Foodstuffs North Island has been fined $3.25 million for lodging anti-competitive covenants on land to exclude competitors.
The fine was handed to the supermarket co-op – owners of New World, PAK’nSAVE, and Four Square outlets across the North Island – at the Wellington High Court today.
The judgement followed an investigation by the Commerce Commission into historical conduct that came to light during a 2022 market study into the grocery sector. It found Foodstuffs North Island’s use of covenants on land had limited the number of sites available for competitors.
It was alleged the company used land covenants to hinder rivals from opening or developing existing supermarkets in Newtown and Petone in Wellington, and Tamatea in South Napier.
The Commerce Act prohibited certain land covenants that harmed competition.
Penalties for breaching the Act could cost a company up to $10 million; either by calculating three times the commercial gain derived from the breach or 10% of annual turnover — whichever of the two was greater.
Commerce Commission chair John Small said the penalty reflected the seriousness of the conduct, which was why the commission pushed for court action.
“The covenants were very long — up to 99 years — and lodged to hinder competitors in local towns and suburbs where Kiwi consumers buy their groceries,” Small said.
“By blocking other supermarkets from opening new stores or expanding existing ones, the covenants hindered competition for Kiwi shoppers. A penalty of this magnitude sends a clear message that this kind of anti-competitive conduct will not be tolerated.”
Small said he hoped the penalty would act as a deterrent for any other companies thinking about using land covenants to stop rivals from entering the market.
“Land covenants can harm competition by raising barriers to entry or expansion in a market, making it harder for rival businesses to compete effectively and gain scale. They deprive Kiwi consumers of the benefits that come from a more competitive market,” he said.
“I encourage all companies who have previously lodged land covenants that restrict the use of sites by their competitors to carefully consider whether they comply with the Commerce Act.”
In August 2021, Foodstuffs North Island committed to ending restrictive land covenants and exclusivity provisions in leases.
In June 2021, the company started a significant and public process to identify and remove any clauses in existing tenancy contracts.
Foodstuffs responds
In a statement to 1News, a Foodstuffs spokesperson said the company accepted the penalty imposed by the High Court.
“The three covenants the penalty relates to originated before Foodstuffs Wellington merged with Foodstuffs Auckland in 2013,” the spokesperson said.
“While there was no intent to act unlawfully, we acknowledge the covenants had the purpose of lessening competition.”
The spokesperson said the company acted in 2015 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.
“In 2021, we started lifting any remaining covenants and immediately stopped enforcing them, and by January 2024, we had removed any registered against land we own.”
The spokesperson also noted Foodstuffs North Island no longer included restrictive covenants in new property transactions “and supports the Commerce (Grocery Sector Covenants) Amendment Act 2022, which deems covenants unenforceable”.
