Supermarket barriers to entry

Last year, my submission to the Commerce Commission's inquiry into supermarket competition urged the Commission to look at regulated barriers to entry that make it near impossible for a new grocer to set up at scale. It seems just stupid to make it basically illegal to set up a new supermarket chain while complaining that there aren't enough supermarkets around.

The material barriers to entry? You have to find a set of sites with the right zoning, that aren't already encumbered with a covenant against use in grocery retail (which only matters because so few sites are zoned), then you have to deal with lags in consenting that can range from months to a decade, and you probably need to get approval through the Overseas Investment Office because larger footprints adjacent to sensitive land need to be cleared and the definition of sensitive land is broad. 

Nobody's going to tie up the kind of capital needed to do this for the period needed to clear all the stupid hurdles. So we don't get much entry.

Well, we now have one new grocer in Auckland, on one site. A smaller footprint one so fewer barriers than a larger footprint one. And what does the new entrant say?

"We found a number of sites that unfortunately had a willing tenant; that was us, and a willing landlord, but there was a covenant on the land that prevented any food being sold, dating back to 1986," Snowden, who has worked in retail for 30 years, told the Herald.

This was a grocer looking for one site.

Free up zoning so that every site in the city can be retail grocery, and encumbrances wouldn't matter. ComCom could decide to strike covenants as having anticompetitive effect, and it wouldn't at all be nuts for them to look at those. 

But it is absolutely insane to be looking at breaking up existing grocery retail chains or forcing retail/wholesale splits while we still have a land use and overseas investment approvals system that effectively prohibit larger-scale entry. Fix the real problem. 

I wonder what they'll be announcing next Tuesday. It will signal the direction ComCom is likely to be taking in future market studies, including building materials supply. Will they look at the real government-imposed restrictions that create hefty restraints on competition and potential entry? Or will they take those as constraints and recommend breaking up retailers and their supply chains in a pandemic?