Iceland executive chairman Richard Walker has accused Aldi and Lidl of “preventing competition on retail parks” with “legal tricks” in the form of restrictive covenants in property deals.
Restrictive covenants – clauses to prevent competitors from opening stores nearby – have been the subject of a lengthy review of supermarket lands deals by the CMA, which has brought to light competition law breaches by Tesco, Sainsbury’s, Asda, Morrisons, Waitrose and M&S.
However, Aldi and Lidl are not bound by the law that bans those retailers from using restrictive covenants, as the discounters were not in the scope of the market investigation from which the 2010 legislation arose.
Walker has called for the new Labour government to urgently look again at the issue.
Walker said: “A priority for the Labour government is tackling the after-effects of the cost of living crisis… But more can be done to promote competition among supermarkets, not least revisiting the snappily-titled Groceries Market Investigation (Controlled Land) Order 2010: these ban restrictive land agreements, which actively prevent competition between supermarkets by prohibiting other retailers from opening within the same area.
“The German-owned supermarkets were just a twinkling in the CMA’s eye when this order was first made. Fourteen years on, and with the return of a Labour Government, surely it is time to look at how the active use of these legal tricks is preventing competition on retail parks in towns across the UK.”
Walker made the claims last week in a LinkedIn post, which he began by saying: “Towels off our retail parks please.”
Seven of the UK’s biggest grocers – Tesco, Sainsbury’s, Asda, Morrisons, Waitrose, M&S and Co-op – are banned from having restrictive covenants under the Groceries Market Investigation (Controlled Land) Order 2010. The order arose from a market investigation launched four years earlier, in 2006, into “large grocery retailers”. Aldi and Lidl at the time had about 300 stores each and a combined market share of less than 5%, meaning they were deemed too small for inclusion.
Iceland is also outside the scope.
Aldi now has more than 1,020 stores and Lidl has more than 960, and their combined market share is 18.1% [Kantar 12 w/e 7 July 2024].
Neither Aldi nor Lidl has denied having restrictive covenants in place, though property industry sources say it is rare for either to use them, with many of their stores being standalone developments and freehold-owned. Lidl is also landlord to Iceland on some sites, enabling its expansion.
However, both Aldi and Lidl have relaxed their preferences in recent years amid competition for suitable sites, including gravitating more to leaseholds and retail parks, where restrictive clauses in deals with landlords could provide protection against unwanted competition.
“It’s rare that an exclusivity is put in place,” said a source to have acted for landlords in deals with both Lidl and Aldi.
“But sometimes it is necessary when a fierce bidding war breaks out, because you might generate a very strong rent [for the landlord], which is affordable if you are the only food occupier but not if two are on site sharing the turnover.”
Read more: Locked out: behind the supermarket restrictive covenant scandal
Iceland said that, while it couldn’t entirely rule out the possibility it had restrictive clauses in some of its older property deals, there had been none in at least the last 10 years, or 250 new store openings. It claimed Aldi and Lidl in contrast were actively using them, but did not provide evidence or examples.
As revealed by The Grocer earlier this month, Iceland is on the hunt for up to 250 new store sites in retail parks in order to double the footprint of its Food Warehouse chain.
Walker publicly backed Labour ahead of the general election, having last September switched allegiances from the Conservatives, for whom he had sought to be a candidate.
In 2020, the CMA wrote to Sainsbury’s, Asda, Morrisons, Waitrose, M&S and Co-op instructing them to demonstrate they were not in breach of the 2010 order, after finding Tesco had 23 unlawful restrictions in place. The action has brought to light 55 breaches by Morrisons, 18 by Sainsbury’s, 14 by Asda, 10 by M&S and seven by Waitrose. In each case the retailer agreed to rectify any outstanding breaches.
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