TLDR: It turns out our supermarket duopoly have been forcing shopping centre owners to sign leases with confidential clauses that allow Foodstuffs and Countdown to veto potential direct and indirect competitors from being in the shopping centres, including retrospectively for three years after they leave the centres.
Described as oppressive and predatory, the clauses are widely used and allow the owners of Pak’n’Save, New World, Four Square and Countdown supermarkets to veto competitors from being in these centres, including tangential businesses such as bakeries, fruit and vege stalls, bakeries, nail salons and florists. They also force the shopping centre owners to weaponise the Resource Management Act to block competition, requiring the shopping centres to appeal competitive developments through the District Plan process.
An example of the industry standard but confidential leases and their ‘suite of oppressive clauses’ was tabled with Parliament’s Economic Development, Science and Innovation Select Committee in a submission on Thursday by Food and Grocery Council CEO Katherine Rich on the Commerce (Grocery Sector Covenants) Amendment Bill. She was backed up by National Maori Authority Executive Chairman Matthew Tukaki. I spoke to both of them in Parliament after their submissions. Our conversations are in the podcast above.
The ramparts built into shopping centre leases
We knew they were bad, but not this bad.
The Food and Grocery Council’s Katherine Rich had heard about the clauses written into shopping centre leases by the Foodstuffs-Countdown duopoly, but was surprised just how powerful they were as tools to lock out competitors of all sorts. Rich got hold of examples of the leases and included them in her submission on Commerce (Grocery Sector Covenants) Amendment Bill. She would like to see the definitions in the bill about what can’t be used in leases to be widened to take account of just how wide the definitions used by the grocery operators are.
“There are actually a suite of oppressive clauses that have the same effect of blocking not just grocery retail, but almost any retail that comes close to a supermarket.
“While supermarkets have very narrow definition of what a supermarket is, when it comes to liquor laws and other parts of legislation, in leases, a supermarket is described as an exhaustive list of almost everything so they cover almost anything that can be sold to anybody at any time. And it's without limitation. So it's future proofed if they want to add to the list.
“Most New Zealanders wouldn't think that childcare services, banking, finance, arts and crafts, men's shoes, hairdressing and whole bunch of other sorts of services would be deemed a supermarket. But in supermarket leases they are.
“It includes everything that I can think of perhaps apart from tattoo parlors and antique dealers, but who knows that could be added at a later time. It sounds like I'm being flippant, but the reason I think the definitions are so broad is because the supermarket wants to have full control and veto power about who else the landlord leases to.
“That has a big impact on the fabric of centres, the fabric of our communities because a lot of the mum and dad shops, the butchers, bakers, the delicatessens, the hairdressers, the pharmacies, I thought had all gone because of competition, I now wonder whether it's because they've been ruled out and these leases up and down New Zealand.” Katherine Rich
Outsourcing the weaponisation of the RMA
The supermarkets also included clauses that ensure the shopping centre owners lobby councils to stop new competitors opening up new shopping centres nearby.
“The one thing that we found the most surprising was some really oppressive clauses that do things like that require landlords to block district plans, new stores, new developments, and campaign on behalf of the supermarket's to oppose any new developments that may come close to having an effect on a store.” Rich
The FGC wanted the select committee considering the bill to obtain more copies of the leases.
‘Fair cop Guv. We won’t do it again’
Woolworths NZ, which owns Countdown, confirmed in response to my emailed questions that the clauses had been used, but that it agreed with the plans to outlaw them.
“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 are also not enforcing any covenants. We support the proposed Bill and welcome the clarity that a law change will bring.” Woolworths NZ spokeswoman by email.
Foodstuffs is made up of two cooperatives (Foodstuffs North Island and Foodstuffs South Island) supplying owner-operators of Pak’n’Save, New World, Four Square and Liquorland. It also owns the Gilmours wholesale food supply operation.
Foodstuffs also said it supported the banning of restrictive covenants on land and exclusivity provisions on leases.
“Foodstuffs North Island and Foodstuffs South Island support the Government’s legislation banning the use of restrictive covenants on land and exclusivity provisions on leases. While government progresses the legislative process, both co-operatives have made the commitment they won’t be enforcing restrictive land covenants on land they’ve sold, or registering covenants when selling land in the future, and are taking steps to remove the restrictive land covenants that are in place. This work continues to be a priority.” Foodstuffs NZ Head of Co-operative Public Relations Emma Wooster via email.
It’s noticeable the full quote doesn’t refer to the leases and Foodstuffs’ submissions also don’t refer to the lease provisions.
The hope for new competitors
Both Rich and Tukaki wanted to see the policing of the removal of the leases and covenants to eventually move to the new Grocery regulator being set up, and to be included in annual reports.
Tukaki did not see Costco (which is setting up one store in Auckland) or Aldi as the likely new entrants. He would like to see Foodstuffs spin off one or two of its brands, including Four Square. Woolworths’ Wholesale Distributors Ltd also owns the SuperValue and FreshChoice brands of supermarkets. He is also hopeful The Warehouse might be able to further ramp its supermarket offerings.
Tukaki sees iwi as potential partners in creating a third competitive force and said he was aware of discussions about that.
I welcome suggestions from paid subscribers in the comments below for further lines of inquiry.
Ka kite ano
Bernard
The grocery duopoly's secret weapons