The proposed merger between Foodstuffs North Island Limited and Foodstuffs South Island has been blocked by the Commerce Commission, which believes the deal would impact competition within the industry.

The commission said the merging parties failed to prove in their submissions that the proposed merger would not substantially lessen competition, following several extensions of the review process.

Chair John Small said the merger would result in a permanent structural change to the grocery industry.

“The proposed merger would reduce the number of major buyers of grocery products in New Zealand from three to two, reducing the number of buyers for many suppliers to supply their products to, and creating the largest acquirer of grocery products in New Zealand,” Small continued.

The new entity would have a greater buying power, which would harm the competitive process and substantially lessen competition in many acquisition markets, he said.

The merger would also impact suppliers in the relevant markets, lead to reduced consumer choice and make it harder for other grocery retailers to compete and grow, he added.

Small also mentioned the higher risk of price coordination between the new entity and Woolworths, given it would lead to just two dominant grocery retailers.

Foodstuffs North Island Limited and Foodstuffs South Island applied for clearance to merge into one nationwide entity last December.

The co-ops said the proposed merger aims to enhance agility, competitiveness, and efficiency and that it would not lessen competition in any market or harm suppliers.

Foodstuffs said it disagreed with the commission’s conclusions but would wait to read the entire decision when it is released before deciding on its next steps. Such commission rulings can be appealed in courts.