For a start, most shoppers think of the main Foodstuff brands — Pak’nSave, New World and Four Square — as nationwide chains. In many ways, they operate as a single entity.
While the two companies have different ownership structures, the stores are owner-operated.
If they could consolidate their back-office functions, streamline operations and lower costs then groceries might be cheaper. They would be one entity in a stronger position to compete with nationwide Woolworths.
That is the theory, and how free-market capitalism should work.
However, a Commerce Commission study into the industry last year described the retail grocery market as a duopoly. Woolworths and Foodstuffs made excess profits and dominated the $25 billion business.
Although the Grocery Commissioner, appointed last year, chips away, little appears to have changed. What is particularly galling are the jumps in prices for some lesser profile items. Under the cover of inflation, the supermarket duopoly had the chance to bump up prices.
The raison d’etre of businesses is to make profits so why wouldn’t they?
Predictably, the public is suspicious of supermarket pricing and the industry generally. Against this background, it is little wonder the Commerce Commission rejected the proposed merger.
It said the combined retailer would have reduced competition and enabled Foodstuffs to extract lower prices from suppliers. There was a "real chance" the merged entity’s buyer power would make it harder for other grocery retailers to compete and grow, potentially depriving consumers of a more competitive grocery industry in the future.
A national Foodstuffs entity could also make price co-ordination between it and Woolworths "more likely".
If two instead of three buyers could have squeezed suppliers more, that could have lowered prices in the short term. But long-term, successful and varied suppliers are an important part of a functioning market.
It was suggested by the Foodstuffs South Island chief executive that South Island suppliers could have more opportunities to sell nationally under the merged entity. But it could also be easier to exclude them in favour of larger North Island suppliers.
As it is, the relative independence of Foodstuff stores allows them more flexibility on suppliers and products than the Woolworths structure does.
It comes as no surprise that New Zealand came out most expensive after Australian researchers recently compared the prices of common grocery items in leading supermarkets in Australia, the United Kingdom, Ireland and New Zealand.
One of the researchers from Edith Cowan University, Perth, said that New Zealand was as isolated as Australia, somewhat excluded from main global supply chain corridors, with a small population and heavily reliant on imports.
But he also said the duopoly was even stronger than in Australia. New Zealand supermarkets were underperforming compared to their overseas counterparts and it paid "even more to do your homework and actively compare prices before shopping".
All is not well in Australia. Its commerce commission is prosecuting Coles and Woolworths after identifying 511 instances of temporarily raising prices and then reducing them to a higher level than the original while claiming to deliver a discount.
"Price gouging" has become a huge issue. Sadly, the industry shake-up following the entry of German giant Aldi has faded. It has found it can make healthy profits by sitting back as a comfortable third operator.
Foodstuffs will have the opportunity to appeal the Commerce Commission decision to the High Court and could be expected to do so.
Public sympathy and political posturing do not lie with the supermarkets. The commission has also made clear where it is coming from. Foodstuffs will be banking on removing emotions from the matter and arguing again its case strictly on matters of competition law.
