The competition watchdog has censured Tesco for breaking the law by blocking rivals from opening shops near its stores.
On Friday, the Competition and Markets Authority (CMA) said Tesco had prevented competitors opening supermarkets in 23 locations in England and Wales, including five in London.
The supermarket did this by either attaching legal conditions known as “restrictive covenants” to land sales – which allow former land and property owners to control how plots are developed after they have been sold – or seeking long exclusivity agreements to stop competitors opening convenience stores in the same block.
The “anti-competitive” behaviour had potentially been to the detriment of shoppers, the CMA said.
Andrea Gomes da Silva, the CMA’s executive director of mergers and markets, said: “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 watchdog discovered in 2018 that Tesco was preventing landlords from letting property to other supermarkets. The situation potentially reduced local competition, leaving shoppers worse off, it said.
In a letter to the Tesco chief executive, Dave Lewis, Gomes da Silva said she was concerned it had “repeatedly breached” the CMA’s 2010 order which was put in place to stop supermarket chains from benefitting from long exclusivity arrangements and restrictive covenants.
Gomes da Silva acknowledged that the company had sought to rectify the situation but said the episode highlighted “significant shortcomings in compliance for a company of Tesco’s scale and resources”.
Tesco, which is the UK’s biggest supermarket chain, insisted it did not use restrictive property agreements and blamed “administrative errors”.
“We do not use restrictive property agreements,” Tesco said in a statement. “However, in a small number of historic cases between 2010 and 2015, administrative errors by former advisors meant that our internal processes were not followed correctly.”
Tesco said it had worked with the CMA to resolve the matter and the 23 breaches were small in the context of more than 5,300 land deals over the past decade. “We have since strengthened our controls and training, and are releasing the affected parties from all non-compliant terms,” it said.
The use of restrictive covenants was one of the most contentious areas scrutinised during a three-year investigation into the supermarket sector by the CMA’s predecessor, the Competition Commission. It concluded with a 2010 order that banned new restrictive clauses. Despite this Tesco had introduced three restrictive covenants in Hednesford, Bromborough and Worthing, the CMA said.
The 2010 order also banned exclusivity arrangements more than five years long; Tesco still had 20 in place which have now been removed, the CMA said.
The use of restrictive covenants had been commonplace within the grocery sector and along with Tesco, other supermarkets were ordered to remove certain clauses in 2010. The CMA said it would now write to the other groups affected by the order –Sainsbury’s, Walmart-owned Asda, Morrisons , Marks & Spencer, Waitrose and the Co-op - to ensure that their land agreements complied. It threatened to take enforcement action if there were any irregularities.
Nigel Howorth, 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,” said Howorth.
The public dressing down is a blow to Lewis who, since taking the helm in 2014, has rehabilitated the company after it was plunged into turmoil by the discovery of a black hole in its accounts. The former Unilever executive tackled its reputation for aggressive dealings with suppliers, and agreed to pay a £129m fine over the accounting scandal.
Lewis is due to step down in October when will be succeeded by Ken Murphy, who held numerous senior roles within the Walgreens Boots Alliance, the American multinational that owns Boots the Chemists.
