On 30 October 2015, the Competition Commission established the Grocery Retail Sector Market Inquiry (the “Inquiry”) with the purpose to assess amongst others, the impact of long-term lease agreements entered between property developers and national supermarket chains. 4 years on, the Inquiry has published preliminary findings and recommendations.
The Inquiry has reported that certain existing features in the grocery retail sector distort competition between national supermarket chains, wholesalers and independent retailers. In particular, the significant buying power that national supermarket chains wield over property developers and suppliers places them in a strong position to influence the terms of agreements by demanding exclusive leases, low rentals, and rebates which only they qualify for. Chains reviewed by the Inquiry include Shoprite, Pick n Pay, Woolworths, and Spar.
The Inquiry also found that the level of concentration in the formal retail sector that national supermarket chains have reinforced by the high levels of barriers to entry that appear to exist in the value chain, such as the access to property for business purposes.
According to the Inquiry, the following recommendations would facilitate the entry and expansion of specialist and emerging retail chains in shopping malls nationwide:
- Supermarket chains including their subsidiaries and their successors must cease from enforcing exclusivity provisions, or provisions that have a substantially similar effect, in their lease agreements against specialty stores.
- No new leases or extensions to leases by the incumbent national supermarket chains may serve to restrict the product lines, store size and location of other stores selling grocery items within the shopping center.
- The enforcement of exclusivity by the supermarket chains must be phased out within three years from the date of the publication of the final inquiry report.
Understandably there are significant concerns with the hard-line and blanket approach of the Inquiry’s recommendations and interested parties have appealed for the committee to take more time to consider and review submissions.
Read the detailed Grocery retail sector market inquiry preliminary report on exclusive lease agreements here. We also invite you to contact Adams & Adams for any competition law related matters or for advice on the specific impact that the Grocery Retail Market Inquiry could have on your business.