The Government is ready to support a new entrant into the grocery market to boost competition and support economic growth, Finance Minister Nicola Willis says.
In a speech to the Waikato Economics Forum, Willis released an 80-point economic growth plan focused on education, competition, trade and investment, innovation, and infrastructure.
The Minister gave a particular warning to the supermarket duopoly, saying that Kiwis were getting a raw deal and felt ripped off. While the Government would keep putting pressure on supermarket conduct, it wants to see a third competitor in the market.
“If a new grocery chain opened up here it would deliver massive gains for Kiwi shoppers. So I’m up for actions needed to help make it happen,” she said.
“Over the past 12 months, international supermarket chains and local investors have expressed interest in entering the New Zealand grocery market. I want to help them succeed”.
However, it was difficult for a foreign company to get through complicated resource management and overseas investment rules. If they do clear those hurdles, the duopoly has landbanked much of the suitable land for new supermarkets.
Willis has told possible entrants that she was willing to remove unnecessary regulations from the Overseas Investment Act and elsewhere, make good development sites available, and to ensure they would have fair access to product supplies at good prices.
“If a new grocery chain opened up here it would deliver massive gains for Kiwi shoppers. So I’m up for actions needed to help make it happen”.
Speaking to media after the speech, Willis said the Government's arms were "wide open" to international and local competitors.
Arena Williams, Labour’s commerce and consumer affairs spokesperson, said the announcement was weak and had no new ideas.
"New Zealanders struggling with the cost of their weekly grocery shopping don’t need more vague promises from Nicola Willis, they need real action," she said in a press release.
"When Labour was in government, we took bold action to break up the supermarket duopoly. We banned restrictive land covenants, enforced mandatory wholesale access, and introduced a Grocery Commissioner to hold the industry to account. We didn’t just talk about competition, we legislated for it”.
Sue Chetwin, chair of the Grocery Action Group (GAG), said the speech was welcome but the group would be watching to see those words turn into action.
“Nevertheless this is the first plain indication the government is prepared to act over the lack of competition in the supermarket sector,” she said.
Willis should require the supermarket duopoly to divest any land or buildings they are not currently using and split up some parts of the businesses.
“Similar to how our telecommunications market was freed up in the 2000s, the supermarkets should be required to divest themselves of part of their operations so that early competition is achieved. For example, the Four Square stores under separate ownership could form the basis of a competing chain,” Chetwin said.
80-point plan
Willis also released a list of economic growth initiatives the Government will pursue as part of its focus on expansion. The 44-page document includes 80 individual initiatives.
She said the plan was to remove barriers which have held back growth, whether that is regulation, competition, or tax settings.
“New Zealand must ensure our tax settings are competitive with other countries who seek to lure our talent, ideas and jobs. We need to ensure the New Zealand tax system does not discourage businesspeople from investing in their businesses and does not deter foreign investment”.
Without going into specifics, she said she was considering a range of proposals to make tax settings more competitive. This could possibly include cutting the corporate tax rate and reforming the foreign investment funds rules, although either would require spending cuts.
61 Comments
Foolish misunderstanding of the problem.
For some decades, we have been forcing farmers and processors to be 'price takers', via our focus on 'cheap'. That drove them, in turn, to avoid environmental consequences, including ultimate depletion (it simply cannot be factored-in, if you are to compete with other who also do not factor it in).
So trying to shoe-horn another parasitic player into the supply-chain - the one already forcing price-taking - ain't going to make things cheaper at the far end. Either food gets dearer, because an added profit-taker is riding shotgun on the other two, or all 3 profits divvy up what was once two.
The real driver, of course, is ultimate sharcity. We hid from it for a while, morphing corner-stores into big-boxes, using economies of scale - bigger farms, tractors and trucks - but that was always temporary; all efficiency-gains are. And now we are heading down the lower EROEI, higher entropy pathway. Blind to the inevitable rising of 'prices', because we choose to remain ignorant of the real drivers.
A pity she won't be challenged.
For some decades, we have been forcing farmers and processors to be 'price takers', via our focus on 'cheap'.
