Supermarkets: More stories of how councils accidentally on purpose banned competition
My previous post, Supermarket YIMBYism, got a bit of traction. You can listen to me discussing it on RNZ’s The Panel (starts at 11:20).
I decided to do an even deeper dive into more cases of councils making it almost impossible to open a new supermarket. Again, it’s worse than I expected and underscores the need for serious intervention by central Government. Buckle in.
‘No supermarket to open before 2031’: the Homebase shopping centre expansion in Christchurch
This example is truly baffling. In 2020 Homebase shopping centre, in East Christchurch, sought a plan change to expand onto nearby vacant land.1 The council opposed the expansion, and would only agree to it on the condition that Homebase didn’t compete with The Palms, a mall five minutes’ drive down Marshland Road.
Christchurch City Council has a policy to protect its hierarchy of centres. The Palms already has a supermarket so Homebase’s expansion could have “seriously threaten[ed] the viability” of the existing mall. As such, Commissioners decided to impose a condition that there would be no new supermarket in Homebase mall before 2031.
This is an incredibly stark example of a council explicitly stifling competition. As I said on RNZ:
If those shopping malls agreed to that privately – to geographically not compete for ten years in East Christchurch – that’s cartel conduct, collusion, a criminal offence. But if the council does it publicly, off their own accord, though resource management processes, we call that good urban planning.
I dug more into the Commissioners’ decision. The conditions were explicitly designed to protect The Palms’ anchor tenants – Woolworths and Farmers. That’s worth pausing on. Woolworths does NZ$6 billion in revenue a year, its parent company is publicly listed in Australia at AU$38 billion. Farmers is a huge NZ company with an estimated NZ$700 million annual revenue. The Palms itself has been in Australian private equity ownership since 2007 and was recently sold for NZ$88.8 million. Why are we protecting these big corporates from competition?
It is worth noting that the supermarket restriction was softened on appeal. But the accepted starting point was whether there was enough demand in East Christchurch such that Homebase’s expansion wouldn’t pinch demand from The Palms. There was voluminous economic evidence debating the intricacies of local income, spending and travel patterns. Seemingly no regard given to competition and choice being good for local consumers by providing pressure for stores to improve, and maybe the bad ones closing down. This is not an inquiry we should be having at all.
Isn’t considering trade competition banned under the RMA?
The RMA bans councils from having “regard to trade competition.” The earliest I found was inserted into the Act in 1997.2
Yet the Supreme Court in the famous 2005 case of Discount Brands3 found that, while competition effects have to be disregarded, councils could still protect against “significant social and economic effects” that went “beyond the effects ordinarily associated with trade competition”. This would avoid such horrors as “[t]he character of the centre overall might change for the worse”.
In 2009, the RMA was amended to add “and the effects of trade competition” (my emphasis).4 Yet over 15 years later the established approach in Discount Brands has not budged.
This is not great. What is the boundary between ‘ordinary’ and ‘significant’ trade competition? Is there any regard for lower rental prices attracting new tenants? Aren’t ‘wider’ effects just part of the same casual chain from the direct trade competition? And wasn’t the 2009 amendment trying to overturn Discount Brands?
The Government should urgently amend these sections of the RMA.
Centre hierarchy policies started in the 2000s, and have somehow made it through rounds of analysis
While anti-competitive language was in the first plans under the RMA in the 90s, centre hierarchy policies properly emerged in the 2000s.
Christchurch City Council in 2004 put forward Variation 86: Retail Distribution (operative 2009). That identified that major expansions of large shopping malls in the outer suburbs had hurt smaller, established centres. It even specifically cites The Palms as one of the culprits (!!!). The irony of big malls now being the ones struggling to compete against boutique retailers and online shopping getting protection under the same policy that was designed to restrict them.
Similarly, Wellington City in 2009 started Plan Change 73 (operative 2014) which created a centre hierarchy and inserted requirements that new stores should not have “significant adverse cumulative impacts on the viability and vitality” of other centres.
Worryingly these policies have been endorsed through multiple rounds of supposed cost-benefit analysis under the RMA, including this latest round of plans changes with independent panels. The system is not working. Firm, incisive national direction is needed to remove these provisions.
Low cost entrants like Aldi have no chance
Aldi’s whole thing is to loudly and unabashedly try steal customers from existing big players. You can see this in Australia where they locate very close to existing supermarkets, on average just 400m away.5
Centre hierarchy policies will bind extremely heavily on this business model. If council asks them whether they will affect the viability of the nearby supermarket – they will say yes, of course, we will try our best. No chance of getting approved.
Not too little, not too much demand: IKEA and the Goldilocks problem
Okay so new supermarkets have to prove there’s so much pent up demand in the area that they won’t take customers away from existing stores. But they also don’t want to prove there’s too much demand, because they might meet the fate of IKEA when they first tried to open in NZ.
In 2008 the Environment Court ruled that the company could not be a tenant in Sylvia Park because of concerns its popularity would cause too much traffic. Ironically, 17 years later, our first IKEA is under construction and is scheduled to open at the end of this year … in … wait for it … Sylvia Park.
Not too little, not too much: demand has to be just right. Definitely not going to discourage a new entrant!
This isn’t just about supermarkets, it’s all large commercial development
These rules bind all large-scale retail developments. You saw that above with Farmers being protected in Christchurch. The Commerce Commission found that councils’ zoning was significantly reducing competition in petrol retailing and building supplies – and that’s just the sectors they’ve looked at so far.
