Supermarket lease required land-owner 'campaign to block competition', MPs told

Thursday, 2 June 2022

Former Food & Grocery Council boss Katherine Rich voiced her concerns about supermarket covenants in June.

One of the country’s two big supermarket groups required a land-owner lobby against allowing rivals to set up shop nearby, as a condition of a lease agreement, MPs heard on Thursday.

Jamie Strange, chairman of Parliament’s Economic Development, Science and Innovation select committee, described the evidence provided by Food and Grocery Council chief executive Katherine Rich as “quite startling”.

Another excerpt from a lease agreement quoted by Rich to MPs imposed restrictions on a landlord letting a property to rival food businesses for three years after the supermarket’s own lease expired, by giving them right of refusal on a new lease.

The select committee is currently hearing submissions on a law change intended to prevent supermarkets from using land covenants to stifle competition.

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The measure was recommended by the Commerce Commission following its market study into the $22 billion groceries industry as a step towards improving competition in the industry, and was introduced by the Government under urgency on Budget day.

Countdown says it has begun the process of removing “no retail grocery covenants” where readily achievable but law change as worded could have “unintended consequences”.

Rich told MPs that some leases “given by supermarkets to landlords” to sign had been worded to provide “maximum control and maximum veto power over all other retail near them”.

A lot of ‘mum and dad’ stores had disappeared from shopping malls, she said.

“I used to think they left because of competition. I now realise they've left probably because the supermarket has declined their tenancy.”

Rich said restrictions in some leases had prohibited a range of retailing that went well beyond “core retail grocery”.

“Most New Zealanders would not think a supermarket is something that sells clothing, fashion, luggage, sports and fitness goods, appliances, shoes, computers, insurance, hairdressing services, banking, arts and crafts, or childcare services. But according to this lease, they do.”

Rich said the clause that surprised the Food and Grocery Council the most was one that set out a requirement for landlords to “campaign to block potential supermarket competition”.

The clause copied to the select committee required a landlord make submissions to “oppose all district plans, developments, all new stores, all applications for resource consent or changes to a resource consent, that affects the supermarket's competitive position, and all at the landlord's own cost”, she said.

National Māori Authority chairman Matthew Tukaki says it is important the law change does not leave “loopholes”.

Rich did not identify which chain had included the clause in a contract during her evidence to MPs.

But it is understood Foodstuffs was not a party to the lease agreement, and that Rich was instead referring to a lease that the Food and Grocery Council understood was drafted for Countdown.

Countdown spokesperson Kate Porter said “clauses like this have been common in the past for a range of commercial leases, and in our case, many of our leases are decades old”.

“We agree with the Government that they should be removed and we’re actively doing this. We support the proposed bill and welcome the clarity that a law change will bring,” she said.

Countdown has told the select committee in written evidence that it has begun the “process of removing ‘no retail grocery covenants’ where that is readily achievable on a unilateral basis”.

But it said the law change could have “unintended consequences” that were unrelated to competition, as it was currently worded.

Some covenants that might be rendered null also protected access routes for businesses and services, and the availability of shared parking rights, it said.

Rich said that if the law change did its job, it could have an impact that went beyond improving competition in food retailing.

But she recommended the select committee demanded to see more leases, to make sure that all practices that could impede competition would be captured.

National Māori Authority chairman Matthew Tukaki also said it was important MPs did not leave any “loophole” in the legislation.

Supermarket chains were beginning “a forward march” into other retail trades, mirroring developments in Australia, he said.

“The business model from Australia is predicated on selling everything from life insurance to pet insurance, credit cards and banking services.”

Tukaki let rip at the Commerce Commission during his evidence to MPs, saying the watchdog’s approach to its supermarket study had been “laissez-faire at best and quite frankly left wanting”.

“We didn't need to be here. If we had effective competition and a regulatory environment and good effective policy in this country going back many decades, we wouldn’t need to be in a position where we are confronted with having to clean up the mess that is a duopoly,” he said.