New Zealand: break up the supermarket chains

As right now, consumers are getting a raw deal.

Helped by Channel 7 in Australia, New Zealand's TV3 conducted a survey to check out supermarket prices across the world. The results were enlightening. A trolly consisting of "basics like fruit, 1kg of bananas and apples, a frozen chicken, some Cornflakes, a loaf of standard bread, a pint of milk, a small block of butter, some babies nappies and deodorant" were found to cost widely varying amounts in different world cities:

SYDNEY              NZ$ 120 (US$95)
AUCKLAND       NZ$   90 (US$71)
LOS ANGELES  NZ$   74 (US$59)
LONDON             NZ$    64 (US$51)

Aucklanders have always known their food and household items were expensive. Undoubtedly, Sydneysiders have held similar opinions. There've been calls of late in Australia for the all-powerful supermarket chains there to be broken up. But Australia benefits from the recent entry into the market of German discount retailer Aldi, now up and running in Victoria, New South Wales, Queensland and the Australian Capital Territory.  It's taken Aldi some time to gain traction. The firm opened its first Australian store ten years ago, and now has 250 operational.  The company is providing competition but, in Sydney at least, the cost of basic items appears high at the typical Woolworths or Coles.

In New Zealand, where only two major supermarket companies compete, the situation is dire.  Aldi has yet to enter the market, and consumers are at the mercy of a duopoly.  Progressive Enterprises is owned by the Australian Woolworths, employs 18,000 staff in New Zealand and trades mainly as Foodtown, Countdown and Woolworths.  Its competitor is a New Zealand owned business called Foodstuffs, operating mainly under the Pak'n Save, Four Square and New World brands. These two companies have a stranglehold on the market.

There have been calls before for something to be done about this duopoly.  However, the cost of food is now so high that action must be taken. No company should control in excess of  25% of a particular product or service, as this too often leads to manipulation of a market, overpricing and reductions in service quality.

New Zealand might encourage the entry of Aldi or another no-frills operator like Lidl into its market.

More significantly though, the government could also insist on the break up of the two big supermarket chains so four operators competed and none held more than a 25% market share.  There's a general election due in New Zealand on November 26, and such a proposal would likely be attractive to voters.

If no demergers were forced on the retail giants, Tesco might be enticed to New Zealand shores. Outside of its domestic UK operations, the world's third largest retailer is present in Malaysia, Japan, PR China, Taiwan, India, the US and a dozen other countries. Why not New Zealand? In America, it runs over 160 Fresh & Easy grocery convenience stores which it started opening in Arizona, California and Nevada in 2007. New Zealand could act as Tesco's spring-board into Australia, given the 1983 ANZCERTA free trade agreement, likely to become a full customs union by 2020.

TV3 has alerted New Zealanders to something quite astonishing. For too long Kiwis have understood the UK to be far more expensive than New Zealand, now quite the reverse has become apparent. Auckland supermarkets are typically around 40% more expensive than their London counterparts. Quite an "eye opener", as Amanda Gillies of TV3 News said. 

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  1. Spot on. (Do those numbers take into account the relative wage disparity between the places you list, or is it even worse?) On the other end of the chain, I've recently been working with a number of small-scale primary sector producers, and it's a common view that the supermarkets are driving them broke. Given the falling numbers of growers, I suspect they may be right.

    More competition certainly wouldn't go amiss, although I suspect any external entry would be to the big centres only. Small-town NZ seems to be a lot closer to the corner-store "Four Square" superette model. I wonder if we're big enough to bother with, overall?

    (And yes, I do know what your answer will be to that!)

  2. You're right. Higher wages in London make the comparison even more stark.

    And yes, you guessed it, I'd say that New Zealand's population of 4.4m hampers its ability to develop critical mass. So, retailers are likely to find it harder to turn in a profit when there are challengly low economies of scale. Still, Tesco seems to operate well in Nevada, a state of only 2.7m living in an area marginally larger than New Zealand, which proves that a profitable operation can be run from such a place. And, as Tesco (or maybe Carrefour) could cut its teeth on NZ before leaping into Australia.

    I agree entirely about the plight of small growers, which is a travesty. Supermarkets might get better press if they bought locally, squeezed their suppliers less, and enabled local growers to generate a respectable return. In doing so, they'd cut carbon emissions as fast as they reduced freight costs.