Every party has pitched its own supermarket fix. What if we combined the best ideas?

More than four years after the Commerce Commission issued a damning stocktake, Foodstuffs and Woolworths still dominate about 82% of New Zealand’s grocery market.

How to drive supermarket competition up, and grocery prices down, has now become an election battleground.

National and New Zealand First want structural changes to Foodstuffs. Labour now proposes separating the wholesale and retail operations of both major supermarket groups.

ACT wants planning and regulatory barriers reduced so new competitors can enter. The Greens want to nationalise 120 supermarkets to create a publicly owned chain called KiwiMart.

Although presented as competing answers, these policies target different parts of the grocery system. They may therefore work better in combination than in isolation.

This is where “market-shaping” can be useful. Rather than simply repairing a failed market, this approach involves considering what market a society really wants, and asks which mix of rules, organisations and infrastructure could create it.

As my own research on market-shaping has shown, looking at a whole system can tell us important things about how its parts interact and who holds power.

This thinking may also help New Zealand achieve its goals for a better grocery market – be they affordable prices, genuine choice, reliable nationwide supply or more room for smaller retailers to grow.

Similar goals, different approaches

Last week, National unveiled a plan that would reorganise Foodstuffs into one nationwide Pak'nSave group and a separate New World and Four Square group, with store owners being allowed to keep their businesses and brands.

This would be subject to an inquiry by the Commerce Commission, which would have six months to develop and assess a plan to implement the policy.

Already, Pak'nSave and New World pursue different strategies and compete for customers. But within the North and South Islands, they share cooperative governance, buying, warehousing and distribution.

A split could increase that rivalry. But it could also duplicate systems, weaken bargaining power with suppliers and reduce economies of scale, particularly in smaller towns and rural areas.

Labour’s new proposal tackles a different part of the system.

It would require Foodstuffs and Woolworths to run their wholesale supply businesses independently from their retail stores, while allowing them to retain ownership of both. It would also give grocers the right to buy from any wholesaler on “fair terms”, remove anti-competitive restraints affecting small retailers and ban supplier “junk fees”.

Notably, its proposal targets access to the supermarket supply chain – a major bottleneck in the market.

Without access to groceries at competitive wholesale prices, a large new retailer may need to build its own buying, warehousing, and distribution network.

At the same time, an independent wholesaler may struggle to reach sufficient scale while the major supermarket chains supply themselves.

The idea of unbundling this network isn’t new. The Commerce Commission explicitly considered separating retail and wholesale operations during its 2022 market study, but didn’t recommend the step.

It accepted that combining retail and wholesale creates substantial efficiencies, and doubted an independent wholesaler could attract enough business to operate at scale. Those trade-offs still need to be tested.

If New Zealand did choose to go down this path, one model worth examining is Australia’s Metcash, a major wholesaler that supplies more than 1,200 independently owned IGA stores while handling buying, warehousing and distribution at scale.

A New Zealand model might involve separately governed supermarket retailers that buy services from an independently governed wholesaler, which can also supply smaller retailers. Safeguards would be needed against creating a new wholesale monopoly.

In this sense, Labour’s proposal has some merit. But its claim that “the time for reviews is over” sidesteps whether its proposal would work better on its own or as part of a wider package.

How parties’ policies could work together

ACT’s focus on planning and regulation, meanwhile, addresses yet another part of the problem – that retailers need suitable sites and workable rules.

Wholesale reform will achieve little if they can’t obtain land, consent or enough stores to operate efficiently. Likewise, splitting Foodstuffs may increase competition between Pak’nSave and New World, but would not automatically improve wholesale access. And separating wholesale and retail operations would not necessarily create new retailers.

As things stand, the government already has strong tools at its disposal. Under the Grocery Industry Competition Act, the Commerce Commission can impose tough, mandatory rules governing how major supermarkets supply rival retailers, including fair pricing and guaranteed access.

Yet when the commission recently reviewed wholesale competition, it found smaller grocers were still getting squeezed out by uncompetitive rates. Rather than immediately triggering its strongest powers, however, the regulator chose to enforce existing obligations and test industry-led solutions first.

The commission’s restraint highlights an important policy reality: while private ownership does not put supermarket groups beyond public policy, compelling them to reorganise is among the most intrusive tools a government can use.

Before taking that step, policymakers should compare forced restructuring more directly with targeted measures that address wholesale access, retail sites, infrastructure and market entry.

And instead of evaluating policy interventions in isolation, the commission could assess combined packages of reform.

An integrated approach might pair increased rivalry between retail brands with independently run wholesale distribution, fair access to shared infrastructure and lower entry barriers for new grocers.

Ultimately, neither creating a third supermarket group nor decoupling wholesale from retail operations is guaranteed to deliver fair prices and open market access on its own.

The parties’ proposals address different weaknesses in the system. A market-shaping approach would assess which combination best produces the grocery market New Zealand wants.