NATIONAL NEWS - This was according to the Competition Commission after it ordered a suspension of exclusive clauses to increase market competition in the sector.
This will see small-medium enterprises and other specialist line stores operating in the same shopping centres and areas as Shoprite holdings franchisees.
The agreement follows a Grocery Retail Market Inquiry (GRMI) report released in November last year, which found that exclusive lease clauses contained in various leasing contracts suspended competition in the South African grocery retail sector.
In line with the recommendations of the GRMI, Shoprite Checkers has, on behalf of its brands Shoprite, Checkers, and Usave, undertaken to do the following:
– It will stop exclusivity against small and independent grocery retailers and speciality stores in all shopping centres with immediate effect.
– It will stop exclusivity against other supermarket chains in all non-urban shopping centres with immediate effect and phase out exclusivity over five years in urban areas. The phase-out will involve waiving exclusivity as leases come up for renewal; and
– It will not sign any new lease agreements that contain exclusivity clauses.
Furthermore, Shoprite Checkers group is set to immediately cease exclusivity against other supermarkets in non-urban areas. This is set be phased out over five years in urban areas.
This as the competition tribunal found that there were no compelling justifications for the continued existence of these exclusive lease agreements.
Competition Commissioner Tembinkosi Bonakele said this development will see the introduction of “much-needed competition” in the grocery retail sector.
He said the agreement marked an end of an area of concern that the commission has raised for almost ten years.
“This move by Shoprite Checkers is timely considering the devastating impact of the coronavirus pandemic on the South African economy in general, and specifically the retailing and retail property sectors.
“Even more encouraging is the levelling of the playing field between independently-owned small grocery retailers and the small franchise operators that benefit from the bargaining power which comes with their association with the well-established brands of the national supermarket chains,” he said.
The tribunal noted that the use of long-term exclusive lease agreements ranged between 10 to 40 years by the national supermarket chains was widely prevalent, covering over 70% of the shopping centres.
The report found that small and independent grocery retailers, speciality stores and emerging challenger retailers such as Liquor City and Food Lovers Market were unable to enter many shopping centres as a result of these exclusive leases.
The commission found that these exclusive lease agreements enabled the large national supermarket chains to maintain their position with limited competition challenge from other grocery retailers.
The competition commission believed that this robbed the consumers of choice, dynamism and innovation in the retail sector.
This will also apply to Shoprite Checkers’ franchise business, OK Foods. Specifically, where Shoprite Checkers holds the lease on behalf of a franchisee, the undertaking will be implemented immediately.
