National’s Nicola Willis says if re-elected, the party will look at breaking up Foodstuffs into two competing grocery chains. BusinessNZ says policy is 'chilling,' Grocery Action Group welcomes it

Subject to an independent Commerce Commission assessment, National is proposing to pursue the structural separation of Foodstuffs - breaking the cooperative up into two competing grocery chains.

“The proposed structure would see New World and Four Square as one nationwide chain and PAK’nSAVE as another. Together with Woolworths, this would mean New Zealand would have three major nationwide grocery chains,” National’s finance and economic growth spokesperson Nicola Willis said on Wednesday morning in a policy announcement ahead of November's election.

Foodstuffs' main brands include PAK'nSAVE, New World and Four Square, and a recent report found that the combined market shares of major grocery retailers Foodstuffs North Island, Foodstuffs South Island and Woolworths were 82%. 

“National will amend the Grocery Industry Competition Act in our first 100 days in Government to empower the Commerce Commission to develop and assess a detailed implementation plan, and determine whether the separation can be delivered in a way that leaves consumers better off," Willis said.

“We will require the Commission to provide its recommendation in six months.”

Interest.co.nz has contacted Foodstuffs for comment.

Lobby group the Grocery Action Group welcomed National's announcement, saying price competition stemming from separating the ownership of PAK'nSAVE from New World and Four Square should benefit consumers. However, business lobby group BusinessNZ said National's policy sends a "chilling signal" to businesses, and "the wrong signal" to foreign investors.

The Commerce Commission would have six months to test the separation proposal, consult affected businesses, owner-operators, suppliers and consumers and develop an implementation plan as well as make a formal recommendation. National would provide the Commerce Commission $5 million to carry out this work.

“Independent analysis estimates restructuring Foodstuffs could be worth around $200 to $1,320 a year, per household, by full rollout, depending on the household type and income. That’s real money back in the pockets of New Zealanders," Willis said.

“It could also see $12.6 billion in consumer benefits over 20 years, with grocery prices projected to fall by around 3.5% lower than they otherwise would be one year after separation, and around 5% after six years."

Willis said National’s initial view was that New World and PAK’nSAVE would “compete harder on prices, specials and service if they were genuinely independent of each other”.

“They currently sit within the same Foodstuffs structures. Separation would create three major nationwide grocery chains and put more pressure on supermarkets to win and keep customers.”

If the Commerce Commission recommended separation, National would legislate to implement it.

Three step timeline

Speaking to reporters, Willis said there were three steps. 

"First step is within our first 100 days, we legislate to be able to direct the Commerce Commission to do this implementation plan. Second step is that they have a deadline to deliver that plan within six months," said Willis.

"Then, in terms of implementation, there are a couple of options. One is that actually, as was the case with Telecom, ultimately that Foodstuffs voluntarily decides to make this change. In the absence of that, the next step would be to legislate for this change." 

Willis said she anticipated up to a year to progress effective legislation. 

"It's my view that by the end of the next [parliamentary] term, we would have genuine competitions in two separate banners ... They would be operationally separate and competing more vigorously than they do today."

If the Commerce Commission's findings suggested the proposal didn't go ahead and didn't deliver for shoppers, Willis said they wouldn't proceed. 

"We would have to again double down on existing work to encourage new entrants, to make it easier for existing operators to expand, to continue the wholesale regime to ensure that the Commerce Commission was continuing to prosecute examples of a breach of the Commerce Act or the Grocery Act. So those actions continue regardless, but this proposal stacks up and we need to pursue it."

'For some individual store owners, they should see this as an opportunity'

Willis said no owner of a PAK’nSAVE, New World or Four Square will be forced to sell or re-brand their business.

“This policy is aimed at the uncompetitive structure individual Kiwi supermarkets are currently operating in, not the owner-operators who are hardworking people striving to do good by their community."

“Existing owner-operators would retain ownership of their businesses, continue to operate under their existing brands, and remain part of a larger group with the scale and infrastructure to support their store.”

Willis told reporters that she thought "for some individual store owners, they should see this as an opportunity".

"My view is that for some individual operators, depending on the ultimate structure that is formed, this would allow them to more vigorously compete and expand their offering."

'It's going to be a tough fight'

Asked if she expected pushback from Foodstuffs, Willis said: "I think they are one of the most well resourced entities in New Zealand when it comes to lobbying. They have extensive public relations spend, lobbying spend, advertising spend, and they deploy it with force." 

"I have already seen them doing that whenever I have made suggestions about the unfairness of the current supermarket structure. I felt the full force of that. So have our MPs, and what I really don't think is reasonable is for one group of lobbyists with a vested interest to determine what is best for the Kiwi shopper. And so ultimately, while I know that I am taking on a big entity here, I satisfied myself this is the right thing to do. But I know that it's going to be a tough fight."

Willis said structural separation of this scale had risks and had to be done carefully.

“Whether a separation would deliver net benefits for consumers would depend on how it is implemented and what happens to supply-chain costs.

“That is why National will not have politicians playing supermarket executive from the Cabinet table, whether by ordering a breakup themselves or spending billions of taxpayer dollars trying to run a supermarket.”

“There is a very high bar for this kind of intervention and National is not pursuing structural separation in any other sector. This will be a supermarket-specific process under the Grocery Industry Competition Act," Willis said.

“However, after years of reviews and incremental reform, it’s clear the status quo isn’t working. It’s time for change.”

“New Zealanders deserve a better deal at the checkout,” Willis said.

Lobby group compares National's plan to Labour's oil & gas ban

BusinessNZ considers National's announcement "to be in the same league as Labour's ban on oil and gas exploration and New Zealand First's promise to split up the gentailers," its director of advocacy Catherine Beard said.

"This is a very concerning move by the National Party and sends a chilling signal to businesses across New Zealand that the Government can break up businesses. It also sends the wrong signal to foreign investors looking to invest in New Zealand."

"Breaking businesses apart does not automatically create more competition, and it certainly does not guarantee cheaper groceries," Beard said.

"Supermarkets rely heavily on scale across purchasing, distribution, logistics, technology and other infrastructure. If structural separation reduces those efficiencies or duplicates costs, there is a risk that some of those costs ultimately find their way to consumers."

Meanwhile the Employers and Manufacturers Association (EMA) said a forced separation was a step too far. 

"Seeing a right-of-centre, business-focused political party like National suggest this type of policy will sit uneasily with businesses in New Zealand," the EMA's head of advocacy Alan McDonald said.

"It might be a populist policy for a grumpy electorate but that doesn’t make it a good policy."

The Grocery Action Group (GAG) said the plan was promising.

“The additional price competition resulting from the separation of ownership of PAK'nSAVE from New World and Four Square should benefit especially consumers in the regions,” GAG's Mavis Mullins said.

“But its an indictment on the Goverrnment that its taken such a long time to address the ongoing crisis in our cost of living."

Mullins said however, it was reassuring that under this plan, the Commerce Commission would be given the responsibility to to oversee its implementation.

“Currently we pay some of the highest prices on the planet for food, and none of the many regulatory changes implemented have been effective in curbing the profits of the duopoly which were assessed several years ago at running at a million dollars a day.”