Grocery Commissioner Pierre van Heerden says supermarkets are growing their margins and competition has not improved over the past two years

There has been no meaningful improvement in competition between supermarkets since the Commerce Commission’s market study was published in March 2022, according to the first annual report published on Wednesday. 

Grocery Commissioner Pierre van Heerden said major retailers had actually increased their margins, while retaining high levels of market share and profitability. 

Retail margins on non-fresh products across the New World, Pak’nSave, and Woolworths brands have increased by 3.1 percentage points on average, and fresh food margins have increased a lesser 0.4%. 

The report said a competitive market should limit or even reduce margin growth, but information provided to the commission did not show any constraint. 

“This is a red flag for the state of competition in the grocery industry in New Zealand,” it said. 

Supermarkets said higher retail margins were necessary to cover rising operating costs, but the Commission said bottom-line earnings had remained constant, or had even increased.

“If you compare an annual return on the supermarket’s assets against a normal rate of return for supermarket retailing in the period 2019 to 2023, it shows that the major grocery retailers continue to achieve higher levels of profitability than the Commission would expect in a competitive market,” the report said. 

New World stores had the largest margin expansion between this period, with a 3.9% increase, and the smallest increase was Pak’nSave with a 2.3% increase — both are part of the Foodstuffs North Island group.

The Grocery Commission said he would introduce a requirement for major grocery retailers to report on margins. 

Other issues

Van Heerden also said there were concerns about misleading pricing on supermarket shelves and the Commission had opened investigations into all three major retailers under the Fair Trading Act. 

He gave examples of items being advertised as “2 for 1” but the combined price being higher than the individual price, and incorrect price stickers meaning customers get charged a different price at the till.

Another disclosure requirement will be created to help tackle this issue. Supermarkets will have to regularly share information about customer complaints and pricing issues. 

Despite success removing land covenants, which were blocking new entrants from opening supermarkets, the Commission has become concerned about possible land-banking. 

Major grocery retailers currently own more than 100 properties which are not being used for retail stores, which may be reducing the number sites available for competitors. Van Heerden said some of these sites may have legitimate uses, such as for storage or car parking, and further investigation was needed.

Van Heerden said the report showed that improvement in grocery competition was still many years away and was reliant on a third national supermarket network being created. 

“Even if a significant challenger were to emerge tomorrow, it would take some time for them to establish themselves and grow market share. Major third entrants to grocery markets in Australia and Finland took over a decade to reach 10% market share,” he said. 

“This is a $25 billion sector — roughly the size of New Zealand’s tourism and dairy sales combined — so it’s crucial that we get this market working effectively."