Nicola Willis is right about supermarket reform

Rezone it and they will come?

Nicola Willis says she is turning her attention to the supermarket sector. While some voices on the right grow squeamish at the mere suggestion of intervention, and some on the left daydream about KiwiShop-style state-run chains, Willis seems to favour a middle course.

She hasn't promised to break up the duopoly. She hasn't announced a regulator-run grocer. What she has done is ask direct questions of market participants and made it clear that regulatory tools, including structural ones, will be considered if necessary.

This is the correct path to take. We need to look at all the levers and use the ones that work. We should not pretend the market is functioning when it plainly isn't or that there is one simple trick to restore a market that has suffered the effect of distortion for decades.

The Commerce Commission's 2022 market study was unambiguous: competition in the grocery sector is not working. Foodstuffs and Woolworths dominate supply chains, retail space and brand recognition. Their margins are high, their supplier relationships heavily tilted in their favour, and their expansion strategies shaped as much by defensive land banking as by customer service.

As the Commission put it, consumers face a market where convenience is limited, innovation is sluggish, and profits stay high year after year.

Liberal groups like the New Zealand Initiative have urged the Government to focus exclusively on planning reform. They're not wrong to target zoning laws. It’s been a big part of the problem.

New Zealand's planning system is full of obstructionist and outdated barriers to development. It is absurd that local councils can block supermarkets on the basis that they'll compete with other retail hubs. But the idea that zoning is the sole problem is to disregard the whole picture.

For example, other countries have struggled with restrictive planning regimes for decades. Yet those markets still deliver lower grocery prices. The UK, for example, has tight planning laws but a fiercely competitive supermarket sector. France also has complex retail zoning rules, yet French consumers enjoy better prices, stronger private label competition, and wider access to fresh produce than New Zealanders do.

What's the difference? Those countries have scale, density and diversified competition. Once a player breaks in, they can achieve economies of scale and genuine reach. In New Zealand, by contrast, even with a zoning green light, a third entrant faces:

• A tiny, dispersed market;

• Entrenched supplier capture;

• Exclusive control of prime retail sites; and

• An incumbent duopoly with logistics networks and decades of brand loyalty

Those insisting that zoning reform alone will fix the supermarket sector are making the same mistake as those who claim a capital gains tax will single-handedly solve the housing crisis.

It seems like a simple fix: rezone it and they will come.

But there's just more to it than that.

Just as CGTs have failed to control housing affordability in countries like Australia, the UK, and the United States, where prices have still soared, so too have restrictive planning laws coexisted with lower grocery prices in jurisdictions like the UK and France.

In the CGT debate, advocates ignore broader structural drivers like land use and supply constraints. In the supermarket debate, zoning absolutists downplay entrenched market concentration, supply chain dominance and capital barriers. Both views amount to policy cargo cults — mistaking one lever for a cure-all, while ignoring the varied mechanics that actually drive outcomes.

There is always a danger for market liberals setting out to defend markets to find themselves defending oligopolies instead. Being pro-business isn't always the same thing as being pro-market - and it certainly isn't the same thing as being pro-consumer.