Foodstuffs North Island has entered legal proceedings as the Commerce Commission alleges the supermarket giant blocked competitors from opening rival supermarkets at particular sites and developing existing ones at several locations across the lower North Island.
The Commission filed proceedings in the Wellington High Court against Foodstuffs North Island, alleging that anti-competitive land covenants were lodged by the supermarket operator.
Commission chair Dr John Small said in a statement on Wednesday that, while historical, the Commission considers the conduct to be serious enough to warrant proceedings under the Commerce Act.
"This is a vital $25 billion sector, which impacts every Kiwi consumer," he said.
"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."
The High Court will determine any orders to be made in relation to Foodstuffs North Island.
The proceedings follow an investigation, completed in March 2022, which looked into the conduct that came to light during the Commission's market study of the grocery sector.
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.
It comes after 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 - legislation that was a recommendation from the Commission's market study into the grocery sector.
Dr Small said this case against Foodstuffs North Island was important in demonstrating that the Commission would continue to pursue companies in any industry who use 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 Commission has previously identified restrictive land covenants as impacting competition in the markets for residential building supplies, groceries and retail fuels, through its market studies into these sectors of the New Zealand economy.
Last year, NGB Properties Limited (NGB) was penalised $500,000 after the Commerce Commission took court action over an anti-competitive covenant that NGB placed on a site close to Mitre 10 MEGA Tauranga, for the purpose of preventing competitor Bunnings from opening a Bunnings Warehouse in the area. NGB is the sister company of Juted Holdings Limited, which operates the Mitre 10 MEGA in Tauranga.
Penalties for breaching the Commerce Act can be significant - fines can reach up to $10 million or three times the commercial gain derived from the breach, or 10 percent of annual turnover, whichever is greater.
"I encourage all companies who have previously lodged land covenants that restrict the use of sites by their competitors to consider whether they comply with the Commerce Act," Dr Small said.
