The decision to decline the Foodstuffs merger could mean higher prices in the near future. File photo. Photo: RNZ / Kim Moodie
The Commerce Commission's decision not to allow a planned merger of Foodstuffs' North Island and South Island divisions could be bad news for shoppers - at least initially.
The commission said on Tuesday it was declining the proposal because it would substantially lessen competition.
Chair John Small said it would reduce the number of buyers of grocery products in New Zealand, and give them more power to extract lower prices from suppliers.
University of Auckland emeritus professor Timothy Hazledine said, while the decision to decline the merger was the right one, in the very near future it could mean higher prices.
"They've still go to compete with each other with grocery product suppliers - those suppliers have still got three independent supermarket chains to sell to, rather than two, which would have swung the power a bit over to the buyers.
"If anything in the short run sense, not allowing them to be more powerful dealing with their suppliers could mean a higher price for their suppliers - that is what their suppliers hope - and that could mean higher prices for consumers. In the short run it's not necessarily good news for consumers."
But he said, in the long run, he agreed with the commission view that more competition was better than less.
Hazledine said he would have been disappointed if the merger had been allowed to go ahead.
He had hoped that the commission might have directed the two Foodstuffs businesses to compete at the retail level, too.
Consumer spokesperson Gemma Rasmussen said she was also pleased with the decision.
But she said New Zealand should not necessarily focus on the idea of a third player joining the market as the solution to competition.
She said, in Australia, competition had "curdled" over time as Aldi had realised it could comfortably sit behind Coles and Woolworths and still make healthy profits, without driving prices down.
"When I came back from Australia in 2021 I immediately noticed my like for like grocery shop was $100 to $150 more expensive here but analysis by Consumer over time has shown the gap between Australia and New Zealand closing in terms of affordability."
She said it was not convincing to argue that savings from the suppliers would have been passed on to shoppers.
The commission said the merger would make it harder for other retailers to grow, potentially depriving consumers of more shopping options.
It also said the commission as also concerned that the consolidation with the proposed merger would lead to reduced investment and innovation by suppliers, meaning reduced consumer choice and/or quality of grocery products in New Zealand for consumers.
Hazledine and Rasmussen said the supermarkets seemed to be coming under more regulatory pressure in Australia, even though it was a less highly concentrated market.
Hazledine said there were already enough supermarket outlets around the country that they could compete with each other without having to build new ones, if the settings were right.