The Competition Tribunal has confirmed, as an order, a consent agreement between the Competition Commission and the Spar Group aimed at ending long-term exclusive lease agreements in the grocery retail sector.

Exclusive lease agreements in the grocery sector usually grant a tenant, such as a national supermarket chain, exclusive rights to operate in a specific shopping centre to the exclusion of any other grocery retailers.

The tribunal’s order means that the Spar Group is now the third retailer in South Africa that has agreed to phase out long-term exclusive lease agreements in shopping centres across South Africa, following the release of the Commission’s Grocery Retail Market Inquiry report published in December 2019.

The commission in its report concluded, among others, that long-term exclusive lease agreements perpetuate concentration levels and impede participation by smaller and emerging retailers in shopping centres.

In addition, it found that exclusive lease agreements limit consumer choice, thereby giving rise to consumer harm and deprive consumers of dynamism and innovation in the grocery retail sector.

The report recommended that the commission engage with retailers to voluntarily stop this practice.

Shoprite Checkers was the first national supermarket chain to voluntarily conclude a consent agreement with the commission. Shoprite’s consent agreement was confirmed by the Tribunal in October 2020.

In June 2021, the tribunal also confirmed a consent agreement between the commission and Pick n Pay Retailers.

In terms of the Spar Group’s agreement, it will immediately stop enforcing exclusivity provisions contained in head-leases (lease agreements between the Spar Group, as the tenant, and a landlord regarding the lease of premises located in a shopping centre) in respect of company-owned stores and will not include exclusivity provisions in lease agreements for company-owned stores in the future.

Company-owned stores refer to stores which are owned and controlled (through ownership) by the Spar Group. These are also referred to as corporate stores.

The Spar Group also agreed to immediately stop enforcing exclusivity provisions in long-term exclusive lease agreements against SMMEs and speciality and limited line stores owned and controlled by historically disadvantaged persons.

A speciality and limited line store refers to a single or multiple store operation within the grocery retail sector that focuses on a specific product category such as butcheries, bakeries, delicatessens, liquor stores and greengrocers, or which stocks and sells 15 or less product lines.

This commitment, however, excludes (for a period of 12 months from the date of signature of the consent agreement) SMMEs, historically disadvantaged persons speciality and limited line stores and historically disadvantaged persons supermarkets that are franchisees or members of emerging challenger retailers or national chains.

Emerging challenger retailers are players that operate mid-sized and large grocery stores (some of which only focus on particular product categories or regions), which may function in a similar fashion to the national chains and which may operate on a franchise or corporate basis.

National chains are retailers which carry a full range of grocery products. These firms not only have a well-developed retail network (which comprises, among others, corporate owned, franchisees and affiliated stores) but also an integrated wholesaling function.

The Spar Group will not incorporate exclusivity provisions into any new supermarket leases in shopping centres other than those in respect of renewals of existing leases.

It will also not enforce any remaining exclusivity provisions in long-term exclusive lease agreements after December 31, 2026.

While it consented to the agreement, the Spar Group did not admit to any competition law contravention.

Pretoria News

zelda.venter@inl.co.za

#groceries

Repo rate expected to remain unchanged

No more exclusive lease agreements in grocery retail sector