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Fighting Channel Blurring on Legal Battlefront

Fighting Channel Blurring on Legal Battlefront

Price cuts. Dollar items. Loyalty marketing. Superior experience.

Supermarkets have tried everything to battle other types of retailers selling food.

Well, almost everything.

You rarely hear about supermarkets using legal weapons to take on these competitors.

That's why it was a bit surprising when Winn-Dixie Stores said late last month it was filing suit against Dolgencorp, the parent company of Dollar General, which it charged was running afoul of lease covenants that restricted the amount of food its stores could sell in more than 100 shopping centers where Winn-Dixie is the anchor. A Winn-Dixie spokesperson said its company and landlords typically allow other stores in centers to include 10% groceries, or 500 feet of grocery items. The suit charges that Dolgencorp knowingly exceeds the allowance.

Winn-Dixie said it successfully litigated a similar situation in 2007. Dollar General is denying any wrongdoing.

Lease restrictions influenced by anchor tenants are nothing new. A story back in 2005 by SN's Jon Springer detailed how disputes stemming from these restrictions were increasing as competitors such as drug stores and dollar stores were beginning to add more food to their assortments.

So why do few cases land in the courts?

It's partly because supermarkets have been trying to keep the practice of restrictions under the radar. They are hesitant to have these situations play out in court because they fear being charged with restraint of trade and losing their power to influence future shopping center lease restrictions, according to sources.

However, supermarket competitors, especially dollar stores, continue to add more food to their assortments, which makes these types of situations harder to settle amicably. Dollar stores will likely continue to pursue supermarket-anchored shopping centers.

“They want to be in strong strip centers because they feed off supermarket traffic and frequently have a price advantage,” noted Harvey Gutman, president of Brookside Advisors.

That means we could see more conflicts between supermarkets, dollar stores and shopping center owners, he said.

In some ways it's not surprising these disputes land in court. A company like Winn-Dixie would say it's really about upholding agreements rather than finding another way to battle competitors.

It's unusual, however, to have a dispute like Winn-Dixie's that involves so many stores and centers, according to sources.

Landlords typically argue that supermarket restrictions hurt overall traffic to the centers. They contend that a diverse mix of retailers in a center — from coffee shops to florists to dollar stores — is essential to attract shoppers.

But supermarkets are rarely swayed by this argument. Their response is that shoppers can fill most of their needs in the supermarket itself.

There's not much middle ground here, so be prepared for more conflicts ahead.