Shoprite levels playing field by agreeing to drop exclusive lease agreements

SOUTH AFRICA – South African retailer Shoprite has entered into a consent agreement with Competition Commission to immediately stop enforcing exclusivity provisions in its long-term lease agreements with its landlords against small, medium and micro enterprises (SMMEs) and speciality and limited line stores.

This was confirmed by the Competition Tribunal of South stating that the agreement stops Shoprite from excluding competition from smaller suppliers who will now have better access to letting space in shopping centres where a Shoprite-owned store is located.

Long-term exclusive lease agreements, entered into between property developers and supermarkets, include provisions that restrict the landlord from letting premises in the same shopping centre to potentially competing grocery retailers and specialty stores.

The consent agreement follows the release of the Grocery Retail Market Inquiry (GRMI) report in November 2019 which found, among others, that long-term exclusive lease agreements were widely prevalent in the grocery retail sector and impeded competition in the sector.

It also found that the agreements gave rise to customer harm as they limit consumer choice within shopping centres.

The GRMI report recommended that the Commission must secure voluntary compliance by national supermarket chains with its recommendations concerning long-term exclusive lease agreements.

Shoprite which had participated in the work of the GRMI resolved to agree with the Commission concerning its recommendations.

“This move by Shoprite Checkers is timely considering the devastating impact of the corona virus pandemic on the South African economy in general, and specifically the retailing and retail property sectors.”

Competition Commissioner – Tembinkosi Bonakele

Under the agreement, the retailer will also waive exclusivity against other chains in all non-urban shopping centres with immediate effect.

A list of more than 400 Shoprite stores in non-urban areas is included in the consent agreement.

However, Shoprite stores located in urban areas will face the same restrictions, except that they will be permitted to phase out the enforcement of exclusivity provisions against other supermarket chains within five years.

This undertaking also applies to Shoprite Checkers’ franchise business, OK Foods. Specifically, where Shoprite Checkers held the lease on behalf of a franchisee, the undertaking would be implemented immediately.

“This move by Shoprite Checkers is timely considering the devastating impact of the corona virus pandemic on the South African economy in general, and specifically the retailing and retail property sectors,” said commissioner Tembinkosi Bonakele.

“Even more encouraging is the leveling of the playing field between independently-owned small grocery retailers and the small franchise operators that benefit from the bargaining power that comes with their association with the well-established brands of the national supermarket chains.”

Other giant retail players in the country i.e. Pick n Pay Stores, and Massmart have also welcomed the Tribunal’s consent agreement to put an end to exclusive leases.

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