FGC has revealed further anti-competitive behaviour by supermarkets, this time regarding the leases on their premises.
Chief Executive Katherine Rich told the parliamentary select committee hearing the Commerce (Grocery Sector Covenants) Amendment Bill the leases ban a “vast” range of non-grocery retail neighbours in leases, set site conditions for years after a tenancy ends, and require landowners to object to new developments or district plans at their own cost.
A typical lease obtained by FGC shows the supermarket has defined its business as almost everything that can be sold by anybody, including clothing, fashion, luggage, sports and fitness goods, appliances, shoes, computers, insurance and lending, hair dressing services, banking, arts and crafts or childcare services – and they can all be banned under the terms of the lease.
Here is the oral submission:
“As members know, this bill aims to stop the duopoly blocking actual or potential competitors. This bill could do that but there are some parts that may not go far enough.
The main point we wish to make is that there is a big difference between the definitions of grocery products and retail grocery stores used in the bill and those used by the supermarkets.
“The definitions in the bill are reasonable, but the leases drafted by supermarket lawyers are not.
“What’s become apparent through our review of a generic retail lease is supermarkets aren’t using their market power to block just fellow grocery retailers – they’re using it to block or constrain almost all retail that comes close to them.
“This is done by using incredibly broad definitions of what a supermarket is in leases that describe their sphere of interest. In summary, anything that can be sold.
“The best way to explain is to direct you to page 3 of our submission where we have published one supermarket chain’s definition of a supermarket.
“It’s an exhaustive list. The supermarket has defined its business as almost everything that can be sold by anybody. The supermarket can add any other goods at any time to futureproof opportunities or threats – all rights are reserved.
“Most New Zealanders would not think a supermarket is something that sells clothing, fashion, luggage, sports and fitness goods, appliances, shoes, computers, insurance and lending, hair dressing services, banking, arts and crafts or childcare services. But according to this lease, they do.
“These sorts of definitions in some supermarket leases (given to landlords to sign, not the other way around) are written to provide maximum control and maximum veto power of all other retail near them.
“Because, if a new tenant falls under the supermarket lease definition of supermarket, then the landlord must get permission before they can allow them in – which I am told is most often declined.
“In these leases, the power to veto all other retail that falls under the supermarket definition is big.
“If this committee gets its definitions in this bill right then you will increase competition not just in grocery retail, but in all retail, due to these incredibly broad definitions being used to block others. You might even see a return of more Mum and Dad retail.
“There are other areas in these leases that are not reasonable.
“Supermarkets give themselves the extreme rights to determine things like who the landlord leases to up to 3 years after the supermarket has vacated the property.
“So, the supermarket has packed up, terminated its lease, and for 3 years gets to have a say on who can use the landlord’s land. Again the strong powers of veto or delays has a major impact on a landlord’s business and what’s available to the community.
“But the clause that surprised us the most was the requirement for landlords to campaign to block potential supermarket competition.
“The lease we’ve quoted demands that the landlord make submissions to oppose all district plans, developments, new stores, applications for resource consent, or changes to a resource consent that affects the supermarket’s competitive position at the landlord’s own cost.
“All these sorts of oppressive clauses add up to barriers for new entrants.
“If this bill does prohibit the use of lease covenants, land covenants and lease tactics to reduce competition and barriers to entry, then there is the opportunity not just for more grocery retail competition but other forms of retailing as well.
“This committee has significant powers and that’s why we have suggested you might like to use those powers to request copies of additional leases from the supermarkets so that you can be further informed about the sorts of tactics being used to block others from competing within our duopoly market.”
View the select committee hearing here