National has announced it would split Foodstuffs in two, separating Pak’nSave from New World and Four Square to allow for more competition and lower prices, writes Henry Oliver in today’s excerpt from The Bulletin.

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National have announced a new policy to, if re-elected, get the Commerce Commission to look at breaking up Foodstuffs, RNZ reported yesterday. Under National’s plan, Pak’nSave would split from New World and Four Square, creating three separate nationwide grocery groups including Australian-owned Woolworths. Four Square would stay with New World.

Rather than simply forcing them to split, National says it would amend the Grocery Industry Competition Act within its first 100 days to give the Commerce Commission a new mandate to recommend structural separation. The commission would get $5m and six months to test commercial viability, implementation costs, rural and regional access, and impacts on owner-operators, then make a formal recommendation. Only then would National legislate. The split would not force the sale of stores by local owners – Foodstuffs is a co-operative of owner-operated stores.

Finance spokesperson Nicola Willis said she was gearing up for a “tough fight”. “This is not something that I came to quickly or easily,” she said. “It is something that we have only come to after very thorough and deep analysis.”

The report behind it

The Government-commissioned Sense Partners report, written for MBIE and released on Wednesday, modelled two options: separating Foodstuffs into two national chains, or making both Foodstuffs and Woolworths split in two. It found the benefits from restructuring Foodstuffs alone would equate to $2.9bn in value over 20 years, The Post’s Dita De Boni reported.

Higher income households would benefit most in dollar terms (about $1,000 a year) but lower income households would benefit more as a percentage of income, because they spend proportionately more on food. National’s modelling estimated 3.5% lower prices after a year and 5% after six years, with Willis saying it could eventually save households up to $1,320 a year.

Would it work?

University of Auckland senior marketing lecturer Drew Franklin told 1News structural separation had worked overseas but cautioned that downward pressure on prices “isn’t going to happen in a hurry.” Consumer NZ chief executive Jon Duffy said it was positive that National would require the Commerce Commission to assess a split’s impact on customers – effectively a reverse merger assessment. “It’s strange territory for the National Party but that’s how bad the problem is,” he said.

Economist Cameron Bagrie told the Herald he welcomed the policy and hoped it resulted in separation. “It’s about time they did something. They’ve been kicking the can down the road on competition policy for the past three years. I’d go further and separate the wholesale and retail arms.” 

Westpac chief economist Kelly Eckhold was more sceptical, telling 1News a split was unlikely to be a silver bullet. He noted New Zealand’s food price increases over 20 years had been mid-range among OECD countries, and that rising food prices had been a global phenomenon.

‘Chilling’

Business groups were not happy. BusinessNZ director of advocacy Catherine Beard told RNZ the move “sends a chilling signal to businesses across New Zealand that the government can break up businesses,” likening it to Labour’s offshore oil and gas exploration ban. She warned supermarkets rely on scale across purchasing, distribution and logistics, and that if separation duplicated costs, “there is a risk that some of those costs ultimately find their way to consumers.”

The Employers and Manufacturers Association’s Alan McDonald called it “populist policy for a grumpy electorate.” He told RNZ: “It’s not quite nationalising a private business but it’s too close for comfort.”

Act called it “heavy-handed” and “draconian”, NZ First called National copycats, and Labour leader Chris Hipkins said it wasn’t a commitment but just another review and “New Zealanders can’t eat a review.”

A crowded field

National’s plan sits alongside a growing pile of grocery policies. Labour has promised to make price gouging illegal, targeting “essential” goods including groceries, banking, fuel and electricity. The Greens want a government-owned KiwiMart. ACT wants planning reform.

And as The Spinoff’s Hayden Donnell reports this morning, there may be one thing all parties could agree on: bringing back Big Fresh. Willis said National’s plan might see “a new entrant emerging that resembles Big Fresh,” adding: “maybe that will come with giant singing carrots making a return to Kiwi supermarket aisles. Stranger things have happened.”