Exclusive leases must fall: Commission cracks whip on Shoprite, Pick n Pay, Spar, Woolies
Companies / 26 November 2019, 06:00am / Dineo Faku
JOHANNESBURG – The Competition Commission Inquiry into Grocery Retail, published on Monday, called for an end to the exclusive leases negotiated by national retail chains in all shopping malls across the country in a bid to open up access to markets for smaller players.
The four-year probe of the grocery retail sector found that the lease agreements not only hindered competition, but they also denied opportunities for small, medium, and micro-enterprises (SMMEs) and historically disadvantaged entrepreneurs to participate in the economy, and they denied consumers the benefit of a broader product choice.
The inquiry received more than 500 submissions and held 800 round table discussions and public hearings in the Western Cape, KwaZulu-Natal and Gauteng, aimed at getting to the bottom of the levels of market concentration.
Presenting the 600-page document at a press conference at the commission’s headquarters in Pretoria, panel chairperson Halton Cheadle said exclusive agreements should be scrapped with immediate effect in order to open up the sector to SMMEs.
Cheadle said that all remaining exclusivity agreements should be phased out over the next five years.
“The inquiry recommends that this is achieved through voluntary undertaking by the national supermarket chains, a process that the inquiry has initiated, but not finalised. The recommendation is that the commission should within six months from today continue the inquiry's process and secure voluntary compliance with the recommendations. Failing which, legislation in the form of regulations or a code of practice should be introduced along the lines of the recommendations,” said Cheadle.
He said that shopping malls were the most popular shopping destination for South African consumers.
There are more than 2 000 malls nationally, according to the Council of Shopping Centre’s 2015 estimates, Cheadle said, adding that malls accounted for more than half of South Africa’s national grocery sales.
“The inquiry found that well over 70 percent of these were subject to exclusive lease agreements. What is even more concerning about this picture is that these exclusive lease agreements endure for significant periods of time, some up to 20 to 40 years,” Cheadle said.
The inquiry confirmed that there was increased concentration and diminishing space for smaller retailers in both urban and non-urban economies.
The inquiry said that in the townships there was a decline in spaza shops as national grocery chains and immigrants moved in.
Cheadle said that in urban areas the big four players – Shoprite/Checkers, Pick n Pay, Spar and Woolworths – dominated shopping malls with emerging national chains making limited headway and a dearth of specialist stores and independent general traders.
“The situation is in stark contrast to most countries, which have a large, thriving and dynamic ecosystem of small and independent grocery retailers and specialist food stores,” said Cheadle.
The inquiry found that the buying power of the national retail chains enabled them to get far more favourable treatment compared to independent retailers, including spaza shops, in the form of rebates. It also found that the regulatory and infrastructure environment favoured national retailers and failed spaza shop owners.
Speaking on the sidelines of the press conference, Andrew Jardim, a director at Liquor City, said that the inquiry signalled the growth and job creation.
“If you try and open a liquor store in any shopping centre in South Africa you will not be allowed to. Whether you are independent or a franchisee, the landlords have been told they are not allowed to because you are not a supermarket and you are not anchoring the centre,” Jardim said.