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The proposedÌýÌýraises the prospect of even less choice for New Zealanders in what is an already heavily concentrated market. But will regulators prevent it from happening?

New Zealand currently has just three major supermarket entities: the two Foodstuffs cooperatives (member-owned companies) and Australian-owned Woolworths. These three controlÌýÌýand almost 100 percent of the supermarket sector.

The Commerce Commission will release itsÌýÌýin October.

The dominance of Foodstuffs and Woolworths gives the New Zealand supermarket industry a concentration ratio of almost 100 percent – calculated by adding the top four firm’s market share of an industry.

By comparison, the supermarket sector concentration ratio in Italy is 58.3 percent, in Spain it’s 67.4 percent, in the United Kingdom it’s 61.2 percent, and in the United States it’s 58.5 percent. These lower ratios point to markets that are more competitive.

´¡ÌýÌýhas raised concerns over the concentration in the New Zealand market. And suppliers have warned they are beingÌýÌýof these retailers.

Ìýhas long shownÌýÌýÌýthe marketÌý.

OurÌýÌý.

In 2022, the Commerce CommissionÌýÌýon New Zealand’s grocery sector. It found competition was not working well for consumers in the retail grocery sector. Recommendations included establishing a dedicated grocery regulator to provide monitoring and oversight, which was done by the then Labour governmentÌý.

To better balance the market, regulators need to ensure local markets are competitive. This will require not just the rejection of Foodstuffs’ merger but, also, the possible split or demerger of the existing entities.

The most logical step is split the Pak'nSave and New World brands, ensuring they are independent of each other.

Otherwise there is a risk of precedent being set, which establishes an example for other sectors and markets to follow. It also raises the question of the point of the market study, if – despite the knowledge of concentration – the market was allowed to concentrate further.

New Zealand’s size and low population density are oftenÌý.

But our ongoingÌýÌýshows low population density in developed markets is not a predictor of supermarket market concentration.

Highly concentrated markets have lower store availability for consumers, driving up population per store and reducing choice.

New Zealand has four times more population per store than Germany, and more than two times the UK and US. New Zealand also has the highest revenue per store across 25 developed markets, ahead of the United States.

Foodstuffs North Island, for example, generatesÌý.

Individual store owners areÌý. In 2018, three Foodstuffs supermarket owners entered theÌý.

The proposed merger of the two Foodstuffs cooperatives is not the first time the company has joined together geographically disparate entities.

In 2013,ÌýÌýregions to become Foodstuffs North Island. This merger concentrated an already small market further.

The cooperatives’ increased market and bargaining power after the 2013 merger has resulted in complaints fromÌýÌýover Foodstuffs North Island’s tactics.

Despite being two separate entities, Foodstuffs has admitted toÌý. And since 2020, Foodstuffs North Island and South Island have released joint annual corporate social responsibility reports.

In a submission on the merger to the Commerce Commission earlier this year, one industry insider claimed the two Foodstuffs cooperatives were behaving asÌý. Foodstuffs hasÌý.

But theÌýÌýinto both Foodstuffs South Island and Foodstuffs North Island over pricing and promotional practices. It is also investigating Woolworths New Zealand for the same issues.

And the regulator recentlyÌýÌýagainst Foodstuffs North Island, alleging that anti-competitive land covenants were lodged by the supermarket operator. The commission claims Foodstuffs did this with the purpose of blocking competitors from opening rival supermarkets at particular sites.

New Zealand is not the only country facing increasingly concentrated supermarket sector, though it is, arguably, one of the worst.

In Australia, concerns have been raised about the dominance of Coles and Woolworths. These two companiesÌýÌýbetween them. The Queensland Greens have called on the government to introduce aÌý.

In May, the Australian government outlined aÌýÌýto address anti-competitive behaviour. It is clear Australia is attempting to prevent further concentration of its grocery market, highlighting just how much of an outlier New Zealand is.

In contrast, the UK’s two largest supermarkets, Tesco and Sainsbury’s,Ìý. AnÌýÌýby the country’s competition watchdog found inflation was not driven by weak retail competition.

Operating profits in the sector in the UK fell 41.5 percent in 2022-23, with average operating margins falling to 1.8 percent from 3.2 percent. This suggests retailers’ rising costs were not passed on in full to consumers.

The UK grocery sector shows how competitive a grocery sector can be – if consumers and regulators are vigilant. But the merger of the two Foodstuffs cooperatives is taking New Zealand in the opposite direction.

Instead, the commission should reject the merger. It should also look at the demerger or divestment of the Foodstuffs banners to foster real competition and a better outcome for consumers.

Lisa Asher is a retail expert, PhD Candidate & Sessional Academic at the ±¬ÁÏÍõ.ÌýAssociate Professor Catherine Sutton-BradyÌýteaches and researches international marketing and business to business marketing. This story was first published on . Hero image: Adobe Stock.