Is a Public Supermarket the Answer to New Zealand’s Grocery Duopoly?
New Zealanders are paying some of the highest supermarket prices in the developed world. Despite recent government efforts to encourage competition, including fast-track approvals for new stores, a genuine challenger to the dominance of Foodstuffs and Woolworths remains elusive. The question isn’t just if competition will increase, but how – and whether current strategies will deliver meaningful relief for consumers.
The Limits of Current Reforms
Finance Minister Nicola Willis highlighted Costco’s impact in West Auckland, demonstrating that new entrants can disrupt the market. However, fast-tracking approvals primarily addresses regulatory hurdles – zoning and consenting – and doesn’t guarantee a major player will actually emerge. The Commerce Commission’s focus on rebalancing power between suppliers and supermarkets, while important, isn’t expected to trigger substantial price drops. Changes to the Grocery Supply Code, and the ongoing inquiry into wholesale market access, are vital steps, but risk being undermined by “price leadership dynamics,” where smaller retailers simply follow the pricing of the duopoly.
Wholesale Access: A Partial Solution
Improving access to wholesale markets for smaller retailers is a positive move, but it’s unlikely to fundamentally shift the balance of power. Even with fairer access to rebates and discounts, independent stores often lack the scale to negotiate truly competitive pricing. The current system essentially reshuffles the deck, but doesn’t change the game. Consumers may see marginal benefits, but a significant reduction in grocery bills remains unlikely under the current trajectory.
The Case for a “Community Provisioning Enterprise”
A more radical solution gaining traction is the concept of a publicly owned grocery chain – a “community provisioning enterprise.” This isn’t about returning to ration books or creating a state monopoly. It’s about leveraging the power of the state to establish a baseline of affordability and stimulate genuine competition. Such an enterprise could operate as a vertically integrated system, encompassing wholesale centers, distribution networks, and retail outlets, optimized for efficiency through modern logistics and retail technologies.
Efficiency and Margin Reduction
The potential impact on margins is significant. While major supermarkets enjoy margins of 55% or more on individual items, a community provisioning enterprise could operate on margins as low as 4-7%. This would be achieved through operational efficiency, minimal marketing spend, streamlined supplier contracts, and capped executive salaries. The primary focus would be on efficiently moving commodities from producers to consumers, prioritizing staples and low-cost commodities – the items that stretch household budgets the furthest.
Precedents for State Intervention
The idea of government intervention in markets isn’t unprecedented. New Zealand has a history of state intervention to address systemic risk or unacceptable social costs, from the bailouts of Bank of New Zealand and Air New Zealand to the preferential energy pricing for the Tiwai Point aluminium smelter. The logic behind a community provisioning enterprise is even stronger: it’s not about rescuing failing businesses, but about proactively creating a competitive market where one doesn’t currently exist.
Lessons from the United States
The United States offers compelling examples. The Healthy Food Financing Initiative has channeled over $1.3 billion into supporting public grocery store projects in “food deserts” since 2014. Illinois recently passed the Grocery Initiative Act, providing funding for new public supermarkets, and New York City is actively considering city-owned grocery stores to combat rising food costs. These initiatives demonstrate a growing recognition that, in certain circumstances, direct public involvement is necessary to ensure access to affordable necessities.
Building a Successful Model for New Zealand
To succeed in New Zealand, a community provisioning enterprise would need to be strategically designed. It must be large enough to achieve economies of scale from the outset, operate across both retail and wholesale sectors, and leverage state-of-the-art logistics. Crucially, it needs strong legislative support to withstand potential opposition from established players and foster trust and participation from local communities and stakeholders.
The Role of the State in a Modern Economy
The traditional view of capitalism relies on “workable competition” – a sector with at least seven to nine major firms, none holding excessive market share. When these conditions are absent, state intervention is justified. Globally, we’re seeing a resurgence of state-owned enterprises, with their numbers growing significantly in recent decades. New Zealand’s grocery sector is ripe for a similar approach, prioritizing consumer welfare through a market system that actively encourages real competition. The OECD provides further analysis on the role of state-owned enterprises in modern economies.
The future of grocery shopping in New Zealand hinges on a willingness to explore bold solutions. A publicly owned, community-focused grocery chain isn’t a silver bullet, but it represents a powerful tool for anchoring affordability and fostering a truly competitive market. What innovative approaches do you think could further enhance competition in the New Zealand grocery sector? Share your thoughts in the comments below!
