Foodstuffs Fine Unfair To Consumers

The $3.25 million penalty imposed on Foodstuffs for using land covenants to prevent competitors setting up shop, was just a fraction of the $7.3 billion that could have been handed down under the legislation.

However, Justice Radich, said the higher figure, which represented 10 percent of Foodstuffs North Island turnover multiplied by 17 contraventions would have been out of all proportion to the offending.

The Grocery Action Group today questioned how fair the ultimate fine was given the impact on consumers of the lack of competition in our grocery market. “Kiwis are paying some of the highest prices in the world for groceries and a lack of competition is a significant contributor to that problem,” GAG chair Sue Chetwin said today. “Effectively that means families are struggling to put food on the table,” she said.

Justice Radich released the reasons for his decision today in the case brought by the Commerce Commission against Foodstuffs for the use of restrictive land covenants in parts of the North Island in the early 2000s. The covenants were designed to hinder competition. The use of such covenants was uncovered during the Commission’s study into the supermarket sector. The final study completed in 2022 found a lack of competition (among our duopoly of Woolworths and Foodstuffs), supermarkets making higher profits than they should and unfair pricing.

Justice Radich said there was no allegation of actual adverse effects in the covenants case, and the operations in the three locations involved generated only a small fraction of Foodstuffs’ North Island’s overall income. However, he said the conduct was serious and the covenants represented a deliberate effort to hinder competition. They were designed to increase barriers to entry and expansion. But, he said, Foodstuffs at the time understood it was complying with the Act and it had received legal advice.

Justice Radich considered other industries and penalties before settling on a starting point of $4.5 million and $5.5million. He gave discounts for otherwise good behaviour, the fact Foodstuffs had co-operated with the Commission and it had taken steps to discharge the covenants. It had acknowledged early that it had contravened the Act. He agreed with the parties’ application of a 30 percent discount taking the total penalty to $3.25 million.

Chetwin said supermarkets were a $25 billion industry. Whilst the decision served as a warning to supermarkets not to take part in anticompetitive conduct, the penalty hardly reflected the impact of a lack of competition for consumers.

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