Commerce (Grocery Sector Covenants) Amendment Bill

I present a legislative statement on the Commerce (Grocery Sector Covenants) Amendment Bill.

💬 DEPUTY SPEAKER: That legislative statement is published under the authority of the House and can be found on the Parliament website.

I move, That the Commerce (Grocery Sector Covenants) Amendment Bill be now read a first time. I nominate the Economic Development, Science and Innovation Committee to consider the bill. At the appropriate time I intend to move that the bill be reported to the House by 16 June 2022, and that the committee have authority to meet at any time while the House is sitting, except during oral questions, during any evening on a day on which there has been a sitting of the House, and on a Friday in a week in which there has been a sitting of the House, and outside the Wellington area, despite Standing Orders 193, 195, and 196.

The bill amends the Commerce Act 1986, banning restrictive covenants on land and exclusive covenants on leases which stifle competition. It makes existing covenants that meet this test unenforceable.

Groceries are an essential purchase, as well as a major expense for most New Zealand households. In the year to June 2019, food was the second largest expense for New Zealand households, with an average spend of $234 per week. Competition between the major grocery retailers is a key driver of price, quality, range, and service that is offered to Kiwi consumers. In March, the Commerce Commission published its final report on the market study into the retail grocery sector. It found that in New Zealand, competition is not working as it should be; it is not working in the interests of Kiwi consumers, and, instead, the duopoly, made up of Woolworths New Zealand and Foodstuffs, is making large profits at the expense of everyday New Zealanders. In fact, they found that even on their most conservative estimate, that duopoly was taking a million dollars a day in excess profits, each and every day of the year, out of New Zealanders’ pockets. So, in its report, then, the Commerce Commission noted that the best way to improve competition is to make it easier for competitors to enter the market, which brings us to tonight’s bill.

Our major grocery retailers have been lodging and obtaining restrictive covenants on land and exclusive covenants on leases. Because of this, our supermarkets have, effectively, been engaged in land wars, which in some cases has left suburbs and shopping centres without choice. An example of this is in Ponsonby in Auckland, which is only serviced by Countdown. Members in this House will have their own examples of this around the country. Of course, these bans on land are also a disincentive to new competitors coming into the market who might look from offshore and see a highly profitable sector that they want to be a competitor in because they think it’s good for business and because they could give a better deal for consumers.

So, based on the Commerce Commission’s findings, a new ban will be applied to covenants that benefit Woolworths New Zealand and Foodstuffs. We will build in the option to include other retailers in the future should the Commerce Commission consider it appropriate. If others set up here and start the same practices, they too would be subject to a ban.

There is one covenant that I believe should be permitted, and this is something that can be tested through the select committee process. Businesses that sell retail fuel often add a covenant to the land, preventing the future installation of fuel tanks. That guards against the potential for litigation over responsibility if there is a future leak of fuel, and that litigation typically goes around who is responsible for contamination in the soil. The proposed bill would therefore not apply to covenants in place for legal and environmental impact reasons connected to a retail fuel site as defined in section 4 of the Fuel Industry Act 2020.

The Commerce Act will also allow the commission to approve individual applications for covenants as well, should that be deemed in the public interest—i.e., if the public benefit of a covenant in a particular specific circumstance outweighs any negative effects. So that, again, makes sure we don’t end up with unintended consequences.

We made a campaign promise at the last election to address the rising cost of groceries and to make sure shoppers are paying a fair price at the checkout. Let’s not forget, as I’ve mentioned, that even in the most conservative estimate of the Commerce Commission in their recent study, the major grocery retailers are earning excess profits of a million dollars a day. Now, those are beyond the ordinary profits you’d expect. It’s a commercial enterprise; they should be able to invest and receive profits. These are the excess profits—a million dollars a day they are taking each and every day, over and above a reasonable profit, out of ordinary, everyday Kiwis’ pockets.

This is simply too important an issue not to get right on behalf of consumers. So, by introducing this bill under urgency, the Government will address the most straightforward part of the reforms quickly. It also signals Government’s desire to see new competitors enter the sector. It gives any new competitors that want to arrive in New Zealand and want to then expand the surety that they will not be subject to bans on how they can use prime sites in different districts that up until now may have been blocked for a competitor to use to bring competition to the market.

I will be bringing further legislative reforms to Parliament for consideration later this year. I propose that the bill be referred to the Economic Development, Science and Innovation Committee with a shortened process of one month. This will enable any unforeseen consequences in the drafting of the amendments to be considered. So this bill, as I close, takes a first major step forward in salvaging our broken grocery sector. We take a stand to end the anti-competitive land wars brought about by restrictive covenants. And, for that reason, I commend this bill to the House.

