Otago Daily Times

Interferen­ce in grocery business might make things worse — economist

- PRICE CUTS

WELLINGTON: Consumers could end up worse off with higher prices and less choice if the Government tries to free up the wholesale grocery sector, an academic says.

Consumer NZ has started a petition to get the Government to set up a stateowned wholesaler or ensure access to smaller chains and new entrants, as one option to improve competitio­n in the grocery sector.

But Auckland University of Technology economist Dr Richard Meade said there was evidence that interferen­ce in wholesale arrangemen­ts did not necessaril­y deliver cheaper prices.

‘‘It may sound perverse . . . but if you introduce retail operators who are not integrated with the wholesaler­s, then it makes them more likely to raise their prices.’’

He said the call for a staterun grocery wholesaler was neither sensible nor desirable.

‘‘Our experience of staterun commercial activities is a good lesson in why they are better run by consumerfo­cused operators that fail if they get things wrong.’’

Dr Meade said the Commerce Commission’s recommenda­tions to prevent land banking by the two establishe­d operators and to make more land available for new grocery stores by removing planning restrictio­ns were balanced and could be useful.

But he noted New Zealand’s small population and population density worked against the appearance of any significan­t new nationwide operator such as the low cost German company Aldi, which has captured a significan­t part of the Australian market.

However, he said the appearance of the US bulk retailer Costco, soon to open in Auckland, might offer some competitio­n to the big two, Countdown and Foodstuffs.

‘‘Having Costco enter should be a pretty good lesson on what added competitio­n might do for this sector. Whether that can be rolled out nationwide remains to be seen,’’ Dr Meade said.

‘‘But fundamenta­lly you can’t have a third supermarke­t operator if it’s not profitable after the setup costs. Then you can’t do much better than the duopoly.’’

He said The Warehouse’s unsuccessf­ul venture into grocery retailing in the mid2000s suggested there might not be enough profit in the market for a major third operator. — RNZ

Newspapers in English

Newspapers from New Zealand