Five things households should know about the first annual grocery report

We're paying higher prices, specials are confusing and loyalty schemes aren't delivering overly significant rewards.

Those aren't just the musings of a frustrated supermarket shopper - but are some of the findings in the Commerce Commission's first annual grocery report, issued on Wednesday.

It might have been depressing reading for anyone hoping for major change in the sector.

But what does it all mean for consumers?

Here are five things households should know.

High prices aren't in your head

The report notes that food is a major expense for New Zealand households - and that what we pay is high by international standards.

In the year to June last year, the average household was spending $214 a week on groceries, or about 13 percent of their total weekly budget, it said.

Grocery prices had increased more than any other common household bill between 2019 and 2023. That was primarily due to fruit and vegetables - the prices of which have softened more recently as weather effects have passed.

In 2022, New Zealand had the fourth-highest grocery spending in the OECD and the report said New Zealanders spent more on grocery shopping than their counterparts in Australia or the UK.

The report also said "high-low pricing" - where supermarkets offer deeper discounts on certain products at particular times - made it harder for shoppers to judge whether things were really a bargain.

Rewards schemes were only giving a return of between 0.71 percent for Flybuys and 0.75 percent for Everyday Rewards.

Between 2007 and 2019, the average weekly spend on grocery food increased 7.3 percent every three years but the latest data showed a leap of 28.9 percent.

Rob Hamlin, a senior lecturer in the Otago University business school, said he felt that New Zealand shoppers were worse off than others around the world.

"The last big trip I did, I went to Tokyo and considered food there to be cheap. From Tokyo I went to Berlin and food in Berlin was ridiculously cheap and better quality. The UK was equally cheap but maybe comparable quality to what it is here."

He said there was a problem with supermarkets but in general, people in New Zealand were paying too much for a lot of things.

Competition is not bringing down margins, or prices

The commission's report said supermarkets would point to their own rising costs as the reason for price rises.

But it said margins had continued to grow - all of the major supermarkets had experienced an increase in price-cost margins, which meant that retail prices were increasing faster than the cost of the goods.

For non-fresh product categories, New World in the North Island had a margin increase of 3.9 percentage points between 2019 and 2023. Pak'n Save increased 2.3 percentage points.

In the South Island, New World had a 2.9 percentage point increase and Pak'n Save a 2.7 percentage point lift.

Countdown, now Woolworths, had a margin increase of 3.6 percentage points.

The report noted that, across fresh categories, margins dropped 0.4 percentage points on average.

The report said supermarkets "continue to achieve higher levels of profitability than we would expect in a workably competitive market".

It said Foodstuffs in particular had consistently achieved elevated profit levels between 2019 and 2023.

Consumer NZ head of research and advocacy Gemma Rasmussen said she did not think households would get relief at the checkout any time soon.

"Financial food concern remains the second-highest financial worry, coming second to only housing costs. For context, three years ago, concerns around food was ranked eighth of 10 major concerns, so food stress is certainly present.

"The Grocery Commissioner has been quick to emphasise that changes to improve the health and competition of the grocery sector will be

slow.

"The grocery report reveals that while thousands of households have been struggling to pay for food on the table, the supermarkets retail margins have increased, and competition is not improving. We think this speaks to the audacity of our duopoly who continue to squeeze suppliers and increase their margins at the checkout."

Woolworths argued that the role of multinational suppliers also needed to be looked at.

Foodstuffs argued it had kept price increases below the rate of food price inflation in 24 of the past 27 months.

Other competitors aren't finding it easy

The report noted Costco's opening generated a lot of interest and 150,000 members had signed up by March.

But while it recorded revenue of $341 million in its first full year, it suffered a $20.5m loss.

The commission said any new Costco outlets would not be open quickly and it could take two or three years from the time one was announced. It was not likely that Costco would be able to expand to the point where it could become a serious third supermarket contender, it said.

The report said the Warehouse could be an option - its network of shops meant it was in a good position to encourage shoppers to split their shopping in many cases - but it had said it had no intention of raising the capital needed to compete.

Other competitors could come from changing consumer demands and preferences, but attempts to pursue that sort of progress with online-only retailing had not been successful yet.

It noted that Bin Inn closed five stores since March 2022, Huckleberry was placed into liquidation and high-profile online retailer Supie failed.

But others, such as Reduced to Clear, were expanding.

Innovation, but is it what we want?

The grocery report noted that supermarkets' online offerings had increased and they were also investing in things like security.

Many stores had been improved and supermarkets were replacing paper price tickets with electronic ones.

But some customers were more interested in innovations that would lead to lower costs - such as a food discounter business model with a narrower range of products and lower price.

Bodo Lang, a professor of marketing analytics at Massey University, said it would be wrong to conclude that there had not been a benefit in the appointment of the commissioner and the review of the sector carried out two years ago.

He said the deregulation of the electricity market in the late 1990s proved that policymakers had the power to substantially change markets and force them to become more competitive.

"As a result of the alleged increasing profit margins of supermarkets, the Grocery Commissioner is considering utilising more serious tactics to lower grocery prices. Using the Fair Trading Act, a whistleblower website, and large penalties of up to $10 million are some of the next steps to make the sector more competitive and to reduce food prices for all New Zealanders."

Would fines make a difference?

But Hamlin said he doubted that fines would work. "My feeling would be that I don't think the amount of voltage they've got available to them will be sufficient to change these people's minds about complying with what the government wants them to do."

He said any fine could end up being passed on to shoppers in higher prices.

"If the Commerce Commission wants this to work they have to up the voltage considerably, that means going after the individuals with executive authority to make the decisions that are causing problems in the first place."

Hamlin said he suggested to the commission that supermarkets could be required to have a constant margin on everything they sold, so that if a supplier wanted to reduce what they charged, the retailer could not pocket the difference.