LOL try the last 500,000 years. 'Some decades'?! Pfft. Of all the times in history where people are willing to pay a premium for BETTER food rather than just food, now is it. Almost all of humanity for almost all of our existence has been scratching out a subsistence living, eagerly wolfing down any substenance they could get their hands on regardless of quality.
Disagree,
Firstly, this is an exponential trend - both the up and now the down. The inflection has happened within my lifetime (I remember cream-cans and ladles; the vege man and his truck; the milkman...)
Secondly, 'payment' can be directly traced to energy-underwrite (if not, it's a Ponzi-in-the-making). Food, too, is energy. Problem is, the EROEI of the energy we apply to food, is dropping. Read the link I put up yesterday. Ex Haber Bosch, half of the 8 billion currently here------ aren't.
Yes, some - seated at the best tables - can choose to 'pay a premium', but an increasing cohort cannot. Food, from here on in, will get 'more expensive' - meaning more unavailable for more people.
Never saw the benefit of Aldi.
Cheap off brand dry goods
But you'll need to make a second trip to another supermarket if you're a fan of fruit, veges, and meat that hasn't been extruded through a blender. Negates any cost savings.
Food retailing isn't our biggest problem with our food costs.
For 4 months a year I shop at an ALDI store in the US. Meat superior to anything offered by Countdown, and Fruit and Veges are as well. Choice is boxed foods is low-but adequate for your needs. I know I am saving 30% over the normal supermarkets-and even more compared to the "upmarket" grocery chains that absorb the top 10 percenter's food budget.
The benefit of Aldi is you really don't need 15 (the actual number available on countdown online) options of tomato paste to chose from when you go to the supermarket. Your average consumer needs one or two at best. Might as well pick two, streamline the provision, and pass the lower storage, handling and rent costs on to the consumer who wants cheaper goods. Its crazy people don't seem to get that. It terms of price sensitive goods it just a much better business model.
Food retailing is a massive part of the problem, and its nearly impossible for anyone new to come in and compete as we are a tiny but expensive and geographically far spread market, and the incumbents control the suppliers, supply chain, and real estate.
Don't even get me started on the entire asile in every countdown dedicated to different sizes and versions of coke.
"If a new grocery chain opened up here it would deliver massive gains for Kiwi shoppers. So I’m up for actions needed to help make it happen, she said"
Change the laws/remove red tape/ subsidize or assist with market entry is the only way anything will change. Potential competitors have already run the numbers and as the supermarket trade currently sits it's not a viable business for a third chain. Only the government can make the necessary changes to make it happen. So far its been nothing but a talkfest just like CGT and better banking competition.
Could understand during the pandemic why there was short supply on the shelves and alternative brands no longer being were offered but why the heck is it still like that. Would welcome being able to walk down the aisles of a Tesco, Safeways you name it look alike and wager so too would most of us. How it ever evolved into two chummy outfits operating as they please is beyond belief and no amount of talk will ever change what we presently endure, but for sure, good meaningful competition will.
Because that's the business model. Its been like that in Australia for years, and NZ is just catching up. The supermarkets dont want you to buy branded products, they want you to buy their home brands. So they remove all the mid-brands from the shelves, so you only have a choice of two things - the premium price brand, and the much cheaper home brand. By removing the mid-brands, it allows the home brand to increase in price as all it needs to be is slightly cheaper than the premium brand, and consumers will still perceive it as a "bargain" and buy it. Most of their profit derives from sale of home brand products.
Take a tin of tomatoes as an example. A Watties tin costs $2.00 (example only). An imported tin of Italian tomatoes costs $1.00. A homebrand tin of tomatoes costs 80c. By removing the tomatoes that costs $1.00 the supermarket can raise the price of homebrand to $1.50 all without reducing the number of sales, and increasing sales of the homebrand as the homebrand will take 100% share of the imported product. Supermarket banks an extra 70c per tin in pure profit.
