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Finance Minister Nicola Willis will announce today at 10am measures for a third supermarket entrant in a bid to improve competition in the country’s duopoly grocery sector, dominated by Foodstuffs and Woolworths.

Willis has said she is willing to give new supermarket entrants the “VIP treatment”.

“I want to get on and work with a third entrant to get them in the door, and that will need a bespoke arrangement that will be bespoke to that entrant,” Willis said previously.

But veteran competition consultant and expert in grocery policy Ernie Newman earlier said the Government needs to be realistic about our “truly broken” market.

Newman said it’s wishful thinking there is anything now that we can do that would suddenly attract an international investor.

“The Government needs to be realistic here. Our market is well and truly broken,” Newman said.

“The solution is to fix what we’ve got and to not go down rabbit holes trying to attract an entrant into a market that’s well and truly buggered.”

Newman said the problem with a new entrant is that supermarkets are a business of scale.

“You’ve got to have, especially in a relatively small market like this, sites within people’s reasonable driving distance. So that means somewhere around 150-200 sites to kick off. You can’t come in with half a dozen sites and think ‘wow job done’.

“You’ve got to come in and be ready to do a few years of making a loss and pretty much have a national coverage from day one in order to have any show.”

• Watch: 'Duopoly needs to change' – Govt's warning as supermarkets put on notice
• Do we pay too much for groceries? Govt orders supermarket probe

Breaking up the duopoly

The Commerce Commission’s first annual report on the grocery sector, released last year, found no meaningful improvement in competition.

The report built on the findings of its 2022 Market Study which said competition was “muted” and “competitors wanting to enter or expand face significant challenges”.

New Zealand's duopoly supermarket sector is under the spotlight.

Newman says the duopoly of Foodstuffs (Pak’nSave, New World and Four Square) and Woolworths (Countdown – being rebranded to Woolworths) must be broken up.

“The only thing that I think is going to fix this is to unravel the problem we have created which is a duopoly market,” Newman said.

“Break them up [Foodstuffs and Woolworths] and turn them into completely separate companies, with no inter-locking directorships or anything of that kind, that would be a really good start.

“You’d need to legislate it. It would need to be done pretty much on a similar basis to the whole saga around Telecom. The Government actually needs to strengthen its anti-trust legislation and pass law that says that Foodstuffs and Woolworths, or one or the other, are to be broken up and divested into separate businesses.”

Newman said in terms of a new supermarket player, his dream solution would be for The Warehouse, in conjunction with iwi.

“You take the existing Warehouse sites around the country which are mainly metropolitan, and you add to that the regional and rural sites that many Māori groups have got … put some iwi money in there and then I think you’d have a viable third entrant.

“But I’m not seeing the signs at the moment.”

Cameron Smith is an Auckland-based journalist with the Herald business team. He joined the Herald in 2015 and has covered business and sports. He reports on topics such as retail, small business, the workplace and macroeconomics.