I think in the short term the Government should pass an NPS-SD – a targeted push to legalise supermarkets and get a third entrant. But we can’t do that for every sector, ultimately structural reform is needed in the replacement for the RMA.
More horror stories from around the country
Here’s a selection of four examples I found by searching Environment Court decisions. Likely just the tip of the iceberg.
‘We asked your competitors and they said your new store would be bad for their business’: Stonefields, Auckland.6
The Court heard from the nearby Business Associations of Glen Innes and Ellerslie who expressed “concerns that more retail space in the general area will bring back those difficulties [of finding good tenants]”. The Court heard one ASB study cited to them from the competitors about retail vacancies and confidently said “[t]hat indicates to us that, presently at least, supply and demand are reasonably in balance.” Is this really how we do things?
Luckily for us the Stonefields Town Centre was restricted to one superette of no more than 500m2 (a small four square at best). A normal-sized supermarket would’ve just been overkill, best to ban it.
Council asking for a private covenant restricting commercial activity: Paerata Rise, Auckland.7
Council refused consent for a supermarket as it did not accord with the local ‘Precinct Framework’, which aimed to restrict development to protect the ‘vitality and amenity’ of Pukekohe town centre, 7km away. The applicants argued that framework was eight years old and had not been able to anticipate the level of demand in Paerata Rise.
After appeal, the council agreed to allow the supermarket in exchange for the applicant granting a covenant over the adjacent business-zoned land it holds to “restrict the commercial activities”. I was quite surprised that councils ask for private covenants to restrict competition, even beyond their zoning rules!?
‘You say your current site is too small, but actually you’re wrong’: PaknSave, Taupō.8
A PaknSave was blocked on the edge of Taupō (SH1-SH5 intersection). The council thought it would “fundamentally damage the integrity and viability of the Town Centre” and they would rather large-scale retail was consolidated in the existing Town Centre.
PaknSave said their current store in town was too small for demand but expanding or obtaining nearby land was very difficult. The council hired retail and economic experts to tell them, no actually, you’re wrong about your own store, the Town Centre was big enough to accommodate demand for large-format retail for the foreseeable future. One council expert said that the site on the fringe would “not of itself attract new retailers”. Incredibly the Court even said the PaknSave had given “no consideration” to buying adjacent land for parking or building underground parking.
There’s so much wrong with all of that. The directly adjacent commercial landlords will be loving this decision – no other choice but to buy their land for an expansion.
The cherry on top: the rezoning was also opposed by a competitor who owns commercial land on the other side of town, and even by NZTA and not even for traffic reasons (??).
The infamous fake fruit processing shed PaknSave has more stories to tell: Queenstown.9
In last post I used this PaknSave an example of bizarre urban design requests. But the Environment Court decision is a treasure trove of headache-inducing stuff:
The relevant zone sought to mitigate adverse visual effects by “requiring the sleeving of large buildings with smaller buildings“. The cost! Thankfully this didn’t happen.
There was discussion about whether a PaknSave would have an adverse effect on the supply of industrial land. Surely if industrial uses were more valuable they would outbid this supermarket? The Council said there was a scarcity of industrially zoned land … but they control zoning?
Due to the wording of a policy, there was serious discussion on whether the store would generate “single purpose visits” or not.
Evidence had to be given of the store’s energy efficiency. How is this an externality? The store has the incentive to reduce energy consumption – it pays the bills. Plus this is already dealt by the Building Code?
The Court noted with approval that “the building has glass in the roof and sides to provide light (and sunlight) to customers and staff”. Again, how is this an externality?
The supermarket was required to set aside some land (in this industrial park) for a little public plaza – nice, I guess. An urban designer then complained it would be shady.
There was discussion about whether the building would be “flexible to changes in use and time”. Again, something that is internalised to the building’s owner!
An urban design expert wanted underground carparking due to the unsightliness of an at-grade carpark. This is in an industrial park next to the airport parknride and a Mitre10…
To top it off, a competitor opposed the application. Them and the council wanted the PaknSave to instead locate in the neighbouring centre as its proposed location would not achieve “efficient town form”. The Court pointed out that the centre did not have large enough sites, and in fact the PaknSave would take up to two thirds of the entire centre.
And guess what, the competitor was Queenstown Central Limited, the owner of a big shopping centre 500m away and owns the alternative town centre (!). They already have a Woolworths, so they are very unlikely to lease to a competing PaknSave (malls typically have noncompete clauses for their anchor tenants). It is odd that this submission was not struck out.
Thanks to @jg_moves_nz on twitter for bringing to my attention.
Resource Management Amendment Act 1997.
Westfield (NZ) Limited v North Shore City Council [2005] 2 NZLR 597, [2005] NZSC 17.
Resource Management (Simplifying and Streamlining) Amendment Act 2009.
Credit to @hillfolkau on twitter for finding this.
Landco Mt Wellington Ltd v Auckland City Council A35/2007 [2007] NZEnvC 113, [2009] NZRMA 132.
Grafton Downs Ltd v Auckland Council [2024] NZEnvC 122.
Advance Properties Group Ltd v Taupo District Council [2014] NZEnvC 126.
Foodstuffs (South Island) Limited v Queenstown Lakes District Council [2012] NZEnvC 135.