This needs to happen yesterday. Brownfields sites. Greenfield crown land, council land, park fringes. Whatever it takes. Also remove all regulatory hurdles and costs to importing the stock. Aldi would most likely want to supply a small test of NZ Stores directly from their Sydney DC. So tell MPI that any product that is being sold in Australia has automatic approval to to come into NZ to be sold here. Also any products made outside Australia that would otherwise have 5% duty applied on import to NZ would be duty free.
Agreed; need a stupidly high salary to get by and cover the costs of owning your own home, but then get fisted for tax when you do. This is tinkering while the big question around the value of work vs. quality of life gets increasingly out of whack, even for people who earn what would be a historically higher amount, and is a big factor in why people who could be working don't see the appeal of getting back in the workforce.
The Warehouse would be an ideal NZ partner for Aldi, either through a takeover or joint venture. Take the larger-format Warehouse stores and cut them in half. One side would be the Warehouse with a reduced product range. The other side would be ALDI with a full grocery offering supplied from the Australian DCs. The Warehouse already has its own DCs in NZ to handle the local logistics for ALDI,.
An increase in land taxes makes it more expensive to hold land without using it. AKA landbanking to prevent competition.
While you're right it would drive up the cost of running a supermarket, on the assumption that any land tax imposition is revenue neutral, these costs could be offset - for example through a reduction in GST, income tax (esp. lower brackets) or corporate tax rates.
Additionally, current supermarket profit margins are some of the highest in the world. If supermarkets were both slightly less profitable, and easier to set up (as less land is banked by competitors), you could see new entrants as it's still going to be a very profitable venture.
Realistically however, imposition of land taxes would probably over time have the biggest impact of changing the form of supermarkets to have more carparking buildings rather than sprawling carpark as land is used more efficiently.
Yeah it's true, some drivers do seem to get unbelievably upset when they have to pay for parking. As if every shop and facility should fund the needs of their favourite transportation mode.
Those fragile egos piloting trucks around our cities are the main reason more people don't feel safe to leave the car at home and take the bike.
I think its been long enough now to say, that if they were going to do it they would have done it. Rumours of expansion in Drury and Rolleston have been swirling for years now, and still has proven to be nothing but rumour. The land is available, its been resource consented, its Costco that has gone "yeah, nah"
Costco is not a regular supermarket, it's a bulk goods specialist. You can't do a regular small household shop there, not without still needing to hit a regular supermarket for things they don't stock, or don't stock in sizes you want to buy.
If you have a large family, and a mcmansion with plenty of storage space including lots of freezer space maybe you could.
While it doesnt sell everything, it sells enough stuff to be worth a visit - similar to Aldi. Its not just for large families, I shopped there just for me. But you do need storage space - its not for people living in those dinky little townhouses lol.
You also need to be quite wealthy, as buying in bulk is not cheap. That's Costco's market. People with money who want to snaffle a bargain on branded goods and premium foods. I dont think I ever walked out of there spending less than $300 a visit (and that was 10 years ago). The savings on wine alone was worth the membership fee (sadly, NZers dont know how good their booze section is as they stupidly built it in West Auckland. If you ever wondered what happened to all the Cloudy Bay wine, its sold through Costco worldwide).
Its not that difficult to stop in at a normal supermarket on your way back from Costco. I'm not sure why people find shopping at multiple places such a problem. I go to three different places for my groceries - the chicken shop, the fruit & veg shop, and then Pak n Save. Its not that hard, people!
Besides, its really not that hard to get through 1kg of smoked salmon, trust me LOL
While it would be nice to have more competition I can't help but wonder just how much time, effort and money a large overseas-based player is willing to sink into this venture in order to gain access to a country with a population equivalent to a single medium-large city elsewhere but located over 2,000km from...anywhere else at all.
Joining up with an already-established chain such as The Warehouse, or even Briscoes, would likely be a cheaper and quicker path.
“If a new grocery chain opened up here it would deliver massive gains for Kiwi shoppers. So I’m up for actions needed to help make it happen”
Wonder if the current duopoly are taking this seriously. Considering the sheer level of profit they harvested from lockdown periods, effectively being the only places to be able to purchase food and drink from, and having shoppers go bonanza over flour and a few bog rolls etc, they would have 0 right to complain if the govt does take action to incentivise competition.
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