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The Commerce Commission has taken Foodstuffs North Island to the High Court for preventing its competitors from opening stores.
The commission said the charges related to anti-competitive land covenants, which supermarket operators allegedly brought to prevent competitors from opening supermarkets in specific locations and developing existing supermarkets.
It is said the parties are working towards a resolution and any order the High Court will make in respect of North Island Foods will be made in due course.
Foodstuffs said in a statement it had reached a settlement agreement with the commission regarding the historical use of the land deeds and was cooperating fully with the commission’s investigation.
“The issues involved in this settlement originated prior to the merger of Foodstuffs Wellington and Foodstuffs Auckland in 2013,” the statement said.
“While there was no intent to commit illegal conduct, we recognise that restrictive land covenants in certain areas are intended to reduce competition under the Commerce Act.”
However, it said it had never attempted to enforce the covenants.
“In 2015, Foodstuffs North Island sought to improve its processes to ensure restrictive land covenants were no longer put in place to prevent competitor activities,” the company said, adding it had voluntarily released all remaining covenants and removed all covenants on land it owns by January 2024.
However, Committee chairman John Small said the issues were historical but serious enough to warrant litigation under the Commerce Act.
“This is a significant $25 billion industry that affects every New Zealand consumer. These covenants were long-standing and we allege were designed to hobble competitors in local towns and suburbs where New Zealand consumers buy their groceries,” Small said.
The lawsuit follows an investigation into the conduct uncovered in the Commission’s grocery industry market study completed in March 2022.
The study found that covenants used by large retailers in land or leases limit the number of sites available to competitors.
Mr Small said Foodstuffs North Island was committed to stopping the use of restrictive land covenants and exclusivity clauses in leases and had initiated a process in June 2021 to identify and remove any such clauses from existing leases.
The Business (Grocery Industry Covenants) Amendment Act 2022 also prohibits and makes unenforceable certain grocery-related covenants.
Small said the case against North Island Foods was important in showing the commission would continue to pursue companies in any industry that used land covenants to block competitors from entering the local market.
“Land covenants may harm competition by raising barriers to market entry or expansion, making it more difficult for rivals to compete effectively and scale,” Small said.
“The ultimate losers are New Zealand consumers, who are being deprived of the benefits of greater market competition.
“I would encourage all companies that have previously proposed land covenants to restrict competitors’ use of land to consider whether they are complying with the Commerce Act.
The commission said it could not comment further at this time because the lawsuit is still before the courts.
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