Two points in five years
The Commerce Commission’s grocery market report lands with a familiar thud. Foodstuffs and Woolworths together hold approximately 82% of New Zealand’s grocery retail market, down from roughly 84% when the original market study kicked off in 2020. That is a two percentage point shift across more than half a decade of regulatory attention, a dedicated market study, new legislation, a mandatory code of conduct, and the creation of an entirely new Grocery Commissioner role.
By any honest measure, the reform programme has not worked. Not because the intentions were wrong, but because the structural advantages that created the duopoly remain intact, and nothing the government has done so far has meaningfully disturbed them.
The barriers are baked in
The Commission’s findings identify the same obstacles that were flagged years ago. The two incumbents control prime retail locations, established supply chain relationships, and the economies of scale that make it nearly impossible for a new entrant to compete at anything approaching national coverage.
This is not a market waiting for disruption. It is a market engineered against it. Every potential competitor faces the same arithmetic: you need hundreds of stores, thousands of supplier relationships, and a logistics network that can match the incumbents on cost. New Zealand’s population of five million does not generate the demand density that would attract an Aldi or Lidl-style discounter to absorb those entry costs.
The result is a market where weak competition continues to put upward pressure on grocery prices, and consumers and suppliers both pay the price.
Suppliers have nowhere else to go
For B2B readers, the consumer price angle is only half the story. The more pressing issue is what an 82% duopoly means for every food producer, FMCG brand, and packaged goods company trying to reach New Zealand shoppers.
Two buyers control access to the overwhelming majority of shelf space. Suppliers report limited negotiating leverage, with the dominant retailers effectively dictating terms on pricing, distribution, and product ranging. The NZ Herald’s summary of the report describes suppliers struggling to negotiate favourable terms, with the retailers controlling not just shelf allocation but the distribution networks that get products to stores.
A food business with 80% or more of its domestic revenue running through two accounts is not diversified. It is structurally exposed. Lose a listing, accept a margin squeeze, or fall on the wrong side of a ranging review, and there is no alternative channel at comparable scale. That is not a commercial negotiation. It is a dependency.
The code of conduct is not competition
The Grocery Industry Competition Act was the centrepiece of the government’s response to the original market study. It introduced a mandatory code of conduct governing how the major retailers deal with suppliers, and it created the Grocery Commissioner to enforce it.
These were substantive steps. But a code of conduct regulates behaviour within an existing market structure. It does not change the structure itself. You can mandate fairer dealing, but you cannot mandate the existence of a third major retailer.
The Commission appears to recognise this. Its latest report raises the question of whether existing competition law provides adequate tools, or whether entirely new regulatory instruments are required. That is a significant escalation in tone, even if it leads nowhere immediately.
New Zealand pays the premium
International comparisons reinforce the point. Markets with more fragmented grocery retail, where discounters hold meaningful share, consistently produce lower consumer prices. New Zealand grocery prices remain among the highest in the developed world, and the correlation between market concentration and price outcomes is not subtle.
Australia went through a similar reckoning with its Coles-Woolworths duopoly but at least had Aldi enter at scale. New Zealand has seen nothing equivalent, and the barriers the Commission identifies suggest it will not.
What businesses selling through the channel should be doing
The practical implication for any supplier dependent on the grocery duopoly is straightforward: diversify or accept the risk.
Direct-to-consumer channels, export markets, and food service distribution all reduce exposure to the two-buyer problem. None of them replicate the volume that a national supermarket listing delivers, but volume that comes with margin erosion and zero leverage is not the asset it appears to be on a revenue line.
The Commission will keep monitoring. The government may eventually legislate further. But five years of reform have produced a two-point shift in market share and no structural change. Businesses waiting for the regulators to fix this market will be waiting a long time.
Sources
- Commerce Commission – Grocery Market Competition Reports
- RNZ Business – Grocery market still dominated by Foodstuffs and Woolworths
- NZ Herald Business – Grocery duopoly persists
- Stuff Business – Grocery market concentration unchanged
- 1News – Foodstuffs and Woolworths duopoly shows little sign of weakening
- BusinessDesk – Market concentration in grocery sector persists
- Interest.co.nz – Grocery duopoly unchanged after years of scrutiny