When policymakers talk about a competitive grocery market, the conversation usually revolves around mergers, pricing, or market share. That’s understandable, because anyone who’s lived through Econ 101 knows those are powerful forces that have a direct impact on the prices consumers pay.
Real estate – as tangible as it is – hasn’t historically figured in those debates, but that’s beginning to change in a big way.
Rhode Island’s recently approved legislation banning new grocery-store restrictive covenants reflects a growing belief that competition can actually be constrained long before a retailer ever opens its doors or hangs out its shingle in the neighborhood.
The measure would prohibit grocery operators from using deed restrictions and lease provisions that prevent competitors from occupying former store locations. Supporters of the legislation argue the practice can limit food access, reduce competition, and contribute to higher grocery prices.
Admittedly, the issue seems obscure, but real estate is uniquely important in grocery because competition in food retail remains intensely local.
In a May letter to the Federal Trade Commission, U.S. Sen. Maria Cantwell and several colleagues noted that court findings in the FTC’s challenge to the proposed Kroger-Albertsons merger showed that more than 70% of grocery sales are typically generated within five miles of a store. In other words, grocery competition often takes place in very small geographic markets.
Control the best sites, and you can influence who competes.
That’s why restrictive covenants have attracted high-level scrutiny.
According to supporters of the Rhode Island legislation, some grocery chains have used deed restrictions lasting 20, 25, 30, or even 75 years to prevent another supermarket from opening in a former location. The Rhode Island General Assembly noted that some chains have even acquired properties and attached restrictions without ever developing a grocery store on the site.
Woonsocket has become a frequently cited example.
Ocean State lawmakers say the city of roughly 45,000 residents is currently served by just one full-scale supermarket within city limits. Officials argue that restrictive covenants attached to several potential grocery sites have complicated efforts to attract new operators and improve food access.
That’s a particularly dramatic example, but the problem is not unique to Rhode Island.
Washington state became the first state to prohibit grocery-store restrictive covenants earlier this year. Advocates point to Washington, D.C., which adopted a similar policy in 2018. According to the Institute for Local Self-Reliance, 20 new grocery stores opened in the District during the five years following adoption of the ordinance.
Federal policymakers are beginning to pay attention as well.
Grocery Competition Is on the Agenda in More Places
Cantwell’s FTC letter highlighted a former Albertsons site in Bellingham, Washington, where a deed restriction would have prevented another grocery operator from using the location until 2038. The restriction was ultimately removed after an investigation by the Washington Attorney General. The letter also cited a former Walmart location in Woonsocket that reportedly sat vacant for years before being sold with a 25-year restriction against grocery use.
For grocery operators, the debate raises uncomfortable but important questions.
Retailers have historically viewed restrictive covenants as a legitimate defensive tool. A company relocating a store may not want a competitor immediately occupying its former site and targeting the same customer base.
Policymakers – and the voters who put them in office – clearly see the issue differently.
Their concern is that when suitable supermarket sites are limited – and when grocery shopping remains overwhelmingly local – control of real estate can become a barrier to entry every bit as significant as pricing, scale, or distribution.
Rhode Island’s legislation suggests the definition of grocery competition is expanding. Regulators once focused primarily on mergers and pricing behavior. Increasingly, they’re examining the physical infrastructure of competition itself, whether that’s who controls store sites, who can access them, and whether vacant grocery boxes are truly available to the next retailer that wants to serve a community.
In an industry where location, location, location has always loomed large, retail real estate strategy may be attracting more scrutiny than ever before.
