Supermarket competition ‘not working well’ for Kiwis – Expert Reaction

A draft report released by the Commerce Commission says New Zealand’s supermarket sector is a ‘duopoly’, with other grocery stores largely unable to compete on price.

The report, which was commissioned by the Government last year, recommends increasing competition with major grocery chains and helping consumers make more informed purchasing decisions, among other measures. Submissions on the report are being accepted until 26 August.

The SMC asked experts to comment on the report.

Dr Sommer Kapitan, Senior Lecturer of Marketing, Auckland University of Technology, comments:

“The Commerce Commission found in eight months what any consumer could have articulated freely: grocery prices are too high. They are too high a percentage of most New Zealanders’ weekly budgets, among the highest in the OECD. Price and economic considerations are quite simply the main driver of any consumer behaviour, and that’s the biggest worry for consumer psychologists. That means Kiwis are having to make choices about food product type like healthier food based on price versus preference. Price is the first nudge towards better, healthier eating, and with obesity and diet-related disease a key concern in New Zealand, high prices are a barrier to better health for most Kiwis. The government must act now to correct this imbalance and make good quality, healthy unprocessed wholefoods a more affordable price for all New Zealanders.

“Another key issue for our two main supermarket chains is brand image. These supermarkets are now known widely as being expensive and charging high prices; the reputation for being too pricey is set, as 90 per cent of consumers buy from these two main players. The moment a new, lower price food retailer comes into the market, it can take advantage of the ill will of consumers to rapidly grab market share from the duopoly. This will pose a real challenge to the existing food retail marketplace as the power dynamic shifts. Whether a new supermarket actually has lower prices, Kiwis can be anticipated to flock to any brand that advertises based on quality with lower price.”

Conflict of interest statement: “No funding conflicts for projects of this nature.”

Dr Bodo Lang, Senior Lecturer, Department of Marketing, University of Auckland, comments:

“Persistently high grocery prices have been a feature of New Zealanders’ lives. Therefore, the government needs to be congratulated for commissioning this study. The Commerce Commission also needs to be congratulated for conducting a thorough analysis of this complex issue.

“Looking at some of the draft results, the only surprise is that anybody would be surprised by the results. The Commerce Commission has found that grocery prices are persistently highly and are at the upper end of international comparisons. Another large scale, nation-wide grocery retailer is needed to reduce the pressure that excessive grocery prices put on all New Zealanders but particularly on those on lower incomes.

“The supermarket duopoly of Foodstuffs and Woolworths NZ is, of course, only part of the problem. There are other factors that contribute to some of the high grocery prices in New Zealand. One of them in particular jars Kiwis’ sense of fair play: paying export prices for primary products, such as dairy, beef or lamb that are grown in New Zealand and for which all New Zealanders pay the environmental bills.

“However, there are also other issues that contribute to high grocery prices, which are difficult to overcome. These are the small size of the New Zealand market and its physical location in relation to where many foods are produced. While New Zealanders are unlikely to ever enjoy highly competitive prices, implementing some of the recommendations will go some way to reduce the burden of high grocery prices faced by all New Zealanders.”

Conflict of interest statement: “No conflict of interest in this matter.”