The Government will tonight introduce urgent legislation to ban supermarket chains from blocking competitors trying to secure land for new stores, a move which has been applauded.
Chris Wilkinson, a specialist consultant of First Retail Group, was pleased to hear the announcement in Budget 2022, after the Commerce Commission's report on competition in the sector out in early March.
Putting restrictive covenants on land to block competition was not good for consumers, Wilkinson said, and the amendment could help parties with the potential to challenge the existing Countdown/Foodstuffs duopoly.
"This could be beneficial as urban areas grow," he said referring to greenfield opportunities for new stores in growing areas like Auckland and Christchurch.
"The covenant model is something that was very much a focus over the last few decades. The supermarket duopoly has had the opportunity to select the sites they most wanted," he said.
Finance Minister Grant Robertson said the Government was committed to boosting grocery sector competition to ensure people paid fair prices for food and other basics, and it would bring in the law change tonight.
But Gavin Read, head of research at real estate agency JLL NZ, was less enthusiastic about the ban.
"Lifting supermarket covenants is a step in the right direction but it is just that - a step towards creating an environment where new operators can take on the big players.
"It doesn't address the challenges for new competitors attempting to enter the New Zealand market, as highlighted by the Commerce Commission report. On its own, it'll have little impact, if any," Read forecast.
But Wilkinson said it might well assist growing chains and new entrants.
"They encircled the most desirable areas of our towns and cities," Wilkinson said of existing duopoly supermarket land buying activities.
But whether the law change would counter rising property prices and historically strong geographic positions was yet to be seen.
"The key question is what's left out there for rivals to develop? This may be a little too late," Wilkinson said.
"Covenants have had widespread impacts in terms of locking out regenerative opportunities. The fact that there's been the potential for smaller-scale operations to go in alongside other types of businesses would be hugely beneficial to lower socio-economic areas," Wilkinson said.
Under "response to supermarket study", Robertson today said the Government would tackle the root causes of higher grocery bills by introducing urgent legislation to stop supermarkets from blocking competitors from accessing land to open new stores.
"The Commerce Commission's findings indicate that restrictive covenants over land are a major barrier to supermarkets accessing new sites, so we're banning these covenants from being used to stop competition. Legislation will be introduced on Budget night to make this happen," Robertson's statement said.
Robertson went further.
"The Government is looking at how a code of conduct between major retailers and suppliers could be developed and what role a dedicated regulator for the grocery sector could play," Robertson's statement at 2pm today said.
David Clark, Commerce and Consumer Affairs Minister, said today the Commerce (Grocery Sector Covenants) Amendment Bill would amend the Commerce Act 1986 to achieve the Government's goal.
This was a major first step in delivering on our commitment to ensuring New Zealanders get a fairer deal at the checkout, Clark said.
"This legislation stops supermarkets from engaging in the anti-competitive land wars we've seen, where they buy up land or dictate the terms of leases to block their competitors from getting a foothold in the area.
"This practice leaves customers without choice and sees suburbs and shopping centres with only one option. An example of this is Ponsonby, in Auckland, which is only serviced by one provider," he said, without naming Countdown.
That chain has two stores in one Ponsonby street and no Foodstuffs' store operate there. The nearest is New World Victoria Park but Clark didn't name any chains or stores.
"Limiting supermarket options for consumers severely restricts their ability to shop around for a better range of products, and of course, a better price. This legislation is a clear signal of how seriously the Government is taking this issue. We're tackling a root cause of the problem that prevents an even playing field for new competitors to enter the market," Clark said.
Competition is not working well for consumers and major grocery retailers are earning excess profits of around $1 million a day, Clark said.
The Commerce Commission study released on March 8 partly blamed property for our groceries being so expensive, with the duopoly accused of land banking to bar competitors.
Submissions from the Warehouse Group, the Food and Grocery Council and Consumer New Zealand referred to restrictive land practices including land banking and slapping on covenants.
The 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".
Foodstuffs North Island and Foodstuffs South Island have already agreed that site availability was a factor impacting entry and expansion by supermarkets, but indicated their view it should not be given inappropriate prominence in ComCom analysis and recommendations, the ComCom said.
Land for suitable sites may not be physically available because of geography or existing patterns of urban development.
Beyond that, the ComCom identified two key conditions of entry and expansion that might affect 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.