The government says all options are on the table to introduce more competition into the supermarket sector, which could include the break-up or restructuring of the two existing supermarket chains.
Currently the Woolworths and Foodstuffs chains dominate New Zealand's supermarket sector.
Cabinet has also agreed to a formal request for information (RFI) to accelerate improved competition.
Economic Growth Minister Nicola Willis said grocery prices in New Zealand were high by international standards.
"It is crucial that we get this market working effectively. Doing so will deliver benefits into every shopping trolley and create new business opportunities up and down the supply chain."
Willis said the RFI would help the government to determine the next potential regulatory and legislative changes, and whether structural changes would be needed.
"I'm hopeful that people who have said things to me behind the bike sheds about some of the things that go on in the supermarket sector will take this opportunity to tell us formally that those things are happening and spell them out."
She called it a "major step".
"Officials are working with the appointed advisors to consider options including a possible demerger of existing entities."
Willis said there were a range of views about what that design would look like.
"Do you separate the wholesale from the retail? Do you split the existing brands up? And if you do that, what is required in terms of their wholesaling and warehousing and logistics, how would they be broken up to match the new brands?"
The advice she is seeking asks "what actually is the ideal market structure" and how can that be achieved.
"I don't want to move to the next stage of a structural intervention," Willis said, until it was clear what was stopping people investing in the past, and what steps could be taken that would facilitate competition.
"I need to present a case to Cabinet for what has been a thoroughly thought through intervention."
She said information for the RFI would be sought in the next six weeks, and she would bring further recommendations to Cabinet in mid 2025.
If legislation was needed, Willis said she wanted it to be introduced before the end of the year and passed during this parliamentary term.
"I am putting all options on the table," she said.
"I'm talking about potentially massive changes. We have to get the detail right. And I think that New Zealanders need confidence that we've thought this through thoroughly, that we've explored all of our options."
The government reaffirmed that they would not establish a third grocery chain.
Labour, consumer advocates respond
In response, Labour has accused National of failing to deliver on supermarkets by not making any meaningful change to the grocery sector.
Commerce and Consumer Affairs spokesperson Arena Williams said the long-awaited announcement did not bring in competition, introduce a new player nor bring down prices as promised.
She said the fact the government was only now asking for information and advice showed it had failed to prioritise reducing costs.
However consumer advocates are supporting the government's move.
The Grocery Action Group's Mavis Mullins said small tweaks to the supermarket sector weren't working.
"I think there have been cautious attempts to kind of reconfigure or tweak, but what's required here is not a tweak, we are past the tweak stage.
"We're at a stage now where it is going to take something that's going to have to move that scale and move quite quickly."
Mullins said she was pleased the government was making supermarket competition a priority.
Foodstuffs told RNZ it would constructively participate in the government's request for information on barriers for other companies to break up the supermarket duopoly.
A spokesperson for Foodstuffs said any changes by the government needed to deliver real benefits for customers, as well as strengthen the sector through a clear cost-benefit analysis for consumers.
Foodstuffs was keen to discuss how competition could be improved in ways that reduced costs, complexity and delays for all players in the market, while ensuring fairness for their hundreds of New Zealand family-owned businesses.
While Woolworths said it had noted the government announcement to potentially break up the country's supermarket duopoly.
The supermarket chain declined an interview opportunity, but the interim managing director Pieter de Wet said they would consider the announcement in detail.
Last month, Willis spoke at the New Zealand Economics Forum in Hamilton and spelled out findings of a 2022 Commerce Commission report showing "competition between grocery retailers is muted, profits are high, product ranges are limited and shoppers pay higher prices than people in many other countries".
Willis also noted New Zealand supermarkets were the most expensive for kitchen staples compared with the UK, Ireland and Australia.
In February, Willis ruled out the government opening its own grocery chain and said the government could not force a third entrant to the market to break the country's supermarket duopoly.
In September last year, Grocery Commissioner Pierre van Heerden said supermarket margins had increased, profits remained high and the two main operators, Foodstuffs and Woolworths, remained dominant.
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