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Foodstuffs North Island has been hit with a $3.25 million fine for deliberate and serious blocking of competitors.
The Wellington High Court adjudged the supermarket company deliberately used covenants on land to hinder rivals.
The practice came to light in a Commerce Commission market study in 2022.
Justice Paul Radich said the practice was to hinder rivals opening in three locations - Newtown and Petone in Wellington and Tamatea in South Napier.
Commission chairperson John Small said the penalty showed the seriousness of the conduct.
It decided to take the case to court because he said anti-competitive measures should not be tolerated.
Small said Foodstuffs North Island had stopped using the covenants - or restrictions on land - which were in place for 99 years.
The penalty was the largest imposed so far under section 28 of the Commerce Act, he said. The commission had pursued the court action even though land covenants were illegal, he said.
"The covenants were of very long duration - up to 99 years - and lodged with the purpose of hindering competitors in local towns and suburbs where Kiwi consumers buy their groceries.
"By blocking other supermarkets from opening new stores or expanding existing ones, the covenants hindered competition for Kiwi shoppers.
"A penalty of this magnitude sends a clear message that this kind of anti-competitive conduct will not be tolerated."
Small said the case against Foodstuffs North Island should act as a deterrent to businesses and a reminder the commission would continue to pursue companies in any industry who used land covenants to stop rivals entering local markets.
"Land covenants can harm competition by raising barriers to entry or expansion in a market, making it harder for rival businesses to compete effectively and gain scale.
"They deprive Kiwi consumers of the benefits that come from a more competitive market."
Small said Foodstuffs North Island committed to stop using restrictive land covenants in 2021 and had started to identify and remove clauses in existing tenancy contracts.
Justice Radich said the penalty imposed recognised the fact the conduct was historic and the defendants had admitted the conduct at the earliest possible stage.
He also said Foodstuffs North Island had not intended to breach the law and the covenants were not enforced.
In a statement, a spokesperson for Foodstuffs North Island said it accepeted the penalty imposed by the High Court.
"The three covenants the penalty relates to originated before Foodstuffs Wellington merged with Foodstuffs Auckland in 2013. While there was no intent to act unlawfully, we acknowledge the covenants had the purpose of lessening competition.
"In 2015, we acted to improve our processes to ensure no further restrictive covenants were lodged for the purpose of preventing competitor activity. The Commission's proceedings contained no allegations of any breach after that time.
"In 2021, we started lifting any remaining covenants and immediately stopped enforcing them, and by January 2024 we had removed any registered against land we own.
"Foodstuffs North Island no longer includes restrictive covenants in new property transactions and supports the Commerce (Grocery Sector Covenants) Amendment Act 2022, which deems covenants unenforceable."
