- NZ’s supermarket duopoly (Woolworths NZ and Foodstuffs) has 80% of the market.
- The Grocery Industry Competition Act is meant to help open the field, but its effect remains to be seen.
- Shaking up entrenched loyalty to traditional brands is difficult.
Established giants Woolworths NZ and Foodstuffs make it challenging for competitors to emerge. This is exemplified by the recent exit of online grocer, Supie, although it was smaller than even an average grocery store in sales.
Not all of the profit is taken by the giants. The stores are generally owned by others and they are reputedly very profitable.
Supermarket duopoly barriers to entry
The industry’s powerhouses have been scrutinised for their controversial pricing strategies and complex promotions, complicating efforts by consumers to compare prices and suppressing innovation.
Until recently, they maintained a tight grip on prime locations and have historically used land covenants to block competitors from opening in prime locations, further solidifying their market stronghold.
Additionally, newcomers need to overcome building logistics and arrange supply networks able to compete with existing players.
Moreover, wholesale suppliers, dependent on the duopoly, may resist aligning with newcomers to protect existing relationships.
Also, New Zealanders’ loyalty to their preferred supermarket brands is deeply rooted, presenting another hurdle to altering shopping patterns.
In response, the 2021 Market study into the retail grocery sector led to the Grocery Industry Competition Act, establishing a Grocery Code of Conduct and a Grocery Commissioner. It mandates clearer unit pricing, requires incumbents to offer wholesale pricing to new market players, and bans exclusive land deals, aiming to level the playing field.
Westpac economist Paul Clark says strides have been made with the eradication of these restrictive land deals, but calls for a drastic shake-up — including a potential dismantling of the duopoly. Clark cites overseas experiences in similar markets, like the UK, where such reforms had hardly any effect on competition and pricing.
National’s deputy Nicola Willis has said, if she is made Finance Minister, she will seek advice on facilitating a “third entrant” into the sector.