Shoprite uses exclusivity deals to battle Walmart

Retailer relying on clause in lease agreement to deter competition

SHOPRITE has revealed an interesting weapon in the battle against Walmartowned Massmart’s expansion into food — exclusivity agreements common in shopping mall lease agreements.

Shoprite recently filed an urgent interdict in the Western Cape High Court challenging the legality of a Game-branded Massmart store in the CapeGate centre competing directly with its store in the mall.

Shoprite’s legal challenge is based on an exclusivity agreement with CapeGate landlord Hyprop Investments, which allows it to operate as the sole supermarket, grocery store and liquor store in the centre, barring Pick n Pay and Woolworths.

The outcome may affect the US’s largest retailer’s ambitions to become a major player in the South African grocery market.

NICK HEDLEY SHOPRITE has revealed “an interesting weapon” in the battle between incumbent grocery chains against US retail giant Walmart — exclusivity clauses commonly included in shopping mall lease agreements.

Shoprite recently filed an urgent interdict at the Western Cape High Court challenging the legality of a Walmart-owned Massmart Game store in the CapeGate centre competing directly against its outlet in the same mall.

Shoprite’s legal challenge is based on an exclusivity agreement with CapeGate landlord Hyprop Investments, which allows it to operate as the sole supermarket, grocery store and liquor store in the centre, bar Pick n Pay and Woolworths.

The outcome might affect the US’s largest retailers ambitions to become a major player in the South African grocery market.

Massmart’s Game brand, which has traditionally been a general discounter, has been moving towards a multi-category retail format through its Foodco business, which introduces a wider food range to Game.

Massmart intends to roll out Foodco at most Game stores over the next few years.

Such agreements are not uncommon, and are enforced partly to ensure that anchor tenants of new mall developments have the assurance of limited competition, which allows them to be profitable from the outset and commit to their spot in the mall.

Massmart corporate affairs executive Brian Leroni said yesterday the interdict “is based on the mistaken perception that the Game lease agreement prevents Game from trading in nonperishable food — this perception is inaccurate”.

Game’s new Foodco offering at CapeGate was rolled out in September. Mr Leroni said the interdict appeared to be “an attempt to stifle legitimate competition by Game and is, by impli- cation, prejudicial to South African consumers”.

Massmart had referred the matter to the Competition Commission for investigation, he said. Mr Leroni said new lines of perishable food in the Game CapeGate store accounted for 250m ² , or 4.75% of total floor space, and 3% of store revenue and product range. Meanwhile, Shoprite’s store was about 5,683m ² .

Shoprite said in its court papers that there was “little doubt” it would lose sales and suffer financial loss if Game was permitted to trade as a general supermarket, grocery store, or liquor store at the CapeGate centre.

Justin Balkin, who is acting for Massmart and is a competition director at law firm ENS, said Massmart’s extension to its food offering in CapeGate would not result in the Game store becoming a general food supermarket.

“We argue that the extension to the product range is so small that it doesn’t convert us into a general food supermarket,” he said, adding that Shoprite was unclear as to what constituted a general food supermarket, and Shoprite had never challenged Game’s existing food range.

Mr Balkin said that from a competition law perspective, Massmart perceived the exclusivity clause as “anti-competitive” as it “immunises Shoprite from competition from the Game Foodco, and as a result, consumers are worse off”.

As Shoprite’s lease at CapeGate ran for about another 15 years, it would be free from competition from Game for “a long time”, he said. Mr Balkin said the competition authorities “are not particularly happy with exclusive lease agreements”.

As the agreements vary from mall to mall, the ruling of the competition authorities in this particular case would not have implications across the board for leases with exclusivity clauses.

Sarita van Wyk, a spokeswoman for Shoprite, declined to comment on the legal process.