Competition in the grocery sector has not improved and the Commerce Commission says it's planning to ramp up regulation and enforcement, and recommending a regime of stiff penalties.

It's the first of the annual report into competition in the grocery sector since the appointment of Grocery Commissioner Pierre van Heerden in 2023.

He said the report painted a concerning picture of the $25 billion grocery sector.

Supermarket margins have increased, profits remained high and the two main operators, Foodstuffs and Woolworths, remained dominant, van Heerden said.

"We want to see more competition and sustained pressure on the major supermarkets to deliver better outcomes for consumers."

He said in a competitive market retail margins growth would be limited, or reduce, with price competition.

Grocery Commissioner Pierre van Heerden.

"The information provided to the Commission didn't indicate that these margins were being constrained. This is a red flag for the state of competition in the grocery industry in New Zealand.

"In contrast to the supermarkets' claims, the Commission's analysis shows that the retail prices of the major grocery brands have been increasing faster than the prices the major supermarkets pay to their suppliers."

Van Heerden said the Commerce Commission planned stronger action to improve competition and it would use its powers more forcibly to bring change, and look for added powers where needed.

It was looking at using using rules that could result in fines of up to $10m for breaches, as well as greater use of the Fair Trading Act.

Supermarket responds

Woolworths said it had strived to give better value for its consumers, and in the past year had been losing money on some sales with its profits more than halved.

"There has been a significant amount of major new regulations and initiatives in the grocery sector over the last year, like the Grocery Supply Code, unit pricing and the establishment of rules around wholesale," New Zealand managing director Spencer Sonn said.

"We're surprised the Commission hasn't given these a chance to bed in before looking at further change."

Van Heerden recently criticised supermarkets for pricing errors, saying New Zealanders were likely losing tens of millions of dollars a year.

And last month he said the Grocery Supply Code was not working properly.

In February, a new tool was launched for whistleblowers to help lift the lid on potential anti-competitive behaviour in the grocery sector.

-RNZ.