Commercial

Harsh land and investment laws will prevent new supermarket entrants

Zoning, consenting, and overseas investment approval processes make it close to impossible for a new supermarket player to enter the New Zealand market at scale, says the New Zealand Initiative.

Tuesday, March 21st 2023

Submitting to the select committee hearing on the Grocery Industry Competition Bill last week, the Initiative’s chief economist Dr Eric Crampton says there are too many barriers to entry.

“Zoning makes it hard to find places where new supermarkets might be allowed; consenting can add years of delay before anything is opened; and, the Overseas Investment Office adds its own layer of complexity and uncertainty.

Suppose the agent for Aldi, or Lidl, or Tesco, was considering the New Zealand market and the Government claims the local supermarkets are extraordinarily profitable. Why not enter?”

Campton says any of the overseas supermarket chains will need to find a set of sites where council zoning allows supermarkets.

While some of those sites are being freed up as the supermarkets void old covenants, in part with government prodding, restrictive planning laws mean the supermarkets will still be lucky to be able to assemble sites.

Worse, he says, the proposed Natural and Built Environment Bill outright forbids considering competition as a benefit in planning.

“If an overseas supermarket chain wants to submit in favour of a zoning change and cites the benefits of that competition for consumers, the planners will be required to disregard those benefits.”

An overseas supermarket chain also has to get OIO approval, which will be tough if they planned on getting a residential property rezoned or if they are adjacent to anything sensitive, Campton says.

“And, they face consenting lags of months to years. Where do they put their warehouses and how do they set up distribution if some of their retail stores are held up in consenting processes for months, but others are held up for years, and you can’t tell which will be which?”

Under the proposed legislation, the Commerce Minister will be able to require grocers to supply their competitors with products at government-regulated prices.

Crampton says that means if an overseas supermarket chain decided to set up and use its efficient international supply chains to get groceries to New Zealand consumers at lower prices than the existing operators can they’d clean up. Right?

Crampton says if they did, the Minister can require them to provide all their competitors with access to their hard-built international supply chains – at prices set by the government’s regulator.

“If an international chain built a new supermarket network in New Zealand from scratch, the Minister could require it to start supplying its competitors after they had been operating here as a grocer for five years. Some of the new chain’s outlets might not yet have even received resource consent.

If the supermarket chain bought even a single existing grocery outlet when setting up its network, the Minister could make the designation immediately.”

Crampton says a potential new entrant would be well advised to run screaming from the place. “It’s too risky. That kind of risk is a barrier to entry. Parliament should be easing those barriers, not making them worse.”

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