top of page

The Commerce Commission the Grocery Study, and Local Monopolies

As I've continued looking at the complex issues around the grocery market, I've come to realise the extent to which local suburb-by-suburb competition is inhibited by the geographic concentration of the two duopolists. I mentioned this in my submission to the Commission, but have been drilling more deeply into it since.

For divestment to work effectively and give a new entrant the scale and diverse spread it needs, it will be critically important not only that 150-200 stores are divested, but which ones they are. These need to be prescribed by the regulator and not left to the incumbents to select.

The reason is that the market in metropolitan NZ is very unevenly spread. That's mainly because of the history - For instance, Woolworths is especially strong in Auckland and Foodstuffs in Wellington, likewise in other parts of the country.

But the uneven spread goes even further. Local competition is very uneven at a street by street level. Each operator has clusters of stores around various localities, providing a strong deterrent to customers who might prefer to “shop around.” An example is the lower North Shore where until the opening of Pak’nSave at Wairau Park locals had to drive past as many as six Woolworths outlets to reach the nearest Foodstuffs site. The significance of that was underlined by the extensive legal action with which Woolworths tried to block Foodstuffs entry which began a decade before the Wairau Rd opening and continued several years afterwards. That shows the economic effect of these suburban monopolies in stultifying competition and innovation.

Therefore, an essential component of a regulated divestment strategy must be a full analysis of local concentration using the Herfindahl-Hirschman Index (HHI). That will demonstrate the problem starkly and also guide the Commission as to which specific sites need to be divested so as to create a viable business opportunity for the new entrant and choice for consumers.


bottom of page