NZ First wants to break up Foodstuffs. It is a satisfying line on a campaign stage, aimed squarely at voters paying 4.5% more for food than a year ago, with meat, fish and poultry up 7.5%. The problem is not the anger. The anger is justified. The problem is that nobody proposing structural separation has answered the question that comes next: what fills the gap, and at what cost?
The Commerce Commission’s 2022 market study laid the groundwork. A duopoly controlling roughly 82% of grocery sales, earning excess profits of approximately $430 million a year. A $25 billion sector where retail margins are growing while suppliers get squeezed. None of that is in dispute. What is in dispute is whether smashing the structure apart would actually fix it.
The government already ran the numbers
MBIE’s own analysis found forced divestment could deliver competition benefits but carried an estimated $3.8 billion net cost over 20 years, primarily from destroyed economies of scale. Officials described the scenario where grocery prices actually rise as a result of breakup as a “very high regret” outcome. That is not a throwaway caveat. It is the government’s own advisers saying the medicine might be worse than the disease.
Officials also conceded that addressing regulatory barriers would “only have a marginal effect on improving competition”. Read that carefully. The people closest to the policy levers are saying none of the available tools are likely to move the needle significantly.
Every alternative has already failed
Nicola Willis pivoted to an “Express Lane” strategy, streamlining consents and the Overseas Investment Act to lure a third major player. The results were brutal. Tesco declined. Aldi and Lidl confirmed they have no plans to enter New Zealand. Willis was left admitting: “I can’t force a third entrant in… All I can do is open my arms as wide as possible.”
The wholesale access regime, the centrepiece of the Grocery Industry Competition Act 2023, has been a near-total failure. Total wholesale sales reached just $15.3 million between July 2023 and February 2025, less than 0.03% of retail grocery sales. The Commerce Commission’s Grocery Commissioner Pierre van Heerden called the sector’s performance a “concerning picture”. Retail prices of major brands are rising faster than what supermarkets pay suppliers, meaning margins are widening, not compressing.
5,313 business owners nobody is talking about
Foodstuffs is not a corporate chain. It is a co-operative owned by 3,326 North Island and 1,987 South Island franchisee-members. These are individual business owners operating PAK’nSAVE, New World and Four Square stores. Their store valuations, supply arrangements and operational models are built around the co-operative structure. A forced breakup would directly hit their business values and operating certainty. This constituency is almost entirely absent from the political debate.
Meanwhile, Foodstuffs is simultaneously trying to merge its North and South Island entities into a single national co-operative. The Commerce Commission blocked it, with barrister James Every-Palmer KC telling the High Court that “allowing the merger would certainly be at odds with Government policy to increase competition”. The irony of politicians demanding breakup while the courts adjudicate a merger attempt tells you everything about how muddled this space has become.
Three players is not a magic number
Academic analysis of international markets is blunt: “moving from two to three players does not in itself constitute a magic leap from non-competitive to competitive markets. Three competitors can accommodate each other nearly as well as two.” In the UK and Ireland, it was German hard discounters entering the market that shifted dynamics, not regulatory intervention. New Zealand’s remoteness and small population make that model essentially unreplicable here.
The same analysis warns that “losses in scale and efficiency through breaking up the supermarkets… risk increased costs in the supply chain and even higher prices”. The exact opposite of what is intended.
The real risk for business is permanent uncertainty
The Commission is now pursuing enforceable wholesale participation codes with maximum penalties of $10 million, three times commercial gain, or 10% of turnover. It is investigating land-banking by major retailers holding over 100 properties for non-retail purposes. These are targeted interventions that might actually improve outcomes without the $3.8 billion downside gamble.
For anyone operating in FMCG, wholesale, logistics or supermarket franchising, the signal from Wellington is clear: this issue will not go away. The next election cycle will bring another round of structural intervention threats regardless of who wins. The supermarket duopoly is genuinely broken. But breaking it up without a credible plan for what comes after is not reform. It is campaign theatre with a $3.8 billion price tag attached.
Sources
- RNZ: Why the government backed away from breaking up supermarkets (2026-03-18)
- Commerce Commission: Market Study into the retail grocery sector – Final report (2022-03-08)
- Commerce Commission: Wholesale Supply Inquiry – Preliminary Findings Paper (2025-06-05)
- Commerce Commission: Grocery Report paints a ‘concerning picture’ (2024)
- Commerce Commission: Foodstuffs North Island/South Island – Statement of Issues (2024-04-04)
- Newsroom: Allowing Foodstuffs merger would flout Govt drive for competition – ComCom (2026-03-05)
- NZ Herald: As the Commerce Commission found, there’s no magic way to make NZ supermarkets more competitive
- 1News: Supermarket giants respond to ‘express lane’ competition reforms (2025-08-27)