(Bloomberg) -- New Zealand’s antitrust regulator has filed court proceedings against supermarket owner Foodstuffs North Island alleging it used land covenants to block competitors from opening rival stores.

While the company has ceased the practice in recent years, the Commerce Commission considers the conduct serious enough to warrant proceedings under the Commerce Act, it said in a statement Wednesday in Wellington.

“This is a vital NZ$25 billion ($15 billion) sector, which impacts every Kiwi consumer,” Commission Chair John Small said. “The covenants were of long duration, and we allege were lodged with the purpose of hindering competitors in local towns and suburbs where Kiwi consumers buy their groceries.”

Foodstuffs North Island and the related Foodstuffs South Island, which operate the PAK’nSAVE and New World chains, are one half of a supermarket duopoly in New Zealand that has been identified as a reason for excessive grocery prices. The Commission has been charged with targeting anti-competitive practices to allow other operators to enter the market, while the government has also increased scrutiny of the industry by appointing a grocery commissioner.

The Commission said it has reached a settlement with Foodstuffs “to resolve the proceedings on terms acceptable to both parties,” but the High Court will determine any orders to be made.

A market study carried out in 2022 identified that the use of covenants on land or in leases by the major retailers was limiting the number of sites available to competitors, the regulator said.

“Land covenants have the potential to harm competition by raising barriers to entry or expansion in a market, making it harder for rival businesses to compete effectively and gain scale,” Small said. “Ultimately, the loser here is the Kiwi consumer who is deprived of the benefits that come from a more competitive market.”

Foodstuffs North Island said it had cooperated fully with the Commission’s investigation.

“While there was no intent to act unlawfully, we acknowledge that restrictive land covenants in some locations had the purpose of lessening competition in terms of the Commerce Act,” a spokesperson said. “In 2021, we voluntarily started lifting any covenants that remained and by January 2024 had removed all those registered against any land we own.”

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