SA’s big supermarkets told to drop exclusivity clauses in mall leases

South Africa’s biggest supermarket chains could be forced to drop exclusivity clauses in shopping mall leases if they fail to do so voluntarily, the country’s competition watchdog said in findings from a sector inquiry published on Monday.

The grocery retail market inquiry was initiated in November 2015 to deepen understanding of a sector dominated by Shoprite Holdings and its upmarket chain Checkers, Pick n Pay Stores, Spar Group and Woolworths Holdings.

The inquiry found “features in the South African grocery retail sector that may prevent, distort or restrict competition”, inquiry chairman Halton Cheadle said as the final 600-page report was unveiled on Monday.

Among those features are exclusive leases and tenant mix clauses negotiated by the major chains in shopping malls across the country to deny opportunities for specialist, emerging chains and small, medium and micro-enterprises (SMME) in areas where the majority of consumers do their weekly and monthly shopping.

“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,” Cheadle said, quoting the report.

One such retailer was Walmart-owned Massmart, which in 2014 lodged a complaint about exclusive lease arrangements that it said were hampering its expansion into the fresh groceries sector.

The inquiry found that more than 70% of shopping malls, which account for about half of all grocery sales nationally, are subject to exclusive lease agreements.

It recommended that national grocery retailers immediately cease enforcing exclusivity clauses against specialist and SMME stores in shopping malls and all grocery retailers in non-urban areas where there are fewer alternative malls.

Cheadle said the measures will be achieved through voluntary compliance within six months from November 25 or the regulator would instigate “legislation in the form of regulations or a code of practice”.

“The inquiry strongly believes that a less concentrated grocery retail sector, with a large ecosystem of small independent traders alongside national retail chains, is in the best interest of the economy and consumers,” Cheadle said.