Mall mo­nop­o­lies keep ri­vals away

Es­tab­lished stores con­trol their space in shop­ping cen­tres by en­ter­ing into ‘exclusive leases’, but a Con­sti­tu­tional Court rul­ing could re­di­rect the fight to the mall own­ers

CityPress - - Business - DEWALD VAN RENS­BURG dewald.vrens­burg@city­press.co.za

We don’t be­lieve we are a su­per­mar­ket, and we are still wait­ing for con­fir­ma­tion from the courts as to what they de­ter­mine a su­per­mar­ket to be

There are cracks emerg­ing in the gro­cery re­tail sec­tor from the prac­tice of es­tab­lished play­ers try­ing to keep com­pe­ti­tion out by en­ter­ing into “exclusive leases”.

This fol­lows Mass­mart’s Con­sti­tu­tional Court vic­tory against one of the “exclusive leases” wielded by ri­val Pick n Pay that could re­di­rect the con­tin­u­ing fight around th­ese con­tro­ver­sial mall mo­nop­o­lies to­wards the mall own­ers them­selves.

David North, group ex­ec­u­tive of strat­egy and cor­po­rate af­fairs at Pick n Pay, said: “This is a com­pli­cated, tech­ni­cal judg­ment that fo­cuses on whether le­gal ac­tion to en­force our con­tract should have been di­rected at our land­lord or at Mass­mart. The high court said it should have been di­rected against Mass­mart, but the Con­sti­tu­tional Court says it should be di­rected at our land­lord.”

It mat­ters be­cause Spar and Sho­prite have sep­a­rate court cases pend­ing against Mass­mart to de­fend their exclusive leases at, re­spec­tively, the King Sen­zan­gakhona Shop­ping Centre in Ulundi and at Mthatha Plaza mall.

Reena das Nair, se­nior econ­o­mist at the Centre for Com­pe­ti­tion, Reg­u­la­tion and Eco­nomic Devel­op­ment, a Univer­sity of Jo­han­nes­burg unit, said: “It po­ten­tially opens the door to tak­ing cases against the ac­tual prop­erty owner in­stead of the ri­val. It puts the prop­erty de­vel­op­ers in a bit of a tricky sit­u­a­tion.”

Mass­mart is pur­su­ing a de facto de­fi­ance cam­paign against exclusive leases in var­i­ous malls.

Malls usu­ally give exclusive leases to one or two ma­jor re­tail chains so that no other tenants are al­lowed to com­pete with them, es­pe­cially in the fresh food arena.

It is a his­toric prac­tice of­ten per­pet­u­ated by longterm leases with re­newal clauses, said Das Nair.

“You will prob­a­bly find this is more com­mon in older shop­ping malls.”

The jus­ti­fi­ca­tion is usu­ally that th­ese mo­nop­o­lies are nec­es­sary for re­tail­ers to re­coup their in­vest­ments – an ar­gu­ment that wears thin after a decade or two.

Mall own­ers them­selves don’t like this prac­tice and the SA Prop­erty Own­ers’ As­so­ci­a­tion (Sapoa) lodged a com­pe­ti­tion com­plaint against Pick n Pay, Spar and Sho­prite about it in 2014.

This helped spark the Com­pe­ti­tion Com­mis­sion’s re­tail mar­ket in­quiry, which is look­ing into the is­sue.

Sapoa’s le­gal man­ager, Mum­taz Moola, said: “The prob­lem with exclusive leases is that many of them are his­tor­i­cal and many of our mem­bers have in­her­ited exclusive leases by ac­quir­ing new prop­er­ties.

“Sapoa’s mem­bers are against exclusive leases as they cre­ate a bar­rier to en­try in the mar­ket­place and re­strict com­pe­ti­tion. The Com­pe­ti­tion Com­mis­sion needs to make a rul­ing on the an­ti­com­pet­i­tive na­ture of exclusive leases once and for all.”

Das Nair said that the word­ing and in­ter­pre­ta­tion of the Com­pe­ti­tion Act make it all but im­pos­si­ble for a new en­trant to chal­lenge exclusive leases, caus­ing sev­eral at­tempted cases to be non-re­ferred by the Com­pe­ti­tion Com­mis­sion.

“You would have to show that, by Mass­mart not be­ing in the mall, you are harm­ing con­sumers sub­stan­tially. The bur­den of proof is large,” she said.

“What I found quite strik­ing [in the rul­ing] was the em­pha­sis on un­law­ful com­pe­ti­tion. I won­der if it might stim­u­late ri­vals to bring th­ese cases out­side the com­pe­ti­tion regime,” she said.

EN­TER WALMART

Iron­i­cally, it is now the world’s ma­jor re­tail multi­na­tional that is fight­ing a prac­tice that is usu­ally blamed for sti­fling small in­de­pen­dent butcheries and bak­eries.

Ever since the US re­tail gi­ant Walmart bought a con­trol­ling stake in Mass­mart in 2011, it has been try­ing to get into the gro­cery mar­ket. It claims that the exclusive leases are stop­ping a fair com­pet­i­tive fight and un­der­min­ing its busi­ness model.

Mass­mart has rolled out gro­cery sec­tions at 73 of its more than 100 Game stores, of­ten in de­fi­ance of ex­ist­ing exclusive lease ar­range­ments.

At Cape Gate Mall, Mass­mart’s Game store had a lease that specif­i­cally pro­hib­ited it from run­ning a “gen­eral food su­per­mar­ket”.

How­ever, Mass­mart be­lieves that the phrase ‘gen­eral food su­per­mar­ket’ is im­pre­cise.

“We don’t be­lieve we are a su­per­mar­ket, and we are still wait­ing for con­fir­ma­tion from the courts as to what they de­ter­mine a su­per­mar­ket to be,” spokesper­son An­naleigh Val­lie told City Press.

While get­ting sued by all its ma­jor com­peti­tors, Mass­mart has also taken a case to the Com­pe­ti­tion Tri­bunal against Pick n Pay, Spar and Sho­prite, which will only run its course in two to three years, said Val­lie.

THE BIG­GER FIGHT

In sub­mis­sions to the re­tail mar­ket in­quiry, Pick n Pay has strongly de­fended exclusive leases.

It ar­gues that the leases have no real an­ti­com­pet­i­tive ef­fect be­cause all its prices are set na­tion­ally any­way.

Pick n Pay also claims that, “in many in­stances”, it has al­lowed small re­tail­ers to set up in malls where it holds sway.

Mass­mart at­tacked th­ese claims in a coun­ter­sub­mis­sion, say­ing that its ri­val was be­ing vague about the ex­cep­tions it al­legedly al­lowed.

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