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Malls must phase out exclusive leases for supermarkets, says competition body

Nov 25 2019 13:39
Jan Cronje

A four-year probe of SA's grocery retail market has found that there is no compelling justification for exclusive lease agreements for major grocery retailers at shopping malls.

Professor Halton Cheadle, the chair of the Competition Commission's Grocery Retail Market Inquiry, handed over the commission's 650-page final report to commission's head, Tembinkosi Bonakele, on Monday. The report aims to improve competition in the market, and unblock barriers to access.

Cheadle said members of the inquiry had recommended that there be an immediate end in the enforcement of exclusivity clauses in urban shopping malls by major retailers against specialist and small, medium and micro-enterprises. This he said, would boost competition and "open the sector up to participation by all these players".

In non-urban areas, where there is less competition, the inquiry has recommended that exclusivity clauses be done away with against all grocery retailers, whether national or emerging chains. No new exclusive lease agreements should be entered into or renewed. In the next five years, meanwhile, exclusive lease clauses in both urban and rural areas should be phased out.

"These agreements not only keep out other national retail chains, they also deny opportunities for emerging chains to get traction in the market by locating where the bulk of consumers do their weekly and monthly shopping," said Cheadle. "Of even greater concern, these agreements also systematically deny the opportunity for specialist stores and independent entrepreneurs to locate in the mall if they compete with any of the national chains’ product lines."

Initial compliance with the directive should be voluntary. Failing this, the inquiry has recommended that legislation in the form of regulations or a code of practice should be introduced.

Buyer power favours big players

The report also found that the buyer power of national retail chains enabled them to get higher rebates then the buyer groups and wholesalers that service the small and independent retailers, including spaza shops.

And while some of the rebates made commercial sense, for others there appeared to be no justification.

The inquiry recommended that suppliers of what is known as Fast-Moving Consumer Goods – such as drinks and packaged food – must make their trade terms available to all retailers, wholesalers and buyer groups, apply them uniformly and communicate them clearly. The suppliers of FMCG goods have been given six months to voluntarily commit to implementing the changes.

Rental increases, meanwhile, should also be calculated by shopping mall owners by the use of "fair, transparent and commercially justifiable criteria". 

Spaza shops

The inquiry also looked into the health of spaza shops, which have been facing dual pressures of the introduction of major retail chains in township areas – often in prime locations, and the growth of immigrant community retailers.

It found that spaza shops can continue to play an important role, particularly in convenience shopping, but their continued survival will be helped by the removal of regulatory obstacles.

"Apartheid-era trading times and slow, inflexible and costly zoning laws have hindered spaza shops from responding to entry and fulfilling the convenience role. This has been exacerbated by a lack of basic trading infrastructure (mainly capital for setting this up) and crime, which is cited as the biggest impediment to business."

The inquiry recommended that government help establishment distribution centres and wholesale markets in township areas, and provided seed finance to incorporate spaza shops into buyer groups and logistics chains. The state should also help spaza shops access credit and provide business management support.

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