Gro­cery re­tail­ers in the crosshairs again

Business Day - Business Law and Tax Review - - BUSINESS LAW & TAX REVIEW - Wade Graaff & Mi­nenhle Sambo

THE Com­pe­ti­tion Com­mis­sion will again fo­cus on the gro­cery re­tail sec­tor af­ter its pre­vi­ous in­ves­ti­ga­tion into su­per­mar­kets and ex­clu­sive leases, in what it is call­ing the “gro­cery re­tail sec­tor mar­ket in­quiry”.

It has pub­lished its draft terms of ref­er­ence for the third mar­ket in­quiry it in­tends to launch since the pro­mul­ga­tion of the mar­ket in­quiry pro­vi­sions of the Com­pe­ti­tion Act, No 89 of 1998 (as amended) in April 2013.

The com­mis­sion plans to ini­ti­ate the in­quiry be­cause it has rea­son to be­lieve that there are fea­tures in the sec­tor that may pre­vent, dis­tort, or re­strict com­pe­ti­tion. In par­tic­u­lar, the com­mis­sion has iden­ti­fied, among oth­ers, that the four largest su­per­mar­ket chains op­er­at­ing in SA col­lec­tively ac­count for more than 90% of the mar­ket and that these firms are able to op­er­ate as gro­cery an­chor ten­ants in shop­ping cen­tres and malls of var­i­ous sizes. The com­mis­sion has also iden­ti­fied that the move­ment of na­tional su­per­mar­ket chains into town­ships, peri-ur­ban and ru­ral ar­eas, mainly through the con­struc­tion of shop­ping cen­tres has af­fected, for ex­am­ple, the prof­itabil­ity of small, in­for­mal and in­de­pen­dent re­tail­ers which has led to a de­crease in the num­ber of in­for­mal busi­nesses.

This de­clin­ing num­ber of small in­for­mal busi­nesses is thus likely to have an ad­verse ef­fect on em­ploy­ment, in­come lev­els and the spread of own­er­ship in the sec­tor. The com­mis­sion also ex­pressed the need to ex­am­ine the dy­nam­ics of com­pe­ti­tion be­tween lo­cal and for­eign-owned small and in­de­pen­dent re­tail­ers.

The com­mis­sion is also tak­ing another bite of the ex­clu­sive leases cherry as it has noted in­creas­ing con­cerns by cer­tain mar­ket par­tic­i­pants, in­clud­ing the South African Prop­erty Own­ers As­so­ci­a­tion and cer­tain gro­cery re­tail­ers them­selves. In Jan­uary last year the com­mis­sion con­cluded its in­ves­ti­ga­tion into ex­clu­sive leases in the gro­cery re­tail mar­ket and found that there was in­suf­fi­cient ev­i­dence to meet the tests set out in the Com­pe­ti­tion Act for de­mon­strat­ing an­ti­com­pet­i­tive ef­fects. Although it found that there were in­suf­fi­cient grounds to pros­e­cute the su­per­mar­kets con­cerned, the com­mis­sion re­mained con­cerned about the bar­ri­ers to en­try in the gro­cery re­tail in­dus­try and the neg­a­tive ef­fects of ex­clu­sive leases on small com­peti­tors and po­ten­tial com­peti­tors. Ac­cord­ing to the terms of ref­er­ence, ex­clu­sive leases may af­fect cus­tomers’ choice in terms of prod­uct range, qual­ity and ul­ti­mately af­fect com­pe­ti­tion, and the qual­ity of ser­vices (in­clud­ing pric­ing and pro­mo­tions) can be ex­pected to be bet­ter where there are com­peti­tors at the same cen­tre.

