Commerce Commission starts High Court case against Foodstuffs

The Commerce Commission has filed charges in the High Court against Foodstuffs North Island for blocking rivals from setting up shop.

The commission said the charges related to anti-competitive land covenants, which it said were lodged by the supermarket operator with the purpose of blocking competitors from opening rival supermarkets at particular sites, and developing existing ones.

It said the parties were working on a settlement to resolve the issues, and the High Court would determine any orders to be made in relation to Foodstuffs North Island in due course.

In a statement, Foodstuffs said the company had entered into a settlement agreement with the commission regarding the historical use of land covenants, having co-operated fully with the commission’s investigation.

“The matters the settlement relates to originated before Foodstuffs Wellington merged with Foodstuffs Auckland in 2013,” it said.

“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.”

However, it said it had never sought to enforce the covenants.

“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,” it said, adding it had voluntarily lifted any covenants that remained and by January 2024 had removed all those registered against land it owned.

However, commission chair John Small said the issues were historical, but considered 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,” Small said.

The proceedings followed an investigation into the conduct which came to light during the Commission’s market study into the grocery sector, completed in March 2022.

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

Small said 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 also made certain grocery-related covenants prohibited and unenforceable.

Small said the case against Foodstuffs North Island was important in demonstrating that the Commission would continue to pursue companies in any industry who 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,” Small said.

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

“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.”

As the proceedings were before the court, the Commission said it could not comment further at this time.