Massmart was feeling the pressure from constant litigation from its competitors which are seeking to block the company’s move in growing its retail food business.
In the latest case in the Durban High Court, Judge Peter Olsen granted an interim interdict to prevent Massmart from converting its Game store into their food retailer Cambridge at Senzangakhona Shopping Centre in Ulundi, KwaZulu-Natal.
The order was granted after The Spar Group approached the court to complain that it had an exclusivity lease agreement which bars other retailers who compete with Spar including bakeries, butchers, supermarkets, green grocers, wholesalers’ cash & carries, and liquor stores.
The interim interdict will remain in place pending the finalisation of the matter.
“It has slowed the roll-out down, albeit that we do continue to add food into uncontested Game stores, of which there are 55,” Massmart said on Friday.
In June, Massmart had rolled out Foodco into 55 out of its 126 Game stores, with a further 12 expected to convert to Foodco in the second half of this year.
This is the third case prohibiting Massmart group from rolling out their food retail business. Pick n Pay has also obtained an interdict against Massmart on a similar lease issue at CapeGate Shopping Centre in Cape Town.
Exclusivity clauses are provisions within a lease agreement at the request and the benefit of anchor tenants to prevent direct competitors from trading at the same mall.
One of Massmart’s business strategies was to roll out its food retail business by the introduction of Game Food which will form part of existing Game stores. This strategy, which Massmart previously said had an estimated presence of R10 billion in the fresh food market, included the opening of new Cambridge stores.
Massmart has been actively involved in the dry-groceries market through its Makro stores. The dry-grocery business was now estimated at about R30bn, with fresh food business presence estimated at R12 billion.
“We are vehemently defending any and all legal action taken against us in this regard,” Massmart said.
Last week, Massmart lodged a formal complaint with the Competition Commission to end the lease exclusivity clauses, saying it reduced competitiveness. The retailer was of the view that exclusive lease agreements were anti-competitive and prevented the retailer from developing an offering that could effectively compete with the large, national retail chains.
Early this year, in its four-year probe into exclusivity contracts, the Competition Commission found that there were not sufficient grounds upon which to consider them illegal. However, the commission also said these contracts provided barriers to entry for new entrants to the market and limited consumer choice.
Dirk Van Vlaanderen, the investment analyst at Kagiso Asset Management, said the move into fresh food via the Foodco brand in Massmart’s Game stores had been ongoing since 2011 and the company had invested significantly in store refurbishments and supply chain initiatives to support this move.
“At this stage, the ongoing legal battles around the validity of lease exclusivities may have halted progress on the Foodco conversion of a few specific Game stores, but Makro has by and large still been able to execute its fresh food strategy,” said Van Vlaanderen.
He added that the management’s rationale behind the move into Foodco was to make Game less cyclical and reallocate space from declining general merchandise segments to a more defensive food offer.
Pick n Pay was believed to have sent out letters to landlords in 13 malls in which Massmart operates warning them of their exclusivity.