Justice Radich released the reasons for his decision in the case brought by the Commerce Commission against Foodstuffs.
The $3.25 million penalty Foodstuffs was imposed for using land covenants to prevent competitors from 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 ten percent of Foodstuffs North Island turnover multiplied by 17 contraventions, would have been disproportionate to the offending.
The Grocery Action Group questioned the fairness of the ultimate fine, given the impact on consumers of the lack of competition in the New Zealand 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. “Effectively, that means families are struggling to put food on the table,” GAG chair Sue Chetwin said.
The covenants were designed to hinder competition. The Commission uncovered such covenants during its study of the supermarket sector. The final study, completed in 2022, found a lack of competition (among the 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 covenant case, and the operations in the three locations involved generated only a tiny fraction of Foodstuffs’ North Island’s overall income.
However, he added that the conduct was severe and the covenants represented a deliberate effort to hinder competition. They were designed to increase barriers to entry and expansion.
Foodstuffs understood at the time that it complied with the Act and had received legal advice.
Justice Radich considered other industries and penalties before settling on a starting point of $4.5 million and $5.5 million. He gave discounts for otherwise good behaviour, the fact that Foodstuffs had co-operated with the Commission, and the steps it had taken to discharge the covenants. It had acknowledged early that it had contravened the Act.
He agreed with the parties’ application for a 30 percent discount, taking the total penalty to $3.25 million.
Chetwin said supermarkets were a $25 billion industry. While the decision served as a warning to supermarkets not to engage in anticompetitive conduct, the penalty hardly reflected the impact of a lack of competition on consumers.
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