The Commerce Commission has accused supermarket operator Foodstuffs North Island of lodging land covenants with the purpose of blocking competitors from opening rival supermarkets at particular sites.
In a statement the Commerce Commission said it had filed proceedings in the Wellington High Court against Foodstuffs North Island, alleging that anti-competitive land covenants were lodged by the supermarket operator with the purpose of blocking competitors from opening rival supermarkets at particular sites and developing existing ones at several locations across the lower North Island.
Commission chair John Small said land covenants have the potential to harm competition by raising barriers to entry or expansion in a market, making it harder for rival businesses to compete effectively and gain scale.
He said that while historical, the Commission considers the conduct to be serious enough to warrant the action under the Commerce Act.
"This is a vital $25 billion sector, which impacts every Kiwi consumer. The covenants were of long duration, and we allege were lodged with the purpose of hindering competitors in local towns and suburbs where Kiwi consumers buy their groceries."
"Ultimately, the loser here is the Kiwi consumer who is deprived of the benefits that come from a more competitive market."
The Commission and the defendants were looking to settle proceedings.
It follows an investigation into the conduct which came to light during the Commission's market study into the grocery sector, completed in March 2022. It found that the use of covenants on land, or in leases by the major retailers was limiting the number of sites available to competitors.
Small acknowledged that in August 2021, Foodstuffs North Island committed to stop using restrictive land covenants and exclusivity provisions in leases and in June 2021 had already started a process to identify and drop the clauses from existing tenancy contracts.
The Commerce (Grocery Sector Covenants) Amendment Act 2022 has also made certain grocery-related covenants prohibited and unenforceable. This legislation was a recommendation from the Commission’s market study into the grocery sector.
Foodstuffs responds
In a statement, Foodstuffs North Island said it had entered into a settlement agreement with the Commerce Commission and had "fully co-operated" with the investigation.
"The matters the settlement relates to originated before Foodstuffs Wellington merged with Foodstuffs Auckland in 2013.
"While there was no intent to act unlawfully, we acknowledge that restrictive land covenants in some locations had the purpose of lessening competition in terms of the Commerce Act," a spokesperson said.
Foodstuffs said it had "never sought to enforce the covenants" and moved to improve processes in 2015 to ensure no further restrictive land covenants were lodged for the purpose of preventing competitor activity.
"In 2021, we voluntarily started lifting any covenants that remained and by January 2024 had removed all those registered against any land we own."
"We no longer include restrictive land covenants in new property transactions and support the Commerce (Grocery Sector Covenants) Amendment Act 2022, which prohibits the use of restrictive land covenants by designated grocery retailers, including us."
Foodstuffs has proposed merging its North and South Island divisions and operates the New World, Pak'nSave and Four Square brands. The merger requires Commerce Commission and High Court approval.
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