Move to stop supermarkets blocking rival stores hailed
The Government has been hailed for its plan last night to introduce urgent legislation to ban supermarket chains from blocking competitors trying to secure land for new stores.
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, he 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,” Wilkinson said, referring to greenfield opportunities for new stores in growing areas such as 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.”
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 last night.
Wilkinson said that might well help 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 smallerscale operations to go in alongside other types of businesses would be hugely beneficial to lower socioeconomic areas.” Under “response to supermarket study”, Robertson yesterday said the Government would tackle the root causes of higher grocery bills by introducing urgent legislation to stop supermarkets blocking rivals 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 said yesterday.
He 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.”
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 NZ 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 commission 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 a major grocery retailer leased land, it might put a caveat on the title to say a supermarket couldn’t operate there, ComCom said.