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Retail giants trampling small black businesses

Jun 14 2017 11:31
Lloyd Gedye

The former Managing Director and Chief Executive of Shoprite Holdings Ltd

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As Mphuti Mphuti’s testimony before the Competition Commission’s Grocery Retail Inquiry drew to a close, he paused for a moment. “Just talk to Mr Whitey Basson, just talk some sense into him,” he said. “I’m serious.”

Mphuti is the chairperson of Soweto Business Access. Earlier in his testimony, he had contrasted the R100m remuneration package received by former Shoprite Holdings CEO Basson in the last fiscal year to the plight of small, black independent retailers, who are being squeezed out of the market by South Africa’s big four grocery retailers – Spar, Woolworths, Shoprite/Checkers and Pick n Pay/Boxer.

Mphuti maintains that big business is insensitive to the socio-economic conditions in townships, choosing to only focus on profit, and not on the communities within which they do business.

According to Mphuti, malls in South Africa, which are dominated by large, established retailers, are killing off small, independent black-owned businesses.

He said the retail mall space is dominated by stores of JSE-listed companies.

“The malls are biased towards big business,” said Mphuti. “The shopping malls are an extension of the big business agenda.”

If independent black retailers are allowed into a mall, they are given short-term leases which are more expensive than the long-term leases provided to big business, claimed Mphuti.

He said often the only justification given for 12- to 18-month lease periods is, “We don’t trust you,” and that this practice essentially amounts to “rent protection” for big business at the expense of small black businesses.

Because these leases are short and there is a rent increase with each new period, independent black retailers find their rent has escalated dramatically over a five-year period, he explained. “We are on our knees, the shopping malls are killing us,” he said. “And they are not ploughing back into the townships.”

Easy pickings

Chris Sefate, who runs his own business, Sefate Molifi Imports, agreed. He said township grocery retailers opened by the big four have little to no customer services and very long queues because only a handful of tills ?are operating at a time. “But go to a grocery retailer in the elite suburbs and every till will be open,” said Sefate. “It’s sad, guys.”

He said that the retailers want the money from the townships, but aren’t prepared to look after the consumers. “Where do we fit in?” Sefate asked.

Mphuti recalled a conversation with a mall developer. He had asked the developer if he was aware that he is putting people out of business. To which the developer responded that that is the nature of business, Mphuti recalled.

“Property developers are in the money-making business,” said Mphuti. “They will do whatever it takes to maximise profits.”

The big four have denied that their entrance into SA’s townships is having a negative effect on township economies.

The commission had tasked the Grocery Retail Inquiry with looking into four specific areas:

  • The impact (negative and positive) of the entry of national supermarket chains into townships‚ peri-urban areas‚ rural areas and the informal economy;
  • The impact of long-term exclusive lease agreements and the role of financiers on competition in the grocery retail sector;
  • The impact of regulations and by-laws on competition in the grocery retail sector; and
  • The impact of buyer groups and buyer power of purchasers of fast-moving consumer goods on competition in the grocery retail sector.

The inquiry also heard testimony from Mokoka Moagi who runs Moagi’s Meat Supply in Sebokeng, a longstanding independent business which since 2008 has been surrounded by more than five malls, all within 6km of the butchery.

Revenue had dipped drastically since then and Moagi has had to lay off six of his staff, leaving him with a workforce of four.

Mphuti pointed out that opening specials used by retailers in a new mall have in the past put independent retailers out of business. He recalled the opening of a new supermarket 10 years ago where bread was sold at below cost as an opening special.

A number of small retailers were put out of business by the impact of the special, he claimed. “They just undercut people who are already operating in the township.”

‘Nobody will survive’

Manny de Atouguia, CEO of independent chain Liquor City, has also seen the impact of discounting. He claimed that the big supermarket chains, who have since 2003 been rolling out their own liquor stores, often sell alcohol below cost to bring foot traffic into their grocery stores.

“Nobody should sell below cost,” he told the inquiry, adding that having a supermarket and liquor store on the same premises allows for low overheads with staff, systems and processes all interlinked.

De Atouguia also shared his experiences of being pushed out of malls where he had operated for years because the supermarket decided to open its own liquor store in the mall. “This has been a trend since 2003,” said De Atouguia. “Independent retailers are told to get out and are replaced with supermarket liquor stores.”

He claimed that, since 2003, 70% of independent liquor retailers have already shut down and estimated that more than 60 000 jobs have been lost.

In Liquor City’s case, 24 stores have been shut down in the last two years. In one case Liquor City had been operating in the shopping centre since 1996, but was pushed out by a supermarket chain in 2014. In that particular case all 14 of his staff lost their jobs, and nine are still unemployed.

In one centre, De Atouguia’s rent was increased by 300% after a major supermarket chain bought it. De Atouguia said the liquor boards should consider these developments when issuing new licences. “If they chased away an existing liquor store, then there should be no new liquor licence for the centre. This thing is rotten,” said De Atouguia. “In two years’ time there will be no independent liquor stores. Nobody will survive.”

Lucky Khubheka from Earl Jay Trading Enterprise testified that he applied to open a butchery business in a mall in Tembisa about a year ago. The mall told him that the Boxer supermarket, which is the anchor tenant, has to give permission for him to trade there.

He is still waiting for Boxer’s decision. Khubheka also claimed that independent businesses at the mall are charged much higher rental than Boxer as the centre argues that Boxer brings in foot traffic. He said he couldn’t understand how rentals at the mall in Tembisa could be double that of a new mall in Kyalami.

Gauteng MEC for economic development Lebogang Maile told the inquiry that exclusive property leases are the “biggest problem” and that he considers them “illegal”.

“Independent liquor stores and butcheries are being squeezed out of business. We need a law to outlaw exclusive property leases. This is a matter of urgency,” he said, adding that many of the malls that are being built are not in the interest of the communities that surround them. “They have become a source of serious division in some communities. The model needs to change.”

Maile also questioned the PIC’s and IDC’s funding of these mall developments, arguing that government funding institutions need to operate differently. “They can’t just operate like the banks,” he said.

This is a shortened version of an article that originally appeared in the 22 June edition of finweekBuy and download the magazine here

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