COMPETITION TRIBUNAL
REPUBLIC OF SOUTH AFRICA
Case No: CO077Aug23
In the matter between:
The Competition Commission of South Africa Applicant
And
Spar Group Limited Respondent
Panel: AW Wessels (Presiding Member)
A Ndoni (Tribunal Member)
F Tregenna (Tribunal Member)
Heard on: 27 October 2023
Last date of submission:
Decided on:
14 December 2023
19 December 2023
CONSENT AGREEMENT
The Competition Tribunal hereby confirms the consent agreement together with
the addendum attached thereto concluded between the Competition Commission
and Spar Group Ltd annexed hereto.
19 December 2023
Presiding Member
Mr Andreas Wessels
Date
Concurring: Ms Andiswa Ndoni and Prof. Fiona Tregenna
THE GROCERY RETAIL
MARKET INQUIRY
FINAL REPORT
SUMMARY OF THE FINDINGS
AND RECOMMENDATIONS
competition regulation for a growing and inclusive economy
competition commission
south africa
25 NOVEMBER 2019
YEARS
Annexure A
1
SUMMARY OF THE FINAL FINDINGS AND RECOMMENDATIONS
1. On 30 October 2015, the Competition
Commission (“the Commission”) gave
notice in the Government Gazette
(“Gazette”) announcing the establishment
of the Grocery Retail Sector Market Inquiry
(“the Inquiry”) in terms of Section 43B(2)
of the Competition Act no 89 of 1998 (as
amended) (“the Act”). The Gazette set out
the Terms of Reference (“ToR”) which would
guide the work of the Inquiry.
2. The Commission initiated the Inquiry in
order:
2.1 to understand how the grocery
retail sector operates because the
Commission had reason to believe that
there exist features, or a combination of
features, in the sector that may prevent,
distort or restrict competition; and
2.2 to achieve the purpose of the Act.
3. The Inquiry was conducted in four phases:
3.1 phase one involved the publication
of the ToR, initial background
consultations, literature review and the
publication of the Statement of Issues
(“SOI”), Guidelines for Participation and
Administrative Timelines;
3.2 phase two involved information
gathering through site visits and re-
visits, surveys, targeted consultations,
information requests and public
hearings;
3.3 phase three, involved the processing
and analysing of information, identifying
information gaps, follow up consultations,
targeted consultations, and information
requests to address any identified gaps,
culminating in the publication of the
Preliminary Report; and
3.4 phase four involved the formulation and
testing of recommendations, drafting
and publication of the Final Report.
4. The SOI contained the Inquiry’s envisaged
framework to assist the participants in the
Inquiry to focus on issues that the Inquiry
envisaged to be the most relevant in
answering questions arising from the ToR. In
line with the scope of the Inquiry, and as set
out in the ToR, the SOI proposed to assess
competition in the grocery retail sector
according to these stated objectives.
4.1 Objective 1: The impact of the
according to these stated objectives.
4.1 Objective 1: The impact of the
expansion, diversification and
consolidation of national supermarket
chains on small and independent
retailers in townships, peri-urban and
rural areas and the informal economy.
4.2 Objective 2: The impact of long-term
exclusive lease agreements entered
into between property developers and
national supermarket chains, and the
role of financiers in these agreements
on local competition in the grocery
retail sector.
4.3 Objective 3: The impact of the
dynamics of competition between local
and foreign national operated small
and independent retailers in townships,
peri-urban and rural areas and the
informal economy on competition.
4.4 Objective 4: The impact of regulations,
including, among others, municipal
town