Lawsuit Alleges Deed Restriction Gave Albertsons a Local Monopoly

Denison, Texas is a town of nearly 25,000 people near the Texas-Oklahoma border. For decades, it had two grocery stores in its central commercial district, a Kroger and an Albertsons. In 2019, the nearly 60-year-old Kroger store closed. According to Aaron Thomas, a member of the Denison city council, Kroger offered lower prices than Albertsons. Denison residents now must pay Albertsons higher prices or drive to the Walmart at the edge of town for cheaper options.

Thomas wondered why no new supermarket moved in to compete with Albertsons and soon found the answer, using his skills as a part-time real estate investor. After Kroger closed, a subsidiary of Albertsons acquired the Kroger property and put a restrictive covenant on the deed preventing any future business from operating a grocery store there for 25 years.

In a lawsuit filed last week, Thomas alleges that this restriction “limited consumer choice, increased food costs, and caused long-term economic harm” to Denison, violating antitrust law. Thomas says that he brought this suit as a private citizen, not in his official capacity as a member of the city council, and he is currently representing himself and requesting pro bono legal counsel.

“I love our town, and I want to do right by the citizens and give them better options,” Thomas says. “Denison is not the only one affected by this and I just hope it brings light to what’s going on. I think it’s dangerous that companies have kind of created this monopoly in certain areas.”

Albertsons did not respond to a request for comment by the time of publication.

Property controls like Albertsons’s in Denison are not unusual. One law professor even told the business journal Marketplace that they are “routine” and “standard in the industry.” Restrictive covenants on grocery stores have been around since at least the 1950s and courts have largely permitted the tactic. However, more government antitrust enforcers are taking notice and challenging it.

The logic behind restrictive covenants is that they incentivize grocery stores to move into multi-business developments or invest in building stores knowing that they will not face local competition. Grocery stores will demand restrictive covenants from landlords to prevent them from leasing to a competitor within the same strip mall, shopping center, or commercial development. Grocers can also write restrictive covenants into their deeds when they buy property to prevent any future owner from opening a grocery store for a specified period. That way if they close the store, customers will have to go to one of their nearby locations instead. For example, Albertsons closed its store in the Birchwood neighborhood of Bellingham, Washington, following its 2015 merger with Safeway. This left the largely low-income Birchwood community without a grocery store. Before it closed up shop, Albertsons put a restrictive covenant on the property that prevented future owners from opening a grocery store there until 2038. Birchwood residents had to travel farther to other stores, including an Albertsons-owned Haggen a few miles away. 

Grocery chains also buy land near their stores and put a restrictive covenant on it to prevent competing grocers from opening nearby. For instance, in 2006 a Massachusetts Stop & Shop agreed to pay a real estate developer $42,500 per month to not develop a piece of land that Walmart was interested in a quarter mile away from the store. This steep payment reflects just how valuable it is to some chains to keep out the competition.

In Denison’s case, the restrictive covenant makes it extremely challenging for a competing grocer to open in the town’s central commercial corridor, ensuring Albertsons can capture that business. Thomas says the next most suitable grocery store locations are on the outskirts of the city. “Everyone doesn’t want to drive out to Walmart. It’s further on the outside of town,” Thomas says. “There’s no real estate that allows for a new construction, everything centrally located is already occupied.”

Restrictive covenants can decrease food access and hurt local economies. Experts argue that “scorched earth” deed restrictions contribute to food deserts, particularly in urban areas where there are few land parcels suitable for a grocery store. Sometimes restrictive covenants dissuade other buyers from leasing the land and other times grocery chains intentionally hold onto empty lots. Either way, more vacant lots can hurt neighboring stores and increase crime. Fewer stores also mean fewer local jobs.

Restrictive covenants sound like a straightforward restraint of trade or attempt to monopolize local grocery markets that could violate antitrust law. However, courts have largely deemed restrictive covenants reasonable. An analysis of legal challenges against restrictive grocery covenants found that courts upheld the covenants in 22 out of 27 cases. Eight of these challenges brought antitrust charges and only two of them prevailed. Plaintiffs have struggled to prove that grocers have monopoly power within smaller, local markets, as courts tend to assume that grocers compete with stores across a larger geographic area.

Public antitrust enforcers have tried to push the boundaries and argue that restrictive covenants can violate antitrust law. The Washington state attorney general investigated Albertsons for antitrust violations in the Bellingham case, prompting Albertsons to remove its restrictive covenant.

Similarly in Canada, federal antitrust authorities have investigated the anticompetitive outcomes of restrictive covenants in the grocery industry. One of Canada’s largest grocery chains, Loblaws, committed to ending its use of property controls, and Canada’s Competition Bureau will monitor this pledge.

Some cities such as Bellingham, Chicago, and Washington, D.C., have tried to ban grocers from adding new restriction covenants to their deeds and leases. However, these bans often cannot eliminate restrictive covenants already in place. Given the deficiencies of local ordinances, a Yale law student recently argued that the Federal Trade Commission should consider a rule to ban restrictive covenants on grocery properties.