The question is that the motion be agreed to.

Kia ora. Thank you, Mr Speaker. It’s a pleasure to be talking on this Commerce (Grocery Sector Covenants) Amendment Bill. The first thing I’m going to say is that National will be supporting this bill. As the Minister has identified, this bill has come as a result of the review by the Commerce Commission into the food sector. The upshot of the Commerce Commission’s finding was that there was less competition in the retail grocery sector than otherwise should be the case and it was also hard for competitors wanting to enter the market or to expand, in the fact that they were facing extra barriers or challenges. So the report from the Commerce Commission, which came out just a few months ago, was very enlightening and helpful, and obviously this is one of the key elements of it.

I think, in the context of what’s been happening in New Zealand, we’ve got a living costs crisis, escalating prices of food—not always through a lack of competition, of course; some of it’s come about through a range of factors like supply issues but also largely the Government’s own making with some of the policies they’ve imposed on businesses across New Zealand, particularly around the way that they can employ labour. So it is a combination of factors that have led to rapidly rising food prices for New Zealanders. That, of course, is hurting virtually everyone in New Zealand, and is so damaging, particularly to the more vulnerable people of New Zealand who don’t have as much income, or are on a fixed income.

So, yes, we agree with the changes. Our strong view is that the recommendations from the Commerce Commission should be implemented, and that means, first of all, supporting this bill, which is about ensuring land is not subject to restrictive covenants, but also ensuring that the mandatory code of conduct is appropriate and in force. Obviously, there’s a process to establish codes of conduct, which is common overseas and particularly in places like England. We want to make sure that there is an appropriate code of conduct that protects suppliers and also people who are wanting to enter that market, and that there are good relationships and we do not see undue practices. There are some issues, particularly around supply arrangements, that need to be dealt with so suppliers have fair access and appropriate access and are not subject to these undue practices.

The other one is we want to make sure that consumers have greater information on products and their pricing, and that was part of the Commerce Commission’s recommendation. The final key recommendation—although there are other subsidiary recommendations—is the establishment of a grocery sector regulator. And we want to make sure that that regulator is well resourced and effective in monitoring the sector so we get as much competition as possible.

So this bill deals with one aspect of those recommendations, which is making sure that land is not unduly subject to restrictive covenants. In the work of the Commerce Commission itself, it noted that there are about 90 covenants that they identified. I think the big issue for us, and this will be one of the questions that we will be wanting to explore in the select committee stage, is how do we identify them, how are these restrictive covenants identified. And whilst the bill seeks to make sure that the undue restrictive components are not enforceable, it also gives rise to how those agreements, if they need to be renewed—what is the compensation, if there’s any clause around that. All those sort of legal issues need to be explored and dealt with under the select committee process.

We also note that there’s actually been no analysis of the impact of removing these covenants, other than by the Commerce Commission, and there’s no report in the accompanying documentation that I’ve seen to support the restrictive covenants. So I think the Minister’s approach is correct, but this is just one element. And if we think this is the panacea for fixing up the supermarket trade in New Zealand, that is not the case. I would urge that we move forward on these other aspects, because we want to make sure that New Zealanders get access to food at reasonable prices. And the types of products, and the transparency around how they’re produced and their pricing arrangements is the most important thing at a time when we’ve got a cost of living crisis in New Zealand.

So we will be supporting it. Slightly disappointed that the select committee process is so truncated, but let’s hope we get good submissions during that process so we can move to a resolution on this matter. Thank you very much, Mr Speaker.

Mr Speaker, thank you for an opportunity to take a brief call on this bill. I’d like to begin by acknowledging the Minister, the Hon David Clark, for extending a listening ear to New Zealanders. He has certainly heard that some people are struggling with the cost of living and inflation pressures; and, as a Government, he’s taking a lead in this area to bring about some changes. I’d also like to acknowledge the contribution of the previous member—a very thoughtful contribution from Andrew Bayly—and I acknowledge the support of the National Party, and I hope that other parties will also support this bill.

The Commerce Commission report into the retail sector, as the Minister outlined, clearly identified some issues around a lack of competition. New Zealand is a very small market, and in a small market it is common to have areas where there is a lack of competition and where it tends towards monopolistic, or a duopoly, behaviour, which, in this case, we have seen in a very small market. We have struggled to attract overseas investment to New Zealand in this area, and this piece of legislation will certainly have an impact in that area. I was particularly pleased to hear what the Minister was saying in terms of his desire to see more competitors in this market in order to bring down grocery costs.

