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Johannesburg - The Competition Commission has announced that, although exclusive lease agreements between supermarkets and retail landlords raise barriers to entry into grocery retailing, its investigation did not uncover sufficient evidence to demonstrate anti-competitive effects arising from such agreements generally.
Lizel Blignaut and Yongama Njisane of the law firm ENS puts this in perspective:
This effect is required for an agreement to be in contravention of the Competition Act.
On this basis the Commission has taken the decision not to refer the practice to the Competition Tribunal for adjudication.
The announcement follows the Commission’s 2009 initiation of a broader investigation against the major supermarket chains and wholesale-retailers for various alleged contraventions of the Competition Act.
In 2011, the Commission concluded its investigation into the practices of buyer power, category management and information exchange, announcing that it had found no evidence that the above practices amounted to prosecutable contraventions of the Competition Act.
However, the Commission stated that the practice of long term exclusive lease agreements between food retailers and landlords required further investigation.
The Commission’s preliminary views at that stage were that long term exclusive lease agreements could give rise to considerable competition concerns.
The Commission has now finalised its investigation of this residual issue from its supermarket investigation.
Findings
It found that exclusive lease agreements tend to afford so-called "anchor tenants" exclusive rights to trade as food retailers in a particular shopping centre.
Exclusive lease agreements often include further restrictions on the type of tenants the landlord may permit in the centre.
This prevents bakeries, butcheries and other part-line stores from entering the centre.
Certain retailers – in return for agreeing to "anchor" the centre - often compel landlords not to deal with competitors through the exclusive lease agreements.
Various supermarkets are dominant in certain local markets.
Evidence
Despite these findings the Commission determined that the evidence at its disposal did not warrant the referral of those matters to the Competition Tribunal for prosecution.
In other words, the available evidence did not sufficiently demonstrate the anti-competitive effects of the conduct.
Nevertheless, the Commission announced that it remains concerned about the possibility of exclusive lease agreements creating barriers to entry.
To this end the Commission has decided to engage with landlords and supermarkets to advocate against long term exclusive agreements.
The Commission’s position is that such agreements should be used only where justified by the investment made by the supermarket in a particular centre.
The duration of the exclusivity should also be considered in this justification.
The Banking Association has given a written undertaking that the big five banks no longer require an exclusive agreement between the developers and anchor tenants as a condition for funding.
Conditions
In parallel with its investigation, the Commission has sought to address its concerns through seeking to impose conditions on a number of merger approvals that the exclusivity provisions be removed from the long term lease agreements.
The Competition Tribunal has generally been supportive of these endeavours.
The Commission continues to investigate specific exclusive lease agreements generating demonstrable harm to competition or consumer welfare.
As such, the effects of exclusive lease agreements on competition remain firmly in the Commission’s spotlight and will attract sanction and remedial action in appropriate circumstances.
Lizel Blignaut and Yongama Njisane of the law firm ENS puts this in perspective:
This effect is required for an agreement to be in contravention of the Competition Act.
On this basis the Commission has taken the decision not to refer the practice to the Competition Tribunal for adjudication.
The announcement follows the Commission’s 2009 initiation of a broader investigation against the major supermarket chains and wholesale-retailers for various alleged contraventions of the Competition Act.
In 2011, the Commission concluded its investigation into the practices of buyer power, category management and information exchange, announcing that it had found no evidence that the above practices amounted to prosecutable contraventions of the Competition Act.
However, the Commission stated that the practice of long term exclusive lease agreements between food retailers and landlords required further investigation.
The Commission’s preliminary views at that stage were that long term exclusive lease agreements could give rise to considerable competition concerns.
The Commission has now finalised its investigation of this residual issue from its supermarket investigation.
Findings
It found that exclusive lease agreements tend to afford so-called "anchor tenants" exclusive rights to trade as food retailers in a particular shopping centre.
Exclusive lease agreements often include further restrictions on the type of tenants the landlord may permit in the centre.
This prevents bakeries, butcheries and other part-line stores from entering the centre.
Certain retailers – in return for agreeing to "anchor" the centre - often compel landlords not to deal with competitors through the exclusive lease agreements.
Various supermarkets are dominant in certain local markets.
Evidence
Despite these findings the Commission determined that the evidence at its disposal did not warrant the referral of those matters to the Competition Tribunal for prosecution.
In other words, the available evidence did not sufficiently demonstrate the anti-competitive effects of the conduct.
Nevertheless, the Commission announced that it remains concerned about the possibility of exclusive lease agreements creating barriers to entry.
To this end the Commission has decided to engage with landlords and supermarkets to advocate against long term exclusive agreements.
The Commission’s position is that such agreements should be used only where justified by the investment made by the supermarket in a particular centre.
The duration of the exclusivity should also be considered in this justification.
The Banking Association has given a written undertaking that the big five banks no longer require an exclusive agreement between the developers and anchor tenants as a condition for funding.
Conditions
In parallel with its investigation, the Commission has sought to address its concerns through seeking to impose conditions on a number of merger approvals that the exclusivity provisions be removed from the long term lease agreements.
The Competition Tribunal has generally been supportive of these endeavours.
The Commission continues to investigate specific exclusive lease agreements generating demonstrable harm to competition or consumer welfare.
As such, the effects of exclusive lease agreements on competition remain firmly in the Commission’s spotlight and will attract sanction and remedial action in appropriate circumstances.
