Retailers are game for battle over exclusivity

SOUTH AFRICA – As local supermarket chains seek to defend their business from the encroaching heft of Walmart Stores, the US retailer is getting mired in a food fight at the mall.

SOUTH AFRICA – As local supermarket chains seek to defend their business from the encroaching heft of Walmart Stores, the US retailer is getting mired in a food fight at the mall.

Game, a chain owned by Walmart that is known for household goods ranging from soap to electronics, is encountering opposition as it adds fresh produce to the mix.

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Rivals with stores in shopping centres in SA that have Game outlets have sued to enforce lease clauses barring new food retailers.

At CapeGate Mall in Cape Town, Game’s food section has been cordoned off twice since the store introduced fresh produce in September 2013 after legal manoeuvring by Shoprite and Pick n Pay.

“I was very disappointed when Game stopped selling fresh meat and vegetables,” says Rebecca Benjamin, who works at a nail salon at CapeGate and is a regular at the store. “I always look in the newspapers for the Game specials.”

“The behaviour by the retailers just feels intuitively anticompetitive,” says Massmart CEO Guy Hayward. “It’s going to reduce choice for customers.”

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At CapeGate, Game’s food section was shuttered from October to March after Shoprite got a court order that barred fresh food sales. On September 29 it closed again when Pick n Pay secured a similar decision.

It reopened on October 13 after Massmart appealed to SA’s Supreme Court, which is still considering the Pick n Pay case.

Game has added fresh produce in about half of its 110 stores and plans to introduce it in most of the rest. Legal battles have prevented the retailer from opening such sections in two other malls.

The fight over exclusivity clauses “will certainly stunt Massmart’s growth”, said Alec Abraham, an analyst at Sasfin Securities in Johannesburg. “With consumer spending under pressure, you need the footfall that fresh food brings.”

Spar has also sued over a lease at a mall with a Game outlet in KwaZulu-Natal. Pick n Pay says it has sent letters warning landlords to honour exclusivity clauses at about a dozen shopping malls, and it has filed lawsuits in two of them.

“We are not crossing the street for a fight,” says Pick n Pay CEO Richard Brasher. “We’ve just reminded our landlords of the agreements that we have.”

Massmart lodged a complaint on October 31 with the Competition Commission against Pick n Pay, Shoprite and Spar to ban lease exclusivity. While no Walmart-owned store in SA uses such clauses, Walmart spokeswoman Jo Newbould declined to say whether it benefits from them in other countries.

Michael Spivey, Massmart’s head legal counsel, says he is prepared “to fight as long as it takes”, to get the clauses overturned.

“Walmart did not see these lease exclusivities coming,” he says. “We believed that once the merger was complete we would compete fairly, openly and aggressively.”

The South African Property Owners Association, which represents commercial and industrial landlords, has asked antitrust authorities to bar exclusivity provisions.

The Competition Commission has said it is “concerned about the potential damping effects of exclusive leases on competition,” but that it has not found sufficient evidence of that to pursue any cases.

Shoprite CEO Whitey Basson says that while the clauses are less important at larger malls, in smaller ones they help ensure sufficient traffic to generate robust sales.

“There’s a reason for that exclusivity — otherwise we won’t go into some of the shopping centres with developers and the centres won’t take off,” he says. – Bloomberg

December 5, 2014; http://www.bdlive.co.za/business/retail/2014/12/04/retailers-are-game-for-battle-over-exclusivity

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