Supermarkets called out

COMPETITION COMMISSION: MALL EXCLUSIVITY AGREEMENTS TO END

Inquiry finds shop- pers’ choices are restricted and SMMEs disadvantgaged by the contracts.

Exclusivity clauses in leases that allow the big four national supermarket chains to operate within shopping malls without competition must come to an end.

This is one of the findings made by the Competition Commission’s Grocery Market Inquiry, which looked into the general state of competition within the grocery retail sector, where the participation of small and independent retailers has steadily diminished over the years.

Shoprite, Pick n Pay, Spar and Woolworths have been given six months to voluntarily agree to comply with the inquiry’s framework for eliminating these leases – or face more stringent regulations.

Other recommendations made by the inquiry pertain to trade agreements with suppliers and rebates.

It called for more transparency and equal treatment on trade terms and rebates, after finding that national supermarkets receive bigger rebates than small buyers and wholesalers without any “obvious rationale”.

Additionally, the inquiry called for better regulations and government support for spaza shop owners who are also being pushed out by bigger players.

In essence, the exclusivity and tenant mix clauses in long-term lease agreements between landlords and supermarkets create a barrier for any emerging supermarkets, small retailers and speciality stores to gain access into shopping centres.

This is because they restrict landlords from introducing competitors who trade in some of the products provided by anchor tenants, usually one of the big four supermarkets, including dictating where these competitors can be located and the size of their stores.

There are over 2 000 shopping malls and centres in South Africa which account for half of all grocery sales across the country – and “well over 70% of these shopping centres are subject to exclusive lease agreements”.

Shoprite, Pick n Pay and Spar were the main culprits, with the vast majority of their leases containing long-term exclusivity provisions.

While Woolworths’s leases did not contain “explicit” clauses that speak to exclusivity, they include clauses that have an impact on letting and usage.

Because financers require property developers to secure national supermarkets as anchor tenants that will occupy the development during the typical loan repayment period of 10 years, the grocery chains “took advantage” of this and bargained for exclusivity. The explanation was that national grocery chains were taking a risk by locking themselves into these long-term leases without knowing if the centre or mall would be successful.

But the pattern persisted because, as leases expired, the anchor tenants would renew them, together with the exclusivity clauses – and “some of these contracts could endure for at least 30

Five number of years recommended for phase out of exclusivity agreements.