The Commerce Commission says it is taking Foodstuffs South Island to court, alleging "far-reaching anti-competitive conduct that deprived customers of cheaper prices".

The competition watchdog alleged the company implemented and enforced a widespread restriction on independently owned Pak'nSave stores discounting selected products.

Foodstuffs South Island is a co-operative, and the owner of New World, Pak'nSave and Four Square in the south.

Under the franchise model, individual South Island Pak'nSave supermarkets are supposed to be able to compete on pricing, discounts and promotions, Commerce Commission chair John Small said.

"Instead, we allege FSSI (Foodstuffs South Island) applied guidelines and rules that stopped these independently owned and operated supermarkets from offering certain discounts unless they received prior approval.”

The commission believed the conduct constituted resale price maintenance, which was prohibited under the Commerce Act.

It said Foodstuffs South Island centrally set a "super deal" promotion price for a product, and did not allow franchisees from discounting below the price, unless Pak'nSave obtained prior approval.

The commission said franchisees were also not allowed to discount any other product in the same category below the "super deal" promotional price.

The accusations also included that Foodstuffs South Island set an "every day low price" centrally, primarily for shelf staple goods, and did not allow Pak'nSaves from applying further discounts on these products without prior approval.

"We will argue the alleged anti-competitive conduct was widespread, with FSSI's guidelines covering all South Island Pak'nSave franchisees for a period of at least several years," Small said.