2 ≠ market

Some respite from the surging grocery prices has been recorded in October, but the 12% rise generally over two years is alarming.

Foodstuffs, Progressive duopoly keeps supermarket prices high
There are no other supermarkets apart from these two giants - and the Foodstuffs MD gives it away with his quote:

“I can assure everyone it is extremely competitive. It is what gets me out of bed in the morning – to come and try and compete against Progressive and to do the very best job I can for our customers,” he says.

He doesn't get up in the morning thinking about Li Kim's or Buja Bros or PolyMart or whatever - he thinks about Progressives because that is the only competition. He's acknowledged that there are only two players in this market. That is called a duopoly - and when they begin to co-operate with each other (as they inevitably will in some form or another) it can be called a cartel - an inherently anti-competitive situation. He's basically called bullshit on himself.

Both companies argue food is expensive because of global factors. But the researcher behind the findings says that does not stack up, because countries like the United Kingdom are also subject to global pressures and its increase was just under 33 percent – 9 percent lower than New Zealand’s.

Consumer Affairs Minister Heather Roy says the only solution is to encourage more businesses into the market.

“Our job is to set the environment so that compliance costs are low,” she says. “When there is a healthy market operating and lots of competition, prices for consumers will be lower.”

Compliance costs are largely irrelevant to this issue. An Act Minister isn't going to be the one to actually follow through with encouraging more businesses into the market though are they? If the Commerce Commission continues to ignore the situation, there's no reason Roy will want to buy a fight. Progressives are going to spend a billion dollars on re-branding in the next few years and they would kill any real attempt to encourage "lots of competition" in a blizzard of lobbying and PR at a mere fraction of their re-brand budget.

But until the Government is successful, the only advice is to shop around.

Shop around, eh?

Hard to shop around when the big chains use the RMA to stop their competitors opening stores (like the Wairau Rd Pack 'n Save saga on the North Shore) and end up controlling the only sites big enough to cope with a supermarket in built up areas. For example there's a vacant site at the Avondale shops where the 3 Guys supermarket was - it was demolished a decade or so ago by its owners, the Australian company Progressive Enterprises. Now locals have to go to the bigger, newer Progressive brand store, Foodtown, at the mall about a mile down the road. The problem is the Avondale site is still vacant - and I imagine it is because Progressive still owns it and doesn't want a Foodstuffs supermarket (or an expanded independent grocer who is on the corner of the section) getting hold of the site.

As I said in a previous post: Progressive has a 4.86b revenue and an operating income of $203m. Foodstuffs has a $7.6b revenue and a operating income $371m. Combined, these two grocers have revenue approaching 10% of GDP. That is a duopoly.

Take the Auckland Metropolitan market:

Foodstuffs:
12 x PAK'nSAVE
19 x New World
--
31 supermarkets

Progressive:
8 x Woolworths
24 x Foodtown
21 x Countdown
--
53 supermarkets

--
84 total supermarkets in Auckland
--
c.1.3m pop ÷ 84 = c.15,500 people per supermarket.

There aren't any other supermarkets are there? I can't think of any. There are some medium-sized stores that attempt to run several types of grocery activities under the same roof, but these are specialist - usually "ethnic" stores lacking product range, not supermarkets per se.

As far as inflation goes the major driver keeping most prices stable is more likely to be the recessionary consumer spending freeze and, in the background, the influence that the dollar shops are having seeing as how they cannot readily move their prices.