Foodstuffs’ best weapon against a break-up is a 2.3% profit margin

Foodstuffs has stopped arguing about principle and started arguing about arithmetic. Its newly released, commissioned review of the modelling behind National’s supermarket break-up policy calls the projected benefits “economically implausible”. That is the right fight to have. Forced structural separation is about as heavy an intervention as a government can make in a private market, and it should stand or fall on whether the numbers survive scrutiny.

The promise on the table

National’s Nicola Willis wants the Commerce Commission to assess whether severing Pak’nSave from New World and Four Square would benefit shoppers, then legislate if the answer is yes. The case rests on Sense Partners modelling commissioned by MBIE, which projects prices roughly 3.5% lower in the first year, household gains of $200 to $1320 a year by 2035, and a $2.9 billion net gain to the economy over 20 years.

Under the bonnet, consumers come out $13.1 billion ahead over two decades, offset by lower industry profits and other costs. That offset is where Foodstuffs has aimed.

Negative profits forever is not a business model

HoustonKemp, the economists Foodstuffs hired, makes one argument that deserves a straight answer. Current supermarket net margins sit at 2.3% of sales, yet the modelling implies a profit reduction equivalent to 3.5% of sales. Founding partner Greg Houston says the results look “too good to be true” and would mean industry-wide losses for 20 years. “No sector of the economy can sustain ongoing negative profits. How then could Sense Partners derive such a result?” the review asks.

Any business owner reading that will recognise the point. If the savings to shoppers come from a margin that does not exist, they come from capital that will not be reinvested, stores that close, or suppliers who get squeezed harder.

HoustonKemp also attacks the assumption that Foodstuffs banners do not compete with each other, noting stores are individually owned and that Pak’nSave “can and do presently win business from New World”. That matters to the franchise owners whose independence is often invisible in this debate.

Warehouses are not cheap

The second front is logistics. Sense Partners assumed the split businesses would separate distribution centres within four years for about $300 million, a figure it sourced from media reporting. Foodstuffs says the South Island build alone would be “well in excess of $300m”, pointing to $340 million it is spending to expand a single Palmerston North site. Willis has defended the estimate. Foodstuffs’ comparison is the more grounded of the two, and it is the kind of number the Commission would tear apart.

Expert versus expert

Here is what most coverage skips. Former UK Competition Commission chief economist John Davies peer reviewed the same modelling and called it “impressive”, saying its assumptions seemed “sensible and similar to those made when competition authorities model mergers”.

HoustonKemp’s work, by contrast, is a preliminary five-page review that reverse-engineers published results because it could not access the model itself. It is also paid for by the party with the most to lose. That does not make it wrong, but it does make Willis’s framing of “vested interest” against independent experts hard to dismiss outright.

Still, the government’s own history should give it pause. MBIE’s 2022 provisional analysis found a central-case net benefit of just $0.5 billion over 20 years, with a range from minus $3.1 billion to $4.7 billion. The new figure is nearly six times that central estimate. Something big changed in the assumptions, and the public has not been shown what.

The problem has not gone away

None of this makes the status quo defensible. The Commission’s latest grocery report shows the major retailers holding an unchanged 82% national market share in 2025, and the previous year’s report found no material improvement in competition since the market study. In 2024 the Commission also warned that concentrated buying power leaves suppliers selling most output to very few customers. Foodstuffs is good at critiquing remedies. It has not offered competing modelling of its own.

What happens next

The sequence is telling. Chief executive Chris Quin demanded National “show the receipts” in September, then came the warehouse challenge, now the margin attack. Foodstuffs is dismantling the case piece by piece before the Commission ever sees it.

The fix is simple and pro-market. Release the full Sense Partners model so both sides, and the Commission, can test it. A policy this consequential for suppliers, store owners and shoppers cannot rest on a headline number that nobody outside government can replicate. If the case is as strong as Willis says, transparency costs her nothing. If it cannot survive the 2.3% question, better to find out now than after the trucks have been split in two.

Sources

• 1News: Foodstuffs-commissioned review criticises break-up modelling (2026-10-03)
• RNZ: Foodstuffs-commissioned review criticises split modelling (2026-10-01)
• The Post: Foodstuffs queries claim it could duplicate warehouses for $300m after break-up (2026-09-28)
• 1News: Foodstuffs challenges National to show receipts on supermarket split savings (2026-09-18)
• Commerce Commission: Annual Grocery Report 2025 (2026-06-02)
• Commerce Commission: Annual Grocery Report 2024 (2025-08-06)
• Commerce Commission: Statement of Unresolved Issues – Foodstuffs North Island and South Island merger (2024-07-16)