An end to grocery retail giants’ long-term exclusivity leases hopes to open up grocery retail market in South Africa
In October 2020, the Competition Commission of South Africa (the “Commission”) concluded agreements with large grocery retail chains Pick ‘n Pay and Shoprite to end exclusive lease agreements at retail properties across the country. This follows from the findings and recommendations published by the Commission in November last year in its Grocery Retail Market Inquiry (the “GRMI”).
The GRMI aimed to identify features of the grocery retail market in South Africa that have resulted in reduced competition and diminished space for the participation of small and independent retail outlets. It was undertaken in terms of the Commission’s powers to conduct an inquiry into the general state of competition in any market in South Africa (which powers have been given a recent boost by the Competition Amendment Act of 2020 which now allow the Commission to enforce its own recommendations).
The GRMI identified, among other issues, that the four large national grocery retail chains in South Africa (Shoprite / Checkers, Pick ‘n Pay, Spar and Woolworths) dominate shopping malls and convenience centres, partly as result of long-term exclusive lease agreements that restrict the landlord from letting premises in the same property to a competitor. This practice was found to apply to over 70% of shopping centres. The practice was found to prevent participation by small and medium businesses and those owned by historically disadvantaged persons, to generally reduce competition amongst grocery retailers within such properties and to limit consumer choice. The GRMI recommended that such long-term exclusive lease agreements must end - with immediate effect in relation to small and medium enterprises and specialist stores and grocery retailers in non-urban areas - and over a five-year period in other cases. This was to be achieved through securing voluntary undertakings from the various retail grocery chains.
The settlement agreements with Pick ‘n Pay and Shoprite are therefore the first of these voluntary undertakings. The undertakings include commitments to end exclusive lease agreements in line with the GRMI recommendations as well as undertakings to not enter into exclusive lease agreements in the future. The agreement with Shoprite has been confirmed by the Competition Tribunal (the “Tribunal”) while the Pick ‘n Pay agreement has, as at the date of writing, been referred to the Tribunal for confirmation.
The agreements present a momentous step towards ending the practice of exclusive lease agreements in the grocery retail sector. It is hoped that the elimination of such long-term exclusive lease agreements from the South African landscape will open up the grocery retail market to small and medium sized competitors and, by allowing more than one grocery retailer (whether large national chains or smaller and specialist stores) into retail properties, to increase competition and consumer choice.
Associate | Competition / Anti-Trust
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