New Zealand’s supermarket sector remains concentrated, with barriers to wholesale supply, retail sites and economies of scale limiting market entry. However, NZIER says adding more retailers may not lower food prices without addressing these structural constraints.
Foodstuffs and Woolworths New Zealand account for about 82 per cent of national grocery sales, according to the Commerce Commission’s 2025 Annual Grocery Report. In 2022, the Commission found that competition was not working well for consumers, with the major groups facing limited competitive pressure and earning higher profits than expected in a competitive market.
Despite subsequent reforms, competition remains an election issue, with proposals ranging from regulatory changes to direct government intervention.
NZIER distinguishes high food prices from weak competition. Prices reflect production and transport costs, international commodity prices, exchange rates and retailer margins. While stronger competition may not offset underlying supply costs, weak competition can allow higher margins, reduce efficiency and limit consumer choice and service.
The report identifies wholesale access, purchasing arrangements, retail sites and price transparency as key barriers. Established supermarket groups benefit from purchasing, warehousing and distribution networks that smaller retailers may struggle to match.
The regulated wholesale access regime aimed to give smaller retailers access to these networks without building their own infrastructure. However, uptake has been negligible. The Commerce Commission cites uncompetitive wholesale prices, limited access to supplier rebates and promotional payments, and product availability gaps as barriers.
Major supermarket groups also negotiate supplier discounts, rebates and promotional funding that reduce their purchasing costs, potentially disadvantaging smaller retailers.
Limited land availability, zoning rules and consent processes can increase the cost and time required to develop supermarkets. Differences in product sizes, promotions and loyalty discounts also make price comparisons difficult. NZIER says greater transparency and better comparison tools could encourage competition.
New Zealand’s population size and geographic spread limit the number of operators able to achieve economies of scale. New entrants need sufficient sales to cover store, purchasing and distribution costs.
Proposals for structural reform include splitting supermarket groups into independent businesses. Dividing Woolworths’ stores into competing retail networks could increase competition on prices, product ranges and services, but reduce efficiencies in purchasing, distribution and shared operations.
Separating wholesale and retail operations could allow independent wholesalers to supply competing retailers. However, it would not guarantee competitive wholesale prices if market power remained at the wholesale level, and could reduce efficiencies in purchasing, logistics and inventory management.
A publicly funded competitor would require investment in stores, distribution and supporting systems. Without sufficient scale, it could need ongoing taxpayer support.
NZIER says structural interventions could increase competition but reduce economies of scale, potentially offsetting consumer benefits. It identifies wholesale access as the priority for policymakers.
Changes to the Grocery Supply Code took effect in May this year, requiring greater transparency and record-keeping for supplier-funded promotions, restricting supermarkets from retaining promotional discounts when products are sold outside promotional periods, and protecting suppliers from retaliation. However, their impact on wholesale competition remains unclear.
NZIER says reforms should deliver lower prices, greater choice and better service. Simply increasing the number of supermarket chains may not achieve these outcomes.
- Further reading: Weak domestic demand suppresses business sentiment.
