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Massmart wins grocery store battle

| Legislation

Massmart, which owns the Game and Makro chains and other smaller retailers, yesterday received a major boost after the Competition Commission said Spar, Pick n Pay, Shoprite and Woolworths should be barred from entering into long-term exclusive lease agreements.

The regulator’s commissioner, Tembinkosi Bonakele, said current exclusive leases prevented emerging chains from developing to the point that they could suitably play the anchor tenant role in new developments, which means the same four retail chains are the only candidates.

“There appears to be a sustained pattern of behaviour by the national supermarket chains and their counterparts that enables or results in the exercise of market power by them to the exclusion of smaller, independent stores as well as emerging challenger retailers such as OBC, Choppies, Fruit and Veg, and Food Lover’s Market,” Bonakele said.

“As of the date of publication of this report, the incumbent national supermarket chains (Shoprite, Pick n Pay, Woolworths, Spar) including their subsidiaries and their successors must, with immediate effect, cease from enforcing exclusivity provisions, or provisions that have a substantially similar effect in their lease agreements against speciality stores.”

The regulator said the industry was highly concentrated with the big four supermarket chains accounting for a market share of 72 percent.

The commission further recommended that the enforcement of exclusivity by the incumbent national supermarket chains must be phased out within three years. Massmart, which is in the middle of transforming its flagship Game chain from a primarily electronics retailer to one that sells groceries, in 2014 lodged a complaint with competition watchdogs saying its expansion into the fresh grocery sector was being hampered by lease arrangements that restrict malls from renting out space to rival food retailers.

At the heart of Massmart’s argument has been that the exclusivity provisions in the lease agreements gave Pick n Pay, Shoprite and Spar protection in the supply of groceries and had a negative impact on consumers.

The commission’s recommendations come hot on the heels of the appointment of US veteran Mitchell Slape to the helm of Massmart to turn the troubled business around.

The group’s share price had plunged more than 50 percent under erstwhile chief executive Guy Hayward, who had served in the role since 2014.

In 2011 Walmart, the world’s biggest retailer, acquired 51 percent in Massmart for $2.5 billion (R36.48bn).

Brian Leroni, a corporate affairs executive at Massmart, said: “Massmart welcomes this recommendation, which vindicates our long-held view that exclusive lease agreements are intuitively anti-competitive.”

Research from Euromonitor International shows Shoprite has a leading position in the lucrative grocery industry, with a 22 percent market share.

Spar, Pick n Pay and Shoprite did not respond to questions sent to them.

BUSINESS REPORT




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