Supermarkets say lack of competition not to blame for NZ's higher grocery prices

Filling the trolley costs more in New Zealand than in many other OECD countries but supermarkets say that is not because of a lack of competition.

The Commerce Commission began the fourth day of its market study conference into the $22 billion grocery industry looking at the best way to compare prices in New Zealand with those overseas.

However, representatives for both Countdown and Foodstuffs, which operates Pak ‘n Save, New World and Four Square stores, questioned the value of international comparisons as an indicator of competition.

Josh Gluckman, strategy director for Countdown owner Woolworths NZ, said different seasonal conditions, freight, labour and electricity costs, and tax rates across international markets all made accurate calculations difficult.

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Because of this, competition authorities in the United Kingdom and Australia had not placed any real weight on them as part of their own analysis, he said.

Supermarkets say higher grocery prices in New Zealand have more to do with geography than a lack of competition in the market. (File photo)
KEVIN STENT/Stuff
Supermarkets say higher grocery prices in New Zealand have more to do with geography than a lack of competition in the market. (File photo)

“Even if it were to be the case that grocery prices in New Zealand were expensive, it more likely reflects the fact that New Zealand is a small island on the edge of the earth, and it has small scale and is expensive overall.

“Analysis that has been undertaken by Woolworths Group across 7500 barcode matched lines illustrates and demonstrates that we have to pay 10 per cent more for the exact same product here in New Zealand.”

Nera Economic Consulting managing director James Mellsop said when the commission’s exchange rate methodology was applied across the whole economy, everything in New Zealand was expensive.

Speaking for Woolworths NZ, Mellsop said the country’s location was an obvious explanation and while there was consumer interest in OECD (Organisation for Economic Co-operation and Development) rankings, the numbers would be little help in an analysis of competition.

Foodstuffs South Island chief financial officer Nathan Marsh agreed New Zealand’s position “at the end of the world with a very difficult geography” made its supply chain expensive to run.

“For us, to recover supply chain costs over a very small volume in a distributive market is very difficult and one of the key contributors to the increased price,” Marsh said.

The Commerce Commission’s final report into the grocery industry is expected to be released in March 2022.
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The Commerce Commission’s final report into the grocery industry is expected to be released in March 2022.

“Also the GST, that is an important contributor to our cost which is not prevalent in many of the other markets when you are comparing international price.”

But Hexis Quadrant partner Nick Hogendijk said several European VAT (value added tax) rates were significantly higher than New Zealand’s 15 per cent GST rate.

Standard VAT in Europe ranges from 17 per cent to 27 per cent. In Ireland, which has a population similar to New Zealand, standard VAT is 23 per cent.

However, its tiered system means the tax is not paid on most food including tea, coffee, milk, bread, butter, cheese, milk, vegetables and meat.

In July, the Commerce Commission released a draft report into the grocery industry. It concluded that New Zealanders were paying more for their groceries than overseas shoppers and supermarkets were making excess profits.

The report suggested lowering the hurdles for new competitors or, if that failed, creating another major grocery retailer to break open the supermarket duopoly and potentially requiring existing retailers to sell some of their shops to make it happen.

The commission’s final report is expected to be released in March 2022.