Competition between supermarket companies is "not working well" for consumers, the draft report into supermarket prices found today.
New Zealanders might pay less for their food if competition was working better, the report found.
Commerce Commission Chair Anna Rawlings described the sector as a "duopoly with a fringe of other competitors", with major supermarket companies Woolworths and Foodstuffs dominating the market, with weak competition between them.
They work hard to monitor each other, "this means they don't tend to compete head-to-head", Rawlings said.
If it was better, supermarkets would be pressured to provide "the right prices, the right quality and the right range of goods".
"The core problem is the structure of the market," Rawlings said, pointing to the two main retailers - Woolworths and Foodstuffs.
"While there is an increasingly diverse fringe of other grocery retailers, they have a limited impact on competition."
"This is because they are unable to compete with the major grocery retailers on price and product range in order to satisfy the widespread consumer demand for a main shop at a single store," Rawlings said.
Woolworths and Foodstuff had consistently high profits and New Zealand prices were higher compared to other countries.
"The major retailers appear to avoid competing strongly with each other, particularly on price.
"Competitors wanting to enter the market or expand face significant challenges, including a lack of competitively priced wholesale supply and a lack of suitable sites for large scale stores."
"Without intervention, we currently see little prospect of a new or expanding rival being able to constrain the major retailers effectively, and improve competition in the sector".
Rawlings said they thought the best option was to make it easier for new competitors to join the market or for existing ones to expand and to make more land available through planning options.
The study into the $22 billion industry was launched in November, after being an election promise by Labour during the election campaign.
Commerce Minister David Clark said the draft report indicated there were "problems in the market and that New Zealanders would get better prices, ranges and quality if there was increased competition in the grocery sector".
"Consumers deserve to know if they are getting a fair deal at the supermarket checkout, and the draft findings indicate they may not."
Countdown's managing director Spencer Sonn said they work "extremely hard with our suppliers and our team of 20,000 Kiwis to serve customers in our supermarkets and online shopping, and we recognise the role we play to help provide food and other groceries across Aotearoa".
"We hadn’t seen the draft report ourselves ahead of its release today, so we will now take the time to read it so we can provide our feedback within the required timeframe."
"We note this is only a draft report but on face value some of the recommendations would have significant implications and we’ll need time to work this through and understand the impact."