New Zealand’s Economic Growth Minister has endorsed a proposal to split major supermarket chains to enhance competition and lower grocery prices for consumers. The recommendation follows analysis and market studies that highlight the high level of concentration in the country’s grocery sector, which has limited competitive pressure and posed barriers to new entrants.

The government-commissioned review, based on research by independent economists Sense Partners, examined two restructuring scenarios: dividing Foodstuffs into two separate nationwide grocery groups, and a broader restructuring involving both Foodstuffs and Woolworths. The cost-benefit analysis determined that splitting Foodstuffs alone could reduce average household grocery expenses by approximately NZD 560 annually. However, including Woolworths in the restructuring was found to diminish these potential savings.

The findings were peer-reviewed by noted competition experts, including John Davies, former chief economist at the UK Competition Commission, along with Motu economists Stuart Donovan and Leon Stirk-Wang. An updated cost-benefit report was released in July to further refine these conclusions.

The Commerce Commission has been tasked with developing and assessing a practical plan for implementing separation. The government’s next steps depend on the results: if the Commission’s testing confirms consumer benefits, the restructuring will proceed; if not, it will be abandoned.

Advocates for the split highlight the lack of alternatives in several New Zealand towns as evidence of weak competition. For example, Wānaka and Mosgiel currently have access to New World supermarkets but lack nearby Pak’nSave stores within a 10-kilometer radius, while Taupō and Gisborne have Pak’nSave but no nearby New World outlets. This concentration limits incentives for either banner to expand or improve offerings in these areas.

Proponents argue that establishing two distinct nationwide chains would stimulate competition on price, location, product range, service quality, and store formats, ultimately benefiting both consumers and suppliers. Suppliers have expressed concerns over the disparity between the prices they receive for products and the prices seen on supermarket shelves, a gap they attribute to the current market structure.

The proposal is framed as a pragmatic effort to enhance the grocery market’s functionality rather than an ideological campaign, aiming to provide better value to New Zealand shoppers and more opportunities for suppliers seeking shelf space.