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Paul McBeth is the editor of The Bottom Line and Curious News, and previously worked at BusinessDesk for 15 years. He worked at Chaffers Street New World in Wellington part-time after school in the late 1990s.
Scratching the political grocery itch is missing the low-hanging fruit.
Finance minister Nicola Willis had quite the juggling act when warning of the sovereign risk posed by breaking up the power companies into retail and generation arms barely a week after announcing plans to split up the Foodstuffs supermarket cooperatives.
The prospect of a hands-on government getting its mitts on supermarket operators won’t have been missed by those foreign investors looking at the South Pacific – don’t be surprised if the cost of capital starts climbing.
National’s proposal to carve out the budget Pak’nSave chain from the North and South Island cooperatives’ bougie New World supermarkets and ubiquitous Four Square grocery stores took people by surprise, given the small-c conservative party tends to side with industry in sticking with the status quo.
While there is an element of realpolitik in its alignment with New Zealand First, good luck getting such a proposal past Act if there’s to be a repeat of the three-way coalition.
The opposition Labour party’s proposal to force an operational separation of the Foodstuffs and Woolworths wholesale arms from their respective retail networks hasn’t been quite so panned in hoping to repeat the unbundling of the old Telecom’s phone lines before the infrastructure owner formally spun out its Chorus division.
Of course, the structural separation of the telco showed just how much gaming could go on with the retailer and network operator sitting under the same umbrella. When Chorus had to switch from the favourable retail-minus pricing calculation as part of the Telecom group to the cost-plus formula as a standalone entity, it soon became clear that the telco vastly underestimated how much it would be able to charge for access to its network.
We all got our own funny moods
Meanwhile, the Greens favour expropriating at least 120 supermarkets and two distribution centres to form the backbone of a Kiwibank-style state-owned grocer dubbed KiwiMart, channelling New York mayor Zohran Mamdani’s similar plan and attracting similar sneers of socialism in the unlikely event it were to be seriously pursued.
The up-and-coming Opportunity Party, which seems like the natural home for the professional technocrat, is more keen on empowering the Commerce Commission to go after dominant market players and pursue structural separation if officials think it’s warranted.
The hubris of the dominant incumbents has made it easy for politicians to scratch the public’s growing distaste for the supermarket operators in much the same way that banks have been copping it over their billion-dollar profits.
Five years ago, Foodstuffs and Woolworths both told the Commerce Commission they would be open to voluntarily supplying rival retailers. They obviously didn’t feel strongly enough to front-foot the threat of being strong-armed, given the regulator currently has Foodstuffs’ Gilmours and Trents wholesale entities in its sights.
The supermarket operators might well have themselves to blame for not reading the tea leaves – or reflecting on similarly intransigent dominant players like Telecom – but that’s no excuse for politicians to needlessly put some stick about.
As New Zealand Shareholders’ Association chief Oliver Mander pointed out in the latest episode of The Long and the Short of It podcast, if Lidl and Aldi couldn’t be convinced that New Zealand’s $28.13 billion annual spend on grocery was worth entering, there’s probably a structural issue at play.
Now all the things that we’ve been through
And making those complex supply chains work on New Zealand’s long, skinny islands doesn’t make life easy, especially when you’re trying to ship goods into those hard-to-reach regions – just think on the petrol premium paid by Central Otago residents.
It’s surprising that the Warehouse hasn’t featured in the thinking of how to address the grocery problem.
Sure, the Warehouse doesn’t really tout its founding tagline of giving everyone a bargain anymore, but the 84 Red Shed stores nationwide and two distribution centres are a solid foundation for an aggressive entrant into the grocery market.
Founder Stephen Tindall has twice tried to take the retailer private to drive competition against the supermarkets.
The fact that the first attempt in 2006 was thwarted by Foodstuffs and Woolworths each taking a blocking stake shows that the grocers took the threat seriously, while the second was more a case of the Norman family of James Pascoe, Whitcoulls and Farmers fame not being overly enamoured of taking a hefty haircut in the 2024 edition.
But in terms of who to listen to in building a viable competitor of scale, the Red Sheds owner probably isn’t a bad organisation for people serious about expanding New Zealand’s grocery offering to listen to.
You better trust in me, like I trust in you
The Warehouse pointed to the wholesale market as a useful short-term entry point for a player of scale, but said ultimately any such organisation would want to develop its own vertically integrated network over time.
To do that, the retailer reckoned government support for investment in end-to-end supply chain infrastructure – particularly for chilled and frozen goods – would go a long way to mitigating the risk for a new entrant.
Unfortunately, the Warehouse has been pulling back from an expanded grocery offering since the 2024 bid stalled, putting more effort into the health and beauty components of its fast-moving consumer goods that have been fattening up its margins and paring back the breadth of its food offering.
To be fair to the Red Sheds owner, it’s still in a phase of rebuilding after a torrid few years have seen the share price plunge to record lows and is rightly focused on rebuilding margin and returning to profitability – with this week’s annual result showing whether it’s managing to keep ahead of expectations.
But the result will be a timely reminder for politicians that there are more ways to deliver everyday low prices, especially if making the incumbents less efficient ends up making life’s essentials more expensive.
Image from Kiwiev on Wikimedia Commons.
