Commerce Commission files proceedings against Foodstuffs for blocking rival supermarkets opening, anti-competitive land covenants

The Commerce Commission filed proceedings in the Wellington High Court against Foodstuffs North Island over anti-competitive land covenants but says an agreement has been reached to settle matters.

The commission alleged the supermarket operator lodged anti-competitive land covenants.

That sought to block competitors from opening rival supermarkets at particular sites and developing existing ones at several locations across the lower North Island.

Both parties have entered into a settlement to resolve proceedings on terms acceptable to them, the commission said.

The High Court will determine any orders to be made in relation to Foodstuffs North Island in due course, a statement said.

Commission chairman John Small said the commission considered the conduct to have been serious enough to warrant proceedings 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,” he said.

The proceedings follow an investigation into the conduct which emerged during the commission’s market study into the grocery sector, completed in March 2022.

The study identified that the use of covenants on land, or in leases by the major retailers, was limiting the number of sites available to competitors.

Small said 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 remove any such clauses in 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.

Small said this case against Foodstuffs North Island was important in demonstrating that the commission would pursue companies in any industry if they used land covenants to stop rivals entering local markets.

“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. Ultimately, the loser here is the Kiwi consumer who is deprived of the benefits that come from a more competitive market.”

The law prohibits land covenants that harm competition. It bans the requiring, giving, carrying out, or enforcing of a covenant that has the purpose, effect, or likely effect of substantially lessening competition in a market.

Covenants that breach the law are also unenforceable. A land covenant is an agreement or promise to do, or not do, something in relation to a piece of land. Penalties can be up to $10 million or three times the commercial gain derived from the breach.

In response, a Foodstuffs North Island spokeswoman said today matters were settled but had 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. We never sought to enforce the covenants and, in 2015, Foodstuffs North Island sought to improve its processes to ensure no further restrictive land covenants were lodged for the purpose of preventing competitor activity,” she said.

In 2021, the business voluntarily started lifting any covenants that remained and by January 2024 had removed all those registered against any land it owns.

“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,” she said.