nationwide competition. If broken up, the new companies should be renamed to create separation from the current brands.
The Commerce Commission’s decision on the proposed Foodstuffs merger reinforces concerns about competition in New Zealand’s supermarket sector, as does the report from the Grocery Commission and the earlier grocery sector study.
If competition creates better prices for consumers, then splitting up New Zealand’s concentrated supermarket sector is the logical next step.
