Foodstuffs-commissioned review criticises break-up modelling, tell me about this news today

Foodstuffs has pushed back against political proposals to break up its grocery business, releasing an independently commissioned review that criticises official economic modelling of the breakup as “economically implausible” and an “economic mirage”.

The Context

The debate follows policy proposals in New Zealandnotably backed by the National Partyto pursue the structural separation of major supermarket operations. Under the proposal, the Commerce Commission would assess whether separating brands like Pak’nSave from New World and Four Square would benefit consumers. If proven advantageous, the government would legislate the split to increase retail competition and bring down grocery bills.

NBR+ 1

The government’s proposal relied heavily on cost-benefit modelling conducted by Sense Partners for the Ministry of Business, Innovation, and Employment (MBIE). That study estimated an average retail price drop of 3.5% in the first year and projected long-term household savings ranging from $200 to $1,320 annually by 2035.

1News+ 1

Key Findings of the Foodstuffs-Commissioned Review

Foodstuffs commissioned economic consultancy HoustonKemp to scrutinise the MBIE/Sense Partners modelling. HoustonKemp’s analysis identified several major flaws in the original assumptions:

Inside Retail New Zealand

• Underestimated Transition and Supply Chain Costs: HoustonKemp found that the original model did not realistically account for the massive ongoing expenses of duplicating supply chains, logistics, distribution networks, IT infrastructure, and administrative support functions across separate entities. While Sense Partners assumed a modest 1% rise in supply chain costs, HoustonKemp pointed out that even a 2% increase drastically erodes projected consumer benefits, with higher cost increases turning the outcome into a net negative.

  Inside Retail New Zealand+ 1

• Flawed Competition Assumptions: The official modelling assumed that Foodstuffs brands do not currently compete with one another. HoustonKemp rejected this premise, noting that owner-operated stores and distinct brands (such as Pak’nSave and New World) already fiercely compete locally on price and convenience against each other as well as Woolworths. HoustonKemp argued that nearly all of the projected price drops in the official model relied on this flawed assumption of nonexistent baseline competition.

  Inside Retail New Zealand

• Commercial Viability and Profitability: The review highlighted that the government’s modelling focused heavily on gross retail margins while largely ignoring net profits and commercial feasibility. By failing to model a feedback mechanism between falling prices and surging operating overheads, the review argued the split could threaten the financial viability of individual stores and regional supply chains.

  supermarketnews.co.nz+ 1

Foodstuffs has used this analysis to warn policymakers that mandating a structural separation will likely drive up operational overheads and supply costs rather than deliver the consumer price relief advertised by proponents.