Competition watchdog prioritises supermarket covenants for further investigation

Friday, 10 June 2022

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

The country’s competition watchdog appears to be preparing to take action against supermarket owners over suspect convenants that it fears have been used to stymy retail competition.

The Commerce Commission said a number of supermarket land and lease covenants had been “prioritised for further investigation” in the wake of its market study into $22 billion groceries industry, and it expected to provide an update later this year.

“The focus of our investigations is whether the land and lease covenants might have the purpose, effect or likely effect of blocking actual or potential competitors from accessing land for new stores,” a spokesperson for the commission said.

The covenants that had been prioritised for investigation related to “all three major grocery retailers”, he said, by which the commission was understood to be referring to Countdown and both Foodstuffs’ North Island and South Island cooperatives.

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The competition watchdog says a lease clause highlighted by the Food and Grocery Council to MPs last week could have “potential relevance” to its investigations.

The commission said in March that it had identified more than 90 supermarket covenants that restricted the nearby development of retail businesses including supermarkets, butcheries and bakeries, as well as more than 100 “exclusivity covenants” in leases, the majority of which were still active.

Food and Grocery Council chief executive Katherine Rich appeared to shock a select committee last week, when she revealed details of a lease agreement drafted for one of the supermarket groups – understood to be Countdown – that required a landowner to campaign to block competition.

A clause in the lease 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 told MPs.

Countdown spokesperson Kate Porter said clauses similar to those quoted by Rich had been “common in the past for a range of commercial leases, and in our case, many of our leases are decades old”.

The company declined a subsequent invitation to say when the last time was that it included or enforced such a clause in a lease agreement.

Countdown also declined to provide examples of other businesses including similar clauses in lease agreements, or to outline its evidence for thinking such clauses had been commonplace, saying it would not be providing further comment.

The Commerce Commission’s spokesperson said the commission was not currently investigating any examples of the terms quoted by Rich on their own account.

“However, we appreciate their potential relevance to the investigations into lease covenants that we have prioritised and we welcome any further information in relation to them that may inform our investigations,” he said.