Foodstuffs North Island fined $3.25m for anti-competitive land covenants

New Zealand’s biggest supermarket business has been fined $3.25 million for imposing anti-competitive land covenants to try to block competition in the lower North Island.

The fine for Foodstuffs North Island is the biggest imposed for anti-competitive land covenants.

The Commerce Commission said the High Court at Wellington imposed the fine.

It said the co-operative’s actions were called “deliberate” and serious and showed an effort to hinder rivals from opening new stores or expanding existing ones in Wellington’s Newton and Petone as well as in south Napier’s Tamatea.

Justice Paul Radich said the conduct gave rise to serious competition issues and reflected a deliberate effort to hinder competitors.

“The covenants were of very long duration, up to 99 years, and lodged with the purpose of hindering competitors in local towns and suburbs where consumers buy their groceries,” said John Small, commission chairman.

“By blocking other supermarkets from opening new stores or expanding existing ones, the covenants hindered competition for Kiwi shoppers,” he said.

In June, the commission said parties had entered into a settlement to resolve proceedings on terms acceptable to them.

Small said then: “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.”

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.

A spokeswoman for Foodstuffs North Island said it accepted the penalty.

The three covenants originated before Foodstuffs Wellington merged with Foodstuffs Auckland in 2013.

“While there was no intent to act unlawfully, we acknowledge the covenants had the purpose of lessening competition,” she said.

In 2015, the business acted to improve its processes to ensure no further restrictive covenants were lodged for the purpose of preventing competitor activity.

The commission’s proceedings contained no allegations of any breach after that time, she said.

“We never sought to enforce any of the covenants, and in 2021 we started lifting any remaining covenants and confirmed that we would not enforce them. By January this year we had removed any registered against land we own,” the spokeswoman said.

Foodstuffs North Island no longer includes restrictive covenants in new property transactions, she said.

Anne Gibson has been the Herald’s property editor for 24 years, written books and covered property extensively here and overseas.