The Competition Tribunal has announced that it has granted Shoprite Checkers some time to phase out the long-term exclusive lease agreements.
The Tribunal has dismissed most of the other amendments sought by the retailer. Shoprite has to phase out all exclusivity provisions by December 2024.
In 2019, the Competition Commission’s Grocery Retail Market Inquiry (GRMI) released a report which stated that exclusivity lease agreements were prevalent, anti-competitive, and harmful to consumers and smaller retailers.
At the time, the Commission decided that large retailers should co-operate on their own rather than immediately choosing litigation to get them to comply.
Shoprite was the first national supermarket chain to voluntarily conclude a consent agreement with the Competition Commission following the release of its Grocery Retail Market Inquiry report in November 2019.
“The GRMI found that long-term lease agreements that entrench exclusivity by major retailers ‘fundamentally undermined the objectives of the [Competition] Act and broader national economic policies aimed at facilitating transformation and economic inclusion.’ It recommended that the Commission enter into discussions with retailers to voluntarily stop this practice,” the Tribunal said.
Shoprite’s consent agreement was confirmed as an order by the Tribunal in October 2020.
“This was followed by Pick n Pay’s consent agreement in June 2021. Shoprite subsequently asked the Tribunal to amend its agreement due to, among others, alleged material differences between its agreement and that of Pick n Pay which Shoprite alleges creates a market distortion between the two large retailers,” the Tribunal said.
Pick n Pay has to phase out all exclusivity provisions by December 2026.
The Tribunal said it has found that Shoprite has not made out a convincing case for a good cause to amend its consent agreement to mirror that of Pick n Pay in relation to the non-urban versus HDP issue – and that it would not be in the public interest to do so.
“This is because Shoprite has a relatively larger retail footprint in non-urban areas where consumers, especially low-income consumers have less choice. Making entry possible in retail shopping centres in non-urban areas, therefore, impacts the most vulnerable consumers,” it said.
The Tribunal said in comparison to Shoprite, Pick n Pay had a relatively smaller presence and therefore a smaller number of stores with leases containing exclusivity provisions in non-urban areas.
“To apply the non-urban areas approach to Pick n Pay would accordingly not have achieved the objectives of removing barriers to entry into the retail market to the same extent as the national HDP provision contained in the Pick n Pay consent agreement,” it said.
The Tribunal further noted evidence that there had been increased competition between supermarkets in non-urban areas following the Shoprite consent agreement and there was no cogent evidence of Shoprite being substantially worse off, given the two retailers’ different geographic footprint.
According to the Tribunal, Shoprite submitted that it would like to enter numerous shopping centres, most in urban areas, but it is prevented from doing so because its competitors continue to enforce exclusivity provisions.
“The Tribunal has concluded that Shoprite has not made out a sufficient case for a good cause to amend its consent agreement to allow it to retain exclusivity provisions when renewing existing leases.
“Shoprite is not precluded from entering shopping centres where Pick n Pay has a presence, provided it does so with an individual HDP franchisee. This is in line with the objectives of the GRMI to enhance ownership transformation in the grocery retail sector.”
The Tribunal said in addition, the evidence of entry by competitors in urban areas where Shoprite previously held exclusivity introduces further competition in the market but appears to not be of a scale that was likely to significantly distort competition between Shoprite and its national competitors.
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