So look, as this fits into the wider Budget, this is a Budget in terms of listening to New Zealanders and responding to the needs of New Zealanders both now and into the future. I commend this bill to the House.

Well, as we’ve heard this morning, we’re going to be supporting this bill. While we’ve obviously got a number of concerns in terms of this bill, obviously the select committee process will work through those.

I, myself—big supporter, in terms of New Zealand - owned businesses. We can’t underestimate the fact that, actually, a number of our grocery sectors are 100 percent New Zealand - owned, and attacking Kiwi-owned businesses is not in the DNA of where I want to be. When you say that we need more competition and you bring in overseas providers to strip profits out of New Zealand, I do think we need to consider that.

So I’m really looking forward to a robust select committee process on this bill, getting a lot of perspective from a lot of stakeholders, and I’m sure we’ll work through the detail. Thank you very much, Mr Speaker. We support this bill.

Kia ora, Mr Speaker. I rise in support, and it’s always encouraging to hear my colleagues across the floor supporting this as well. As the MP for New Plymouth, I know this too well. In fact, in my own suburb of Marfell and of Westown, this is actually an experience in terms of the two supermarkets fighting it out. The Hon David Clark talked about those supermarket wars, and we saw that in my very own suburb a number of years ago when one of the main chains bought out a piece of land and pretty much drove the other supermarket to move and build in a place out of our suburb. So, suddenly, us up in Westown and Marfell had no supermarket to go to. We had to drive, and for many people in my community, driving wasn’t an option. They may not have owned a vehicle, or they may have had limited access to public transport.

As the Minister spoke about earlier, good quality services are about price, about quality, about range, and about service. And so this piece of legislation is going to support that, because in many of our communities around Aotearoa, it is actually about accessing those supermarkets. What happened in my community was there was a small corner store where the price of a tin of baked beans was five or six dollars, or a roll of toilet paper came singularly and was very expensive because they didn’t have access to services.

So this is a good piece of legislation. This is moving it forward because we need to get this right, and as a member of the Labour Party, our commitment in the last election is around ensuring that customers have fairer prices at the checkout. I commend this bill to the House.

Tēnā koe, Mr Speaker. Thank you. The Green Party is also supporting the Commerce (Grocery Sector Covenants) Amendment Bill. We support it because it is going to stop supermarkets from engaging in anti-competitive behaviour by putting restrictions on land to prevent their competitors buying up those sites, or dictating the terms of leases in shopping malls and shopping centres where they, as a major anchor tenant, might dictate that that mall cannot have similar businesses, like butcheries or bakeries, or can’t have another supermarket on the premises.

I really congratulate the Minister, firstly, for getting the Commerce Commission to do that market study of the retail grocery sector, and then moving so quickly to implement one of its key recommendations—and promising more action. Because, as the Commerce Commission noted, we’ve got a duopoly here, with some other operators on the fringes. I think, as Mr Bayly noted, that they, in their study, found that there were more than 90 of these restrictive land covenants to prevent rivals opening up stores on that land. Around 60 of these had a term of 20 years or more—they’re largely in Auckland, Wellington, and Christchurch. Similarly, with the exclusivity covenants—there are around a hundred of those being included in lease contracts. So those are definitely anti-competitive.

When New Zealanders spend $22 billion annually on groceries in supermarkets and grocery stores across the country, we’re talking about a big tranche of money and a million dollars a day, as the Minister mentioned, in profits for the supermarkets. So anything that—

💬 Hon Dr David Clark: Excess profits.

Excess profits. Even though this law is retrospective—because it applies to covenants which exist at the moment—and that’s not something the Green Party would normally support; if it wasn’t retrospective, then the bill would have little effect.

We also note we’ve got some concerns over the shortened select committee process, but that there has been consultation by the Commerce Commission—it got the big grocery retailers to comment on its draft report before it was released. So there has been some consultation on the principles around this bill before it was introduced.

The Commerce Act, under Part 2 and restrictive trade practices, already has provisions which prevent anti-competitive practices. So by bringing these restrictive covenants—the land covenants and the exclusivity covenants—within the scope of Part 2, then the whole panoply of the Commerce Act, and the enforcement measures, and those prohibitions will apply to them.

Certainly, there have been, in the Resource Management Act (RMA) since about 2009, provisions which seek to prevent the supermarkets using trade competition as an argument, in their submissions against a land-use consent and related consents, when a competitor seeks to get those from council. But the courts have allowed a bit of discretion there, in terms of that. They certainly exclude the direct effects of trade competition in terms of the RMA process, but they have considered some of the flow-on significant retail distribution effects. So the RMA, as a planning tool, has not been effective in preventing these restrictions on competition, which is why we need these changes to the Commerce Act.

The Commerce Commission, in its report, also suggested changing the Overseas Investment Act to make it easier for an overseas operator to come in. As with the previous speaker from the National Party, I have some concerns about that. The fact that we have Foodstuffs—for example, it is a cooperative and has New Zealand operators. That is one benefit. Having overseas operators enter the market—like Costco is doing—certainly, that may lead to cheaper prices for consumers but it means, of course, that the profits go offshore. So it’s not something that we should encourage.

I note, too, that there’s going to be some monitoring of land banking. Even if these restrictive covenants and exclusivity covenants are outlawed, if supermarkets buy land, because they’re planning long term, and sit on those sites without any real intention of opening a store there—that is also potentially reducing the ability of other entrants into the market. And it was making it easier for other entrants to get in and for existing competitors to expand their networks that the Commerce Commission was concerned about.

When similar measures to these were introduced in Australia—I think it was the ALDI chain went from less than 200 stores to more than 500 stores. So these types of measures have been shown to be effective elsewhere. The Green Party supports this bill, while having concerns about the truncated select committee process, because all legislation benefits from public submissions and good, comprehensive select committee scrutiny. Thank you.

Thank you very much, and to the Minister, thank you, too. This bill is meant to stop major supermarkets blocking competitors from accessing land for new stores, and has been introduced to the House. It amends the Commerce Act 1986, banning restrictive covenants in land and exclusive covenants of leases. It also makes existing covenants unenforceable. The legislation stops supermarkets from engaging in anti-competitive behaviour, what they’ve called “land wars”, where they buy up land or dictate the terms of the lease to block competitors from getting a foothold in the area. But Ponsonby is probably not the best example. I mean, you go to Dargaville and it’s been known that it’s taken years and years and years to develop the complex that exists there. So, regionally, there are some differences to metro urban areas. Also, the bill is supposed to promote an even playing field for new competitors to enter the market.

So lifting supermarket covenants is a step forward towards creating an environment where new operators can take on the big players, but it doesn’t address the challenges for taking on new competitors and for new players in the sense of, has this happened too late? And what’s left out there for rivals to actually develop? I look forward to exploring that and getting clarity on that in the process that we will go through with the select committee.

In some respects, the bill is flawed. For instance, there’s nothing to stop anyone else, including big box overseas grocery chains like Costco or ALDI from setting in place similar covenants. Unless the Commerce Commission recommends new retailers to be included in the ban and the Governor-General signs it off, this new law only applies to two existing supermarket chains.

💬 Hon Dr David Clark: It’s explicit that that’s provided for.

Can I just finish my speech, Mr Clark. To be clear: these land covenants and exclusivity provisions and leases are harsh, not competitive, as has been reported in articles on their anti-competitive use at Highland Park and Prebbleton, as an example.

The Commerce Commission and the supermarket chains have agreed this should put an end to the practice that’s put competitors off and stopped small, locally owned butchers and bakers and greengrocers that should be at the heart of our communities from opening anywhere near the big supermarkets. If you want to open up a mega butcher store with a fruit and vegetable side to that, then rights are duplicable. So those are some of the aspects that the Minister will be glad to know that at first reading here we are supporting this bill, with reservations.

💬 Hon Dr David Clark: Hear, hear. Very good, thank you.

Thank you. But we would like to iron out some of these details and make sure that there’s a level playing field and it’s not anti-competitive. We are absolutely sure that there are still places in this country for this to take effect. As JLL said, we want to grow and assist new chains developing, but we have to be certain that legally there are rivals out there who will want to develop. You know, it’s pretty simple. It’s a commercial enterprise. They take risk on the market. They do the demographics. They look at the amount of people that are spending. They try and second-guess the supermarket chains and they also have no special rights with councils or developers to be there or not be there.

So, in conclusion, the key question is: what is out there for rivals still to develop? And is this bill too late or will it make a difference in terms of supermarkets and helping that be competitive on prices? Because those are two separate issues. You can put a supermarket somewhere and you put it next to somewhere, but if you’ve got two of them—it’s like a cinema chain—it usually grows the market for usage, but will that actually create pricing and purchasing power for the consumer? So, on that note, we would like to support the bill at the first reading, with reservations, and get all those questions answered through the committee.

Motion agreed to.

Bill read a first time.

The question is, That the Commerce (Grocery Sector Covenants) Amendment Bill be considered by the Economic Development, Science and Innovation Committee.

Motion agreed to.

Bill referred to the Economic Development, Science and Innovation Committee.

Instruction to the Economic Development, Science and Innovation Committee