Woolworths and Coles agree to get rid of restrictive leases

Posted by Daniel Palmer on 18th September 2009

The competition watchdog has reached agreement with Coles and Woolworths to phase out all restrictive provisions in supermarket leases.

Both companies have agreed that they will not include restrictive provisions in any new supermarket leases, and in the case of existing supermarket leases, they will not enforce restrictive provisions five years after commencement of trading. This phasing out in the case of current leases takes account of commercial arrangements and rental contracts already in place, the Australian Competition and Consumer Commission advised today.

“This is a major breakthrough for grocery competition in Australia,” ACCC chairman, Graeme Samuel, said. “Reducing the barriers to entry for new and expanding players opens the possibility for Australian consumers to have greater choices in where to shop, and potentially pay lower prices as a result.”

During its Grocery Inquiry in 2008, the ACCC identified the practice of supermarket operators including tenancy terms which may prevent landlords leasing space to any competing supermarkets as a major concern. This had the potential to impose restrictions on the number of supermarket outlets in centres and consequently fewer options for consumers.

“Over 700 supermarket leases were identified through the ACCC investigation as potentially restrictive, and this agreement addresses all those existing leases involving Coles and Woolworths, as well as dealing with all future arrangements,” Mr Samuel added. “I welcome the co-operation of Coles and Woolworths in the development of this arrangement.”

The agreement is in the form of a court enforceable undertaking that has been voluntarily provided by Coles and Woolworths.

“Phasing out restrictive provisions in supermarket shopping centre leases is an important step. Another is governments revising the regime of planning laws in order to maximise competition for the benefit of consumers.”

Mr Samuel said that they would now proceed with discussions with a number of other supermarket operators to adopt the same approach to their leases.

“We will also be talking to shopping centre landlords to ensure a smooth transition,” he advised.