The current problem of the supermarket duopoly can be traced back to a Privy Council decision over 20 years ago ([2004] 1 NZLR 145) which cleared the way for Progressive Enterprises Limited (which operated the Countdown supermarkets) to acquire Woolworths (a competitor) over the protests of Foodstuffs, a second competitor which operated the New World, Pak ‘n Save and Four Square chains of stores. The effect was to reduce the number of competitors from three (normally considered sufficient to guarantee effective competition in a market) to two (normally recognised as giving rise to a state of a cosy duopoly.
Progressive had applied to the Commission for a clearance to allow the acquisition to go ahead at a time when the test for prohibiting acquisitions was whether the acquisition would place the acquiring firm in a dominant position in a market. Before the Commission’s decision had been given, an amendment to the Commerce Act came into operation changing the test from dominance to one of a substantial lessening of competition. The question arose, on an application by Foodstuffs to the High Court, whether the Commission should determine the clearance application under the old dominance test which was operative at the time the application was made or whether it should be determined under the new, more stringent, test which was operative when the Commission’s decision was made.
Relevant to this was a provision in the Amendment Act (section 26(b)) that nothing in that Act should “affect any proceedings commenced before the commencement of this Act”. The key issue that arose was whether the term “proceedings” was limited to judicial proceedings in the Courts or whether it was wide enough to include Progressive’s application to the Commission for a clearance to the acquisition. The Court of Appeal held that the Commission was required to apply the new test and that therefore a clearance should be refused. The argument in that Court did not centre on section 26(b) as Progressive had in the High Court conceded that the term “proceedings” was limited to Court proceedings and did not seek to re-activate the point in the Court of Appeal. It did so however in the Privy Council which gave it leave to do so and ultimately accepted its argument that a clearance application was a proceeding which thereby precluded the substantive provisions of the Amendment Act (and the new substantial lessening of competition test in particular) from having operation. My arguments for Foodstuffs were rejected in favour of an argument that had been conceded by Progressive in the High Court and not advanced in the Court of Appeal. Thus, the decision of the Privy Council to grant leave to Progressive to withdraw a concession that had been made in the High Court and maintained in the Court of Appeal laid the foundation for the establishment of a supermarket duopoly in New Zealand.
The supermarket duopoly has been at the centre of discussion as to the causes of increases in the cost of living in New Zealand in recent years. Ultimately, that has led to the enactment of the Grocery Industry Competition Act 2023 as a bespoke supplement to the Commerce Act. The Commerce Commission is retained as the principal regulatory agency and is given a number of specific functions designed to achieve the purpose of the Act which is stated to be “to promote competition and efficiency in the grocery industry for the long- term benefit of consumers in New Zealand”. The Commission’s functions are primarily to monitor competition and efficiency and in that respect to carry out inquiries, reviews and studies including international benchmarking. It is also empowered, after a process of consultation, to establish a grocery supply code which applies to and imposes duties on regulated grocery retailers – who are named as Woolworths, Food Stuffs North Island, Foodstuffs South Island and their franchisees and related parties.
The purpose of a grocery supply code is stated to be to promote fair conduct and prohibit unfair conduct between regulated grocery retailers and suppliers, the promotion of transparency and certainty about the terms of agreements between them and to contribute to a trading environment in which businesses compete effectively and with consumers participate confidently and that includes a diverse range of suppliers. The Code may regulate agreements with suppliers including specifying what terms or conditions must or may not be included and regulating marketing conduct and shelf-space allocation of groceries acquired under a supply agreement. A regulated retailer or related party that does not comply with the Code is liable to a civil liability remedy. These remedies are (1) a pecuniary penalty (the greater of $10 million and 3 times any ascertainable commercial gain made from the contravention or 10 percent of the turnover in the relevant period if the commercial gain cannot be readily obtained and $500,000 for an individual who is involved in a contravention); (2) a declaration of contravention; (3) compensation to any person who has suffered loss from a contravention; (4) an order varying or cancelling a contract; (5) an injunction (either restraining or requiring performance).
The Act provides for a dispute resolution scheme (to be approved by the Minister which can be invoked by a supplier or a wholesale customer (but not by a regulated grocery retailer) if the amount claimed does not exceed $5 million or if no amount is claimed. A settlement by mediation may result and will be binding on the parties and enforceable in the District Court or, alternatively, an adjudicator may make a binding decision which, depending on whether the amount in issue is below or over $350,000, may be appealed to the District Court or to the High Court, though only on a point of law.
Another area of regulation provided by the Act is Part 3, which imposes obligations on regulated grocery retailers to fix standard terms of supply to wholesale customers, who are persons or entities that receive or want to receive the wholesale supply of groceries from a regulated grocery retailer for the purpose of re-supplying them to consumers. The primary obligation is for the regulated grocery retailer to establish and implement rules, criteria and procedures for considering a wholesale supply request and to consider and negotiate such a request in good faith. Specifically, the regulated retailer much ensure that each wholesale agreement specifies a pricing or charging method by which the prices of groceries or charges for ancillary services supplied under the agreement are to be calculated. The Commission must be notified by the regulated retailer of each request that it receives for supply by a wholesale customer and the outcome of that request. The civil liability provisions apply to this Part of the Act.
The Commission is given power to inquire into whether further regulation is required and report to the Minister. It also has power itself to impose additional regulation, for example to require one or more regulated retailers to establish and maintain a framework for the wholesale supply of groceries or to set out a grocery wholesale industry participation code.
The Act provides for the appointment of a Grocery Commissioner who is or thereby becomes a member of the Commerce Commission and who may, either alone or in conjunction with one or two other Commissioners, exercise certain of the powers given by the Act to the Commission.
What are the results of the 2023 Amendment Act to date? It is early days but the reports so far issued by the Commission do not suggest success. The First annual Grocery Report issued in September 2004, as summarized by the Grocery Commissioner, expressed a “concerning picture” with increasing retail margins, continued high levels of profitability and ongoing dominance of the industry by the major supermarkets. The Report, he said, reveals a need for more competition and to unlock more of the regulatory powers provided by the Act. In particular, the wholesale supply regime, which sought to require grocery retailers to supply wholesale customers who would become competitors with the retailers was not working as intended as the retailers were not treating the wholesale customers in the same way that they treated their own stores with pricing and terms. This is reminiscent of the situation that arose when Clear Communications first entered the telecommunications market requiring access to the customer network of the incumbent monopolist Telecom in order to compete. Following major litigation all the way to the Privy Council which vindicated Telecom’s access pricing policy, Parliament ultimately abrogated that outcome by enacting statutory pricing regulation in the form of the Telecommunications Act.
Reference was made by the Groceries Commissioner to a case brought by the Commission against Foodstuffs North Island for lodging anti-competitive land covenants with the purpose of blocking competitors and which resulted in a $3.25 million fine. Notwithstanding that, land-banking continued to hinder new entry.
Finding a way to enable a third player to enter the market was clearly the Commission’s preferred outcome. Which makes the Privy Council’s decision 20 years earlier to allow the Commission to reduce the then 3 major players to 2 superbly ironic.
James Farmer KC
8 December 2025