The scope of the in­quiry will, this time around, in­clude: (i) The im­pact of the ex­pan­sion, diver­si­fi­ca­tion and con­sol­i­da­tion of na­tional su­per­mar­ket chains on small and in­de­pen­dent re­tail­ers in town­ships, peri-ur­ban and ru­ral ar­eas and the in­for­mal sec­tor; (ii) The im­pact of long-term ex­clu­sive leases en­tered into be­tween fi­nanciers, prop­erty de­vel­op­ers and na­tional su­per­mar­ket chains on com­pe­ti­tion in the gro­cery re­tail sec­tor; (iii) The dy­nam­ics of com­pe­ti­tion be­tween lo­cal and for­eign-owned small and in­de­pen­dent re­tail­ers in town­ships, peri-ur­ban and ru­ral ar­eas and the in­for­mal econ­omy; (iv) The im­pact of reg­u­la­tions, in­clud­ing mu­nic­i­pal town plan­ning and by-laws on small and in­de­pen­dent re­tail­ers in town­ships, peri-ur­ban and ru­ral ar­eas and the in­for­mal econ­omy; (v) The im­pact of buyer groups on small and in­de­pen­dent re­tail­ers in town­ships, peri-ur­ban and ru­ral ar­eas and the in­for­mal econ­omy; and (vi) The im­pact of cer­tain iden­ti­fied value chains on the oper­a­tions of small and in­de­pen­dent re­tail­ers in town­ships, peri-ur­ban and ru­ral ar­eas and the in­for­mal econ­omy.

The com­mis­sion in­di­cated that it may also probe: (i) The com­pe­ti­tion dy­nam­ics in the gro­cery re­tail sec­tor, in­clud­ing pric­ing prac­tices, ex­tent of con­sumer choice and in­no­va­tion; (ii) The im­pact of fran­chise re­tail­ers on small and in­de­pen­dent re­tail­ers in town­ships, peri-ur­ban ar­eas, ru­ral ar­eas, and the in­for­mal econ­omy; and (iii) The causes and im­pact of the de­cline in small and in­de­pen­dent re­tail­ers in town­ships, peri-ur­ban ar­eas, ru­ral ar­eas, and the in­for­mal econ­omy.

The ini­ti­a­tion of this in­quiry ap­pears to be in line with the Com­mis­sion’s 2015-2020 Strate­gic Plan and An­nual Per­for­mance Plan 2015-2016. This in­quiry is an ex­am­ple of a case where the com­mis­sion is con­cerned with bar­ri­ers to en­try and the ef­fect that cer­tain in­dus­try prac­tices have on small firms. Ac­cord­ing to the plans, the com­mis­sion in­tends to ini­ti­ate nu­mer­ous in­quiries by 2020.

While we are yet to see which in­dus­try par­tic­i­pants com­mented on the terms of ref­er­ence (the dead­line for com­ment was 3 July 2015), the loud­est com­men­tary so far has come from the Congress of South African Trade Unions (Cosatu). Cosatu has in­di­cated that the in­quiry can as­sist in al­le­vi­at­ing SA’s triple in­ter­re­lated chal­lenges of poverty, un­em­ploy­ment and in­equal­ity caused by high con­cen­tra­tion in var­i­ous sec­tors of the econ­omy.

Sim­i­lar to the healthcare in­quiry, we can prob­a­bly ex­pect the com­mis­sion to ex­ten­sively con­sider the in­dus­try and keep firms in the sec­tor busy. Un­like the pre­vi­ous su­per­mar­ket in­quiry, the amended Com­pe­ti­tion Act now pro­vides the com­mis­sion with the op­por­tu­nity to gather much more in­for­ma­tion and make rec­om­men­da­tions to the min­is­ter of eco­nomic de­vel­op­ment. Such may be sim­i­lar to those rec­om­men­da­tions made in the UK’s Gro­cery Mar­ket In­ves­ti­ga­tion where the UK Com­pe­ti­tion Com­mis­sion opted not to pro­hibit ex­clu­sive lease agree­ments, but rather to al­low them for a max­i­mum pe­riod of five years. They also placed an obli­ga­tion to ap­ply the com­pe­ti­tion test dur­ing the plan­ning process of new stores and re­quired gro­cery re­tail­ers to re­lin­quish con­trol over land sites in highly con­cen­trated mar­kets.

Gro­cery re­tail sec­tor mar­ket to be ex­am­ined for ef­fects on smaller, in­for­mal and in­de­pen­dent busi­nesses

Wade Graaff is a se­nior as­so­ciate and Mi­nenhle Sambo a can­di­date at­tor­ney in ENSafrica’s com­pe­ti­tion depart­ment.

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