September 03, 2014 Article

The Clash of Retail Titans: Winn-Dixie v. Dolgencorp

A circuit court gives new life to the supermarket chain's claims against three discount competitors

by David J. Marmins

In a rare and sweeping decision with major implications in the retail industry, the Eleventh Circuit has given new life to many of Winn-Dixie’s claims against three of its largest discount competitors for alleged violations of restrictive covenants in Winn-Dixie Stores, Inc. v. Dolgencorp, LLC, 746 F.3d 1008 (11th Cir. 2014). At the same time, it affirmed the denial of relief to Winn-Dixie on other claims. The court addressed several aspects of the commercial lease dispute, including the ability of one tenant to sue another directly for restrictive covenant violations, the definitions of common terms such as “sales area” and “groceries,” and how to calculate damages for lost profits. Considering the rising percentage of discount retailers’ revenue coming from consumables, this decision could reach far beyond the seemingly dense legal principles addressed in the 59-page opinion.

Winn-Dixie Sues Discount Retailer Competitors

Winn-Dixie, with about 500 grocery stores throughout the Southeast and more than $7 billion in revenue, annually ranks in the top 25 North American food retailers. As most grocery store anchor tenants do, it typically signs lease agreements giving it exclusive rights to sell groceries in shopping centers (“exclusivity lease provisions”). But recently, it has been receiving competition from discount retailers. Over the past several years, top-100-ranked discount retailers, such as Dollar General, Dollar Tree, and Big Lots, and other smaller discount retailers have been boosting their sales primarily by increasing sales of consumable goods, such as food, paper, cleaning, and health and beauty products, as opposed to relying as heavily on durable goods. As supermarket chains and discount retailers are frequent neighbors in shopping centers, a clash seemed inevitable.

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