Tesco told not to block rival supermarkets

Tesco has been told not to illegally block rival supermarkets from buying its land or leasing nearby sites.

A competition investigation found that on 23 occasions the UK’s biggest supermarket chain blocked access to rivals using restrictive contracts.

Tesco has agreed to take action to avoid this in the future.

The supermarket giant blamed “administrative errors” and said it had strengthened its “controls and training”.

The Competition and Markets Authority (CMA) investigation discovered that in three of the cases, when Tesco was selling land, it had put in place so-called restrictive covenants to stop rivals such as other big supermarket chains buying it, which is illegal.

In 20 of the cases, when Tesco was leasing property from landlords, it would stipulate in the contract that rivals could not also lease in the same building or site for 20 years or longer.

Companies are allowed to make such demands from landlords, but only for up to five years.

‘Unacceptable’

Andrea Gomes da Silva, the executive director of markets and mergers at the CMA, said in a statement: “It’s unacceptable that Tesco had these unlawful restrictions in place for up to a decade.

“By making it harder for other supermarkets to open stores next to its branches, shoppers could have lost out.”

The CMA originally found one breach of the rules, and then a review by Tesco found the other 22 breaches, the authority said in a letter to Tesco chief executive Dave Lewis.

“I recognise that Tesco has acknowledged the breaches that have occurred, has co-operated with the CMA in taking forward its analysis and has begun to take remedial action,” Ms Gomes da Silva said in the letter.

“However, in my view, this episode highlights significant shortcomings in compliance for a company of Tesco’s scale and resources.”

About half of the breaches happened in London and the south-east of England, with the rest spread around England and Wales.

‘Isolated issues’

Tesco said that it did not use restrictive property agreements, but that “in a small number of historic cases between 2010 and 2015, administrative errors by former advisers meant that our internal processes were not followed correctly”.

“As the CMA recognises, we have worked collaboratively in resolving this, and our voluntary review of 5,354 land deals found isolated issues in just 0.4% of these.”

Tesco added that has since strengthened its controls and training, and it will drop the offending contract terms.

The CMA has written to the other major supermarket chains Sainsbury’s, Asda, and Morrisons, as well as Waitrose, Marks and Spencer and the Co-op, to ask them to check whether they are engaged in similar practices.

Nigel Howarth, a partner at Clifford Chance, and head of the law firm’s London real estate office, said: “Major supermarkets have for many years sought to maintain competitive advantage over rivals through the planning system and restrictive covenants.”

“The CMA’s order demonstrates an increasing lack of tolerance for such activities and the supermarket chains can expect greater scrutiny of their land transactions.”