Media release
New Zealand Institute of Economic Research (Inc)
Media Release, 29 October 2026
For immediate release
Breaking up New Zealand's major supermarket groups or introducing new competitors could strengthen competition, but may not necessarily lead to cheaper groceries, according to a new NZIER Public Good Insight.
The Insight, The supermarket puzzle: What's holding back competition at the checkout?, examines why New Zealand has struggled to build stronger supermarket competition, which barriers policy can realistically address, and whether the proposed interventions are likely to deliver better outcomes for consumers.
New Zealand's grocery market remains highly concentrated, with Foodstuffs and Woolworths accounting for approximately 82 percent of national grocery sales. The Commerce Commission concluded in 2022 that competition was not working well for consumers, and concerns have persisted despite subsequent reforms.
But NZIER Senior Economist Susie McKenzie says the debate needs to distinguish between high grocery prices and weak competition. “High grocery prices are a real concern for households, but they reflect more than just the level of competition between supermarkets. Production, transport, distribution and other underlying costs all contribute to what consumers pay.”
The Insight identifies several barriers that policy could help address, including limited wholesale access, purchasing advantages enjoyed by established supermarket groups, and difficulties in securing suitable retail sites. However, it also highlights the underlying structural constraints arising from New Zealand's relatively small market, geography and economies of scale.
Wholesale access has emerged as a priority for further policy attention. Despite the introduction of a regulated wholesale access regime in 2023, uptake has been negligible, with smaller retailers continuing to face difficulties obtaining groceries at commercially competitive prices.
“Improving wholesale access could make it easier for smaller retailers to compete without having to establish their own expensive distribution networks,” says Susie McKenzie. “But it won't necessarily overcome the other challenges of operating in a small and geographically dispersed market.”
The Insight also examines more direct interventions, including separating existing supermarket businesses into independent competitors, separating wholesale and retail operations, and establishing a publicly supported supermarket chain.
These approaches could increase competitive pressure, but may also involve significant costs and reduce existing efficiencies in purchasing and distribution.
“At the heart of the supermarket puzzle lies a tension between economies of scale and competition,” says Susie McKenzie. “Large supermarket groups can operate more efficiently by spreading their costs across extensive networks. But those same advantages can make it difficult for smaller competitors to enter and expand. The challenge is to strengthen competition without unnecessarily sacrificing those efficiencies.”
International experience reinforces the complexity of the problem. Highly concentrated grocery markets are common in other small economies, and among the countries examined, the Insight finds no precedent for requiring established supermarket groups to separate into independently owned wholesale or retail businesses.
Susie McKenzie says the central question is not simply how to increase the number of supermarket chains, but which interventions would genuinely improve outcomes for consumers.
“More supermarket chains won't necessarily mean cheaper groceries. What matters is whether competition becomes more effective, and whether the benefits of intervention outweigh the costs. Ultimately, success should be measured by better outcomes for consumers, not simply by the number of supermarket chains.”
For further information, please contact:
Susie McKenzie
Senior Economist
susie.mckenzie@nzier.org.nz | 027 349 7145
