Election Economic Misconceptions (9) Supermarket Competition
In the current general election, the cost of living crisis has become a major focus for all of the contending political parties. The major culprit they are targeting is the so-called supermarket duopoly. Politicians claim that supermarkets are ripping off their customers.
These claims do not make sense. Increases in food prices over the last few years are mostly the result of the Ukraine war and the hit on fuel prices caused by the US war against Iran. These increases are beyond the control of the government, and the supermarket chains have no choice but to pass them on to consumers.
Here in New Zealand, two big supermarket chains dominate the market. One is a cooperative with most of its supermarkets being owner-operated (Foodstuffs) and the other is a subsidiary of an Australian chain (Woolworths). Critics have learned the word duopoly and are blaming the supermarket chains for rising prices.
Some are claiming that the supermarkets are making excessive profits at the expense of their customers. They have become an easy target for politicians, but there is not much evidence for these excessive profits. The New Zealand branch of Woolworths made a loss in 2024 and 2025, but returned to profit in 2026 after undertaking a massive restructuring to bring costs under control. They had to make significant write-downs of the value of their assets in New Zealand. This does not sound like an industry where earning massive profits is easy.
Various politicians with blind faith in the power of competition are suggesting ways to make the industry more competitive. Some want to split one of the chains into two and make them compete against each other, even though they currently operate in different parts of the market. Another wants to split the wholesale operations off from the retail operations. There is no evidence that either of these actions would make the sector more competitive, and even less evidence that they would reduce the price of groceries. In the current world situation, that is probably a pipe dream.
Splitting up supermarket chains will require duplication of infrastructure and increase overheads, which could easily lead to increased prices in the long term.
Some commentators are suggesting that we need a state-owned grocery wholesale operation that all supermarkets could go to for their stock. I doubt that government bureaucrats with “no skin in the game” could ensure that the products we need are always available in the same way as the supermarket chains do.
Rising food prices are not a problem that increased competition can solve. Even if there are more competitors, they will not engage in ruthless price wars, because that would undermine the profitability of their businesses. They would just compete in different ways (as explained in my previous post) and would track each other's prices.
The big elephant in the room that is ignored in the debate about supermarket competition is that most of the processed food consumed in New Zealand is imported by big multinational companies and their subsidiaries. The vast majority of imported branded processed foods (cereals, packaged snacks, confectionery, sauces, and shelf-stable goods) come through the local New Zealand subsidiaries of global corporate manufacturers:
Nestlé (confectionery, coffee, pet food, and processed food brands e.g. Maggi).
Mondelez ( biscuits and confectionery, e.g. Cadbury).
Unilever (packaged sauces, dressings, tea, and ice cream products, e.g. Continental).
Mars ( confectionery, packaged meals, and pet care products, e.g., MasterFoods, Whiskas).
PepsiCo/Bluebird Foods (chips, snack foods, soft drink concentrates, and cereals, e.g Quaker Oats).
Kellanova (breakfast cereals and packaged snacks, e.g. Coco Pops).
Kraft Heinz (canned goods, sauces, and infant formula, e.g., Watties).
Goodman Fielder (bread, dairy, oils, margarine).
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