As an investor, regulatory intervention is always a lingering risk. For Woolworths Group Ltd (ASX: WOW) shareholders, the risk is heating up in New Zealand, according to reports by The Australian on Thursday. As a result, the Woolworths share price is down 0.5% as the market digests the news.
While the news is circulating in the media, the ASX-listed company has yet to provide an announcement regarding the matter.
Let's look at the details.
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What's moving the Woolworths share price?
A little competitive nudge on the cards
Monopolies and duopolies hurt consumers because the lack of competition often leads to higher prices. Effectively, such companies can name their price. The New Zealand competition regulator is concerned that Woolworths could be operating within a duopoly.
A report compiled by the New Zealand Commerce Commission found that Woolworths' Countdown chain and Foodstuffs are pulling in remarkable profits compared to international standards. As a result, the kiwi country's grocery prices are among the most expensive for developed nations.
Consequently, the regulator suggested the NZ government make it easier for new competitors to enter the market. However, if this fails to conjure up increased competition, the government may be forced to take a more direct approach.
Specifically, the report outlines the potential of the grocery chains being forced to sell some stores to create a third competitor. Otherwise, the government acting as a joint venture partner for a new competitor might be another option.
Commission chair Anna Rawlings said:
If competition was more effective, retailers would face stronger pressures to deliver the right prices, quality and range to satisfy a diverse range of consumer preferences.
In short, the New Zealand regulator wants more retailers to take a bite of Woolworths' pie. Investors might be concerned that in doing so, a bite is also taken out of the Woolworths share price.
At this stage, the report is a draft with feedback and comments due back by 26 August. The final report is expected to be published on 23 November 2021.
Woolworths' response
It is still early days for the grocery giant's response to the report. However, Woolworths New Zealand managing director Spencer Sonn said:
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 time frame. We note this is only a draft report but on face value some of the options would have significant implications and we'll need time to work this through and understand the impact.
The Woolworths share price is up 17.9% over the past year. This is in contrast to the S&P/ASX 200 Index (ASX: XJO) return of 23.4%.
