Fresh probe into grocery stores

Ebrahim Patel
Ebrahim Patel

Focus set to be on stimulating small retail sector

GROCERY heavyweights face a fresh Competition Commission inquiry.

Established by Economic Development Minister Ebrahim Patel‚ it has a wider ambit than the previous probe that cleared the big supermarkets of anti-competitive activities and price-fixing.

The watchdog’s overarching aim is to examine whether there are features in the grocery retail sector that lessen‚ prevent or distort competition.

This time‚ the small fish have centre stage. Most of the six major areas of the inquiry deal with the market dynamics of small and independent retailers, including foreign operators.

Slowing income growth‚ high household debt and the rising cost of living have prompted big retailers to launch an aggressive space race to capture consumers’ spend – in both city suburbs and townships serviced by smaller players.

Announcing the inquiry during his budget vote this year‚ Patel said the retail sector contributed to growth in jobs‚ and the small retail sector was a critical economic entry point for black South Africans.

This suggests that the scope of the inquiry goes beyond competition concerns.

Robert Wilson‚ a partner at Webber Wentzel’s competition practice‚ says the breadth of the inquiry is less about the commission hoping to find something that will stick‚ and more about pursuing its public interest mandate in the context of an inquiry.

In balancing competition and public interest, several difficult questions emerged, Wilson said.

“Could the promotion of small retailers lead to inefficiencies and higher prices for consumers?” he asked. “Balancing only public interest considerations also presents challenges.

“For example‚ given that small retailers typically do not employ unionised workers‚ how will the inquiry be viewed by the trade unions‚ and could support for small retailers result in diminished working conditions?”

Wilson said while Patel’s motives might be well-intentioned‚ some would question whether an intervention would increase the already high levels of confusion over the government’s economic and social policies.

The most contentious issue to be scrutinised in the retail inquiry is that of lease exclusivity at malls – a battle being fought largely among big retail chains.

In its previous inquiry into retailers‚ the Competition Commission said it was concerned about the potential damping effects of exclusive leases on competition‚ but it found insufficient evidence to pursue any cases. However‚ that was before Massmart’s Game stores launched a major food strategy.

The chain has encountered opposition at some malls because exclusivity provisions in lease contracts – in terms of which the biggest grocers are anchor tenants – block the sale of certain types of perishable food and dry groceries by other large retailers.

Exclusivity clauses have been commonplace in the grocery sector for years and are defended on the grounds that they protect big retailers’ investments – chains often spend more than R30-million setting up larger-format new stores and do not want their trade affected by another large anchor store or smaller businesses. Fresh food offerings bring footfall to malls.

The SA Property Owners’ Association (Sapoa)‚ the representative body of the property industry‚ has for years raised its concerns about the anti-competitive effects of exclusive lease agreements.

On behalf of its members‚ Sapoa recently lodged a complaint with the Competition Commission and asked it to reopen its investigation into exclusivity clauses and to include the broader prohibitive practice of longterm leases in shopping centres.

“Besides excluding potential new entrants – including independent and small retailers – longterm‚ exclusive lease agreements reduce competition between supermarkets and broader competitors,” Sapoa chief executive Neil Gopal said.

-Zeenat Moorad

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