Shoprite agrees to share the retail pie by ending exclusivity clauses

Shoprite Checkers will stop enforcing exclusivity lease agreements, the Competition Commission announced on Wednesday.
Shoprite Checkers will stop enforcing exclusivity lease agreements, the Competition Commission announced on Wednesday.

Shoprite Holdings - which owns Shoprite, Checkers and Usave stores - has agreed to stop enforcing exclusivity clauses in its lease agreements, the Competition Commission announced on Wednesday.

This means that smaller companies will now be able to operate in the same malls or shopping complexes and compete against the retail giant.

“Furthermore, Shoprite Checkers has undertaken to immediately cease exclusivity against other supermarkets in non-urban areas. This will be phased out over five years in urban areas,” said the commission in a statement. 

“The agreement follows the Grocery Retail Market Inquiry (GRMI) report released in November last year, which found that exclusive lease clauses contained in various leasing contracts impeded competition in the South African grocery retail sector. It also found that there were no compelling justifications for the continued existence of these exclusive lease agreements.”

The commission said that until now, these agreements by the national supermarket was widely prevalent, covering well over 70 of the shopping centres in South Africa. It further stated the agreements had “robbed the South African consumers of choice, dynamism and innovation in the sector”.

Local traders had said the move of Shoprite Checkers and other large retail stores into non-urban areas, along with the existence of exclusivity clauses, had been crippling to their businesses.

The lease agreements had given Shoprite Checkers reign for long periods, with some areas signing lease agreements for between 10 and 40 years.

“Small and independent grocery retailers, specialty stores and emerging challenger retailers such as OBC, Liquor City and Food Lovers Market were unable to enter many shopping centres as a result of these exclusive leases,” said the commission.

“The report found that these exclusive lease agreements contributed to high levels of concentration in the formal grocery retail sector and enabled the large national supermarket chains to maintain their position with limited competition challenge from other grocery retailers.”

Other businesses under Shoprite Holdings would also stop enforcing the exclusive lease agreements and exclusivity clauses.

“Importantly, this undertaking also applies to Shoprite Checkers' franchise business, OK Foods. Specifically, where Shoprite Checkers holds the lease on behalf of a franchisee, the undertaking will be implemented immediately,” said the commission.

“Where franchisees hold the lease, Shoprite Checkers and the commission have agreed that within a period of 12 months, Shoprite Checkers will work with its franchisees to ensure compliance with the undertaking. Shoprite Checkers will also ensure that its franchise agreements will in future not allow franchisees to hold exclusive leases.”

The commission welcomed the move by the retail giant, saying it would now see “much needed competition in the South African grocery retail sector”.

“This move by Shoprite Checkers is timely considering the devastating impact of the corona virus pandemic on the South African economy in general, and specifically the retailing and retail property sectors,” said commissioner Tembinkosi Bonakele.

“Even more encouraging is the leveling of the playing field between independently-owned small grocery retailers and the small franchise operators that benefit from the bargaining power that comes with their association with the well-established brands of the national supermarket chains.”

The commission has referred the agreement to the Competition Tribunal. 

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