State-owned supermarket idea ‘bad’

A state-owned supermarket is a "pretty bad" idea and could drive food prices even higher, a University of Otago academic says.

New Zealand’s two supermarkets chains have come under intense scrutiny recently following the release of the Commerce Commission’s report into the sector, which found both companies were making excessive profits and controlled the market through a duopoly.

Consumer New Zealand has since started a petition asking the Government to set up a state-owned supermarket or ensure access to smaller chains and new entrants as an option to improve competition in the sector.

Otago University department of marketing associate professor Sergio Biggemann said a state-owned supermarket would not constrain the rising cost of food.

Yesterday, Stats NZ released its monthly food price index, which found food prices rose 6.4% in the year to April compared with the previous year.

Grocery food was the largest contributor to the increase, influenced by hikes in the price of cheddar cheese, milk and eggs.

Fruit and vegetable prices increased 9.4% and meat, poultry, and fish prices rose 8.1%.

Overall grocery food prices increased 6.4%, restaurant meals and ready-to-eat food rose 5.3% and non-alcoholic beverages were up 2.8%.

Prof Biggemann said he did not believe a state-owned supermarket was a feasible option to bring down food prices.

It would not have positive outcomes for consumers and would waste taxpayers’ money competing in a market it did not have experience in, he said.

"It’s not their role to do that either."

Some of the Commerce Commission’s recommendations were "rather naive", especially asking the supermarket chains to be more open to collaborating with smaller players in the market, he said.

Creating a state-owned supermarket would be inefficient because it would only increase demand.

The potential chain would have to compete with the existing duopoly for wholesale products and the extra demand would drive prices higher, he said.

It was very hard for a smaller chain, such as Night n’ Day, to set up in the market because some suppliers were not allowed to supply them.

That was where the Government should focus its attention instead of creating its own supermarket chain.

"It’s a pretty bad idea and I don’t think it solves the problem," Prof Biggemann said.

This week, Foodstuffs announced plans to cut the price of food by an average of 10% across 110 of its most-shopped grocery items.

Its rival, Countdown, said it would freeze current market prices on about 500 essential grocery items through winter.

riley.kennedy@odt.co.nz