The Government has unveiled plans to speed up the regulatory process companies need to go through to get supermarkets built in New Zealand.

Economic Growth Minister Nicola Willis said the three main supermarket businesses “exhibit major market power and effectively operate as a duopoly”.

“The result is higher prices for New Zealand and fewer choices about where and how we shop.”

Willis said feedback she’d heard from existing supermarket players and possible new entrants was that there were “far too many regulatory stop signs and red lights”.

“They said these problems were made worse by restrictive council zoning and lengthy, uncertain, expensive consent processes,” she said.

“They told us that the time and cost involved in applying for resource and building consents for new supermarkets creates uncertainty for any new development and makes New Zealand an unattractive place to set up shop.

“We were told it can take up to four years to get permission for a new supermarket.”

What the Govt is going to do

To encourage supermarket competition, Willis said the Government will introduce legislation creating a specific fast-track pathway for new supermarket developments.

“We are creating an express lane for new supermarkets,” she said.

This will “significantly” speed up and simplify the building consent process for grocery store developments, Willis said.

“Developers will also be offered the opportunity to get standardised building designs pre-approved through a new multi-proof scheme. Together, these changes will improve the consistency and pace of the building consent process for new supermarkets.”

Willis said the Government’s proposed changes will reduce the time it takes to get consent to build a supermarket from about 18 months to a year.

She is still exploring whether to require the country’s two grocery giants, Woolworths and Foodstuffs, to sell off their assets. These companies exercise a lot of power in wholesale and retail spaces.

“A decision to restructure the supermarkets is not a decision that would be taken lightly. It would be a significant intervention that would carry costs and risks that would need to be rigorously weighted against the potential benefits to shoppers,” Willis said.

“A cost-benefit analysis is underway on specific options for restructuring the duopoly and will inform future advice I intend to take to Cabinet on whether further legislative changes are required to improve competition.”

The consenting changes the Government has decided to make include:

• Clarify grocery developers’ eligibility for the fast-track approvals process
• Establish a single building consent process for supermarket developments
• Remove restrictions to use MultiProof for faster building consent of standardised designs

“With these changes, well-planned and investment-ready new supermarkets have a streamlined pathway to attaining approvals for development,” Willis said.

She said the Government decided to make consenting changes on the back of feedback it received from the sector after it issued it with a voluntary “Request for Information”.

This request revealed five prospective new domestic competitors and credible growth aspirations among several existing grocery retailers.

“Ultimately those businesses will make their own investment decisions about whether and when to launch new supermarkets - the Government’s policy changes are intended to give them more confidence to do so,” Willis said.

“We have been in talks with Costco about its plans to open more stores in New Zealand...

“Their single West Auckland store has already markedly changed competitive dynamics in that local area and has provided a major export-pathway for New Zealand food producers.

“Costco has confirmed the Government’s express lane consenting approach will assist with their future expansion plans. They have also confirmed they can see opportunities for new stores to be built in New Zealand in the next few years.”

Willis said it was disappointing that other major international retailers such as Aldi and Lidl didn’t partake in the Request for Information.

Tempering expectations

Speaking to Newstalk ZB on Monday, Willis tempered expectations, saying she wasn’t going to unveil “a grand silver bullet to solve all supermarket issues”.

The Government’s offer to give potential new entrants to the market VIP treatment has borne no fruit – yet at least.

Willis said she wouldn’t be unveiling news of a big international supermarket chain coming to New Zealand.

Rather, she told Newstalk ZB, “There will be deliberate and specific actions that you have not heard about before”.

“What we have to do is create the conditions in which a new entrant or an existing player feel that they can expand. That is a commercial decision for that entity.

“I think the Government’s job is to say, ‘Okay, what is the red tape that would stop you doing that? What are the regulatory barriers? What is the uncertainty about the competition framework that might prevent you?’”

Willis’ comments suggest it is unlikely she will push the nuclear button and force a breakup of the two supermarket giants - Woolworths and Foodstuffs - that control both the wholesale and retail arms of the sector.

In March, she commissioned consultants at Coriolis to investigate this option.

Coriolis, in a report it helped prepare for the Ministry of Business, Innovation and Employment in 2022, when the Labour Government considered requiring supermarket companies to sell their assets, noted this was risky.

“Supermarket divestment could be net beneficial, but only if several key factors aligned well and several key risks could be adequately mitigated. And even then, any net benefits are not enjoyed equally by all households,” Coriolis, Sense Partners and Cognitus Economic Insight said.

“Divestment of the nature being considered here is unprecedented in New Zealand. The risks of unintended consequences are not trivial.”

The consultants concluded it was best for Foodstuffs (which has the retailers New World, Pak’nSave and Four Square) and Woolworths (which also operates under the Fresh Choice and Super Value brands) to sell some of their stores to reduce their market shares to a level specified by the Government.

They said the approach should be industry-led, rather than government-led.

The consultants said the aim could be to ensure there were either three different supermarket retailers in every pocket of the country, or four different retailers nationwide.

They couldn’t guarantee the benefits of divestment, in terms of this spurring more competition and lower prices, would outweigh the costs.

Separately, the Commerce Commission in June proposed ways of giving grocery suppliers a leg up in their dealings with the supermarket giants.

It proposed updating the Grocery Supply Code to:

• Stop retailers charging suppliers for stocking shelves or for groceries that become unfit for sale while in the retailer’s control.
• Require retailers to reimburse suppliers if they buy groceries at promotional prices, but then sell those products at higher prices after the sale period ends.
• Require retailers to keep records on how they’re complying with certain parts of the code.
• Prohibit retailers from retaliating against suppliers that exercise their rights under the code.

The commission, in June, also asked grocery suppliers and supermarket giants to voluntarily reduce their reliance on promotions and specials to make retail pricing more straightforward.

The Government has been very vocal about solving problems in the grocery, banking and energy sectors, but the public is yet to see meaningful change to curtail price hikes and/or improve services.

Jenée Tibshraeny is the Herald’s Wellington business editor, based in the parliamentary press gallery. She specialises in government and Reserve Bank policymaking, economics and banking.