Will divestment from the supermarket sector make a difference in single supermarket areas?

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Divestiture of the supermarket sector can be used to improve competition where Foodstuffs or Woolworths New Zealand have a monopoly.

Many shoppers are leaving town to seek more variety in their grocery choices, the district mayor of Otorohanga said.
Photo: Unsplash / Tara Clark

The government has moved to tackle the supermarket duopoly, but places like the River Thames on the Coromandel Peninsula aren’t even in those ranks.

The town has a Pak’nSave and two Four Squares, both of which are food brands, and the nearest competing store is Countdown which is about half an hour away in Paeroa.

Sandra Goudie, Thames-Coromandel District Mayor, said the community had wanted to see a contender in town “for years”.

“They are very supportive of this competition with another player in the market and if there was anyone who wanted to do it, it was a matter of finding the optimal site in the region to do it.”

Goudie admitted the board could have been a handbrake to let competition in.

It had been a long-standing policy not to allow retail trade in Kopu, a largely industrial settlement immediately south of the River Thames, she said.

That’s something that “may have to change”, Goudie said, while noting that finding a site in the Thames itself was “difficult”.

Ōtorohanga, which is also a common transit town, has only one Countdown store.

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District Mayor Max Baxter said if a competing supermarket moved in it would be “fantastic” and “welcomed with open arms”.

The lack of choice has already caused many locals to travel to neighboring districts to shop in search of better quality goods, he said.

Baxter thought the problem was with wholesale sourcing and that the only Countdown store was left with “the dregs”.

On Tuesday morning, Acting Prime Minister Grant Robertson said there were a number of players interested in the New Zealand market.

But Food and Grocery Council chief executive Katherine Rich said new players would likely target major centers first, which could widen the competition gap if other areas were still monopolized.

katherine rich
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She ultimately believed it would be years before consumers would see the fruits of increased supermarket competition.

“This is going to require multi-stakeholder support to ensure these changes are sustainable. It has taken a long time for New Zealand to manage the telecommunications monopoly and it will take a long time for New Zealand to break the supermarket duopoly. “

Trade and Consumer Affairs Minister David Clark said monopolies were one of the reasons the government was keen to consider divestment in the sector, saying it was an option the Commerce Commission did not have. not excluded in its market research report.

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“Their suggestion was that this is something that should be looked at in three years time if the recipe they provided for the competition has not proven effective by then.”

But Clark wasn’t prepared to wait that long and said he was instead moving towards divestment from research now.

However, he did not comment directly on how divestment would help towns like Thames and Ōtorohanga, saying the priority was whether it was even the “best option”.

Woolworths New Zealand declined to comment on the existence of monopolies in parts of the country and Foodstuffs has yet to respond.

Trade expert skeptical of consumer benefits

Sergio Biggemann, associate professor at the University of Otago Business School, said Checkpoint the measures taken by the government to tackle the supermarket duopoly would have no benefit for consumers.

“Duopolies don’t need to break the law to take advantage of the situation, they will maximize their profits anyway and the only thing the government should do is find a way to increase competition,” he said. -he declares.

“But expect TSWT wholesalers who will run Foodstuffs and Woolworths [to] to change their behavior one way or another is just naivety, they will always be able to control their prices, we as customers will not get any benefit.”

He said it was impossible to determine the duopoly’s existing wholesale costs and would likely allocate higher costs to take advantage of it.

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These increased costs would then be passed on to other retailers without lowering grocery prices.

Although the government has taken steps to prevent Foodstuffs and Woolworths from hoarding land, Biggemann said there were barriers in place preventing a larger third party from entering the market.

“I believe there could be a number of barriers that the government should be able to lower without endangering consumers and the food chain and all of those things.

“It’s in the hands of the government, which doesn’t pretend to regulate the industry because it’s very difficult to get results.”

Existing food retailers had the potential to compete with the duopoly, but lack of access to affordable wholesale prices was holding them back, he said.

CostCo and Aldi had both been touted as potential players who could enter the industry to break the existing duopoly.

Biggemann said Aldi, which already operated in Australia, had the ability to quickly become a major competitor in the industry, but warned consumers not to hold their breath.

Although rising inflation had drawn attention to the supermarket sector, the growing power of the existing duopoly was a long-term problem which the government had allowed to worsen over time, he said. .

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