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Home / Business / Companies / Retail

Land banking by supermarkets should be banned: Commerce Commission competition report

Anne Gibson
By Anne Gibson
Property Editor·NZ Herald·
8 Mar, 2022 04:22 AM5 mins to read

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Chairwoman Anna Rawlings reveals the findings and recommendations from the Commerce Commission's market study into supermarkets. Video / Commerce Commission

Property has been partly blamed for our groceries being so expensive, with the Foodstuffs/Woolworths duopoly accused of land banking to bar competitors - a practice the Commerce Commission wants banned.

Submissions from The Warehouse Group, Food and Grocery Council and Consumer New Zealand referred to restrictive land practices including land banking and slapping on covenants.

One consultant agrees with the recommendation to stamp out such practices and says land banking must be banned.

ComCom said today freeing up sites for more grocery stores would help us get more supermarkets, therefore, more competition.

"Monitoring of land banking by the major grocery retailers" was one of the recommendations of today's report.

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Freeing up sites for supermarkets was important for facilitating direct competition with the existing major grocery retailers, today's report said.

Chris Wilkinson of First Retail Group wants land banking stamped out. Photo / Mark Mitchell
Chris Wilkinson of First Retail Group wants land banking stamped out. Photo / Mark Mitchell

"We recommend a range of possible amendments to planning laws and instruments to ensure sufficient land is available for new supermarkets to be built, increase certainty for those seeking to develop new retail grocery stores and limit the grounds on which new developments can be declined," it says.

Banning restrictive covenants on land is another recommendation.

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A wide range of stakeholders indicated via submissions and comments at meetings that site availability was a significant factor impacting on entry and expansion, and/or that conduct, for example, land banking, restrictive covenants by incumbent firms may reduce site availability, ComCom said.

Chris Wilkinson of consultants First Retail Group backed the recommendation to stamp out land banking.

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Big international chains wanting to come here have struggled to get land and their investigations had been pointless because they couldn't get the key real estate they needed where they needed it, he complained.

"In many areas, the good sites have been locked out by the big two who seem to be land banking a lot of properties," Wilkinson said.

Australia's supermarket prices were a lot lower than ours because there's more competition, including German chain Aldi, he said.

Supermarkets put a lot of effort into keeping their dominance here.

But he has noticed some supermarket chains selling lately too.

"There's been a decided shift in the supermarkets' property strategies, with sites released for alternative uses like retirement homes, mixed-use developments, etc as they've looked to free up capital for improved supply-chain, e-commerce capability, more efficient store environments and enhanced customer experience," Wilkinson said.

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Saturation in some areas and the knowledge that shopper habits are changing sparked some sales, he thinks.

"But there are still parts of New Zealand where strategic land holdings are limiting opportunities for competitors to establish, such as regenerating areas in our main centres," he said.

Overseas, it was these types of suburbs where challenger brands like Aldi or Lidl would typically open and cause a huge upset by re-anchoring town centres.

ComCom said Consumer NZ's submission mentions land banking to prevent potential rivals from establishing a presence.

The practice the chains are accused of is buying land and holding it for future use without any specific plans for its development.

Costco's debut in New Zealand is at Westgate. The giant store is opening later this year. Photo /  Brett Phibbs
Costco's debut in New Zealand is at Westgate. The giant store is opening later this year. Photo / Brett Phibbs

"We have not assessed the individual impact of each land banked or covenanted site on competition, or considered the availability of alternatives in each area where there is a land banked or covenanted site. We have instead analysed the impact each type of conduct is likely to have on the availability of sites more generally," ComCom's report said.

Suitable sites are a key requirement for the successful entry and expansion of supermarkets.

Entry or expansion on a regional or national basis would require access to numerous suitable sites.

The ease of locating and acquiring suitable sites at a price that is viable for store development are likely to be key factors affecting the entry and expansion of supermarkets, particularly in urban areas, today's report said.

Foodstuffs North Island and Foodstuffs South Island agreed that site availability was a factor impacting on entry and expansion by supermarkets but indicated their view that it should not be given inappropriate prominence in our analysis and recommendations, ComCom said.

Land for suitable sites may not be physically available due to geography or existing patterns of urban development.

Beyond that, ComCom identified two key conditions of entry and expansion which may impact site availability or development: planning regulations about supermarket development and conduct by the major grocery retailers affecting the availability of store sites.

That last point includes land banks or placing covenants or encumbrances on titles to restrict others' opportunities to build a supermarket.

If they leased land, they might put a caveat on the title to say a supermarket couldn't operate there, ComCom said.

Warehouse Group's submission mentions limited access to supply of suitable sites and that certain property leases contain restrictive covenants.

The NZ Food and Grocery Council also mentioned land banking "as a well-established strategic barrier to entry".

ComCom said Costco operates using a different concept from supermarkets and would likely have different land requirements, notably requiring significantly larger sites.

Its new Auckland store now under construction, will be about 14,000sq m.

"This is significantly larger than supermarkets currently run by the major grocery retailers. In addition, as mentioned in Woolworths NZ's submission, Costco is widely regarded as being a shopping destination for its members.

"It may therefore have differing site location requirements as it might expect consumers within a larger catchment area to visit its stores, which would lessen the requirements for its stores to have exposure to passing traffic and pedestrians and potentially create a need for a larger carparking area," ComCom said today.

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