Praneeta Mahajan
Hamilton, June 19, 2024
The Commerce Commission has initiated legal proceedings in the Wellington High Court against Foodstuffs North Island, one of New Zealand’s leading supermarket operators.
The Commission alleges that Foodstuffs engaged in anti-competitive practices by using land covenants to block rival supermarkets from establishing themselves at various sites across the lower North Island.
The covenants in question, which were lodged over a considerable period, are claimed to have been strategically placed to prevent competitors from opening new supermarkets or expanding existing ones.
This practice, according to the Commission, hindered competition in local grocery markets, directly affecting consumer choice and market fairness.
Settlement and Court Determination
A settlement has been reached between the Commerce Commission and Foodstuffs North Island. The terms of this settlement have been deemed acceptable to both parties, but the final decision regarding any orders will be made by the High Court in due course.
Serious Conduct Warrants Action
Commerce Commission Chair, Dr John Small, emphasised the gravity of the situation, stating, “While historical, the conduct we allege is 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.”
Dr Small highlighted the broader implications of this case, stating, “This case against Foodstuffs North Island is important in demonstrating that the Commission will continue to pursue companies in any industry who use land covenants to stop rivals entering local markets. Land covenants can harm competition by raising barriers to entry or expansion, 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.”
He further urged all companies to review their use of land covenants to ensure compliance with the Commerce Act.
Investigation and Legislation
The proceedings stem from an investigation initiated during the Commission’s market study into the grocery sector, completed in March 2022. This study revealed that the use of restrictive covenants by major retailers was a significant barrier to competition.
In response to these findings, the Commerce (Grocery Sector Covenants) Amendment Act 2022 was enacted, making certain grocery related covenants prohibited and unenforceable. Foodstuffs North Island had already begun removing such clauses from its contracts as of June 2021 and committed to cease using them entirely by August 2021.
Legal Context and Penalties
Under Section 28 of the Commerce Act, certain land covenants that substantially lessen competition are prohibited and unenforceable. Penalties for breaches can be severe, including fines up to $10 million or three times the commercial gain derived from the breach, or 10% of annual turnover, whichever is greater.
In a related case, NGB Properties Limited was fined $500,000 in 2023 for placing an anti-competitive covenant on a site near Mitre 10 MEGA Tauranga to prevent Bunnings from opening a store in the area.
Broader Implications
The Commission has identified restrictive land covenants as impacting competition in various sectors, including residential building supplies, groceries, and retail fuels. Following its studies, the Commission has recommended an economy wide review of land covenant use and impact, a recommendation the Government has accepted.
As the proceedings against Foodstuffs North Island are ongoing, the Commission has refrained from further comment at this time.
Praneeta Mahajan is an Indian Newslink reporter based in Hamilton.
