Retail counters call for the use of exclusive lease agreements at shopping malls to be regulated and even abolished.
Ray Mahlaka / 7 June 2017 (MoneyWeb)
The controversial use of exclusive lease agreements between owners of large shopping malls and retail anchor tenants has once again been criticised for limiting competition and promoting concentration in SA’s retail market.
On Tuesday, the Competition Commission’s grocery retail market inquiry heard fresh complaints from small independent retailers on how exclusive lease agreements leave little room for them to grow and trade at shopping malls across the country.
These are long-term agreements – as long as 20 years in some cases – between supermarkets and shopping mall owners, allowing supermarkets to be the only seller of specific goods to protect its turf. These agreements also include restrictions on the type of non-supermarket tenants that mall owners can allow to trade.
The Competition Commission’s inquiry, which was first announced in May 2015 by Economic Development Minister Ebrahim Patel in his budget vote, examines the general state of competition in the grocery retail sector. The commission has reason to believe that there are features in the sector that may prevent, distort or restrict competition.
Jose Correia from Unitrade Management Services, which provides services to independent wholesalers and retailers, said exclusive leases that are used by the big four retailers including Pick n Pay, Spar, Shoprite and Massmart should be abolished or limited to a shorter duration.
Correia suggested that leases at new malls should be limited to a five-year period. He based the limited duration of exclusive leases on the UK’s Competition Commission inquiry into the grocery sector in 2005 that recommended that retailers at new malls become financially sustainable after five years.
And exclusive leases in existing malls should be subjected to a phase-out period, Pereira suggested. “The big four retailers already control 80% of the market and having exclusive agreements in place prohibits the entrance of new independent retailers. It also has the impact of reducing competition,” said Correia.
The commission also heard submissions from smaller landlords, among them Bongo Sepeng, who has owned a property complex in the township of Ga-Rankuwa in Pretoria since 2004. She is a franchisee of OBC Butchery, which operates at her property complex alongside grocery and hardware retailers.
Sepeng argued that ten-year long exclusive clauses help her to bring a diverse mix of tenants to her complex. “The exclusive clauses help me to plan forward and making sure that an anchor tenant doesn’t sell what other smaller tenants sell. It helps me to protect smaller tenants,” she said.
This is not the first time that exclusive leases have come under the spotlight.
In November, the Constitutional Court denied Pick n Pay an interdict to stop Game from selling fresh food at Capegate Shopping Centre in Cape Town. Pick n Pay initially went to the High Court on the basis that Game’s food offering was an unlawful interference in its exclusive lease agreement with Capegate’s owner Hyprop Investments.
Correia proposed that property developers, especially those building shopping malls, must be regulated when it comes to the inclusion of small and independent retailers at their new shopping malls.
“Current regulations don’t allow independent retailers to trade at malls. New mall developments must take into account the demographics of an area and allocate a site at the mall for smaller players to trade.”
Other issues that the inquiry will examine include retail giants moving into the township and rural areas, the dynamics related to competition between foreign and South African-operated retailers, the impact of regulations and suppliers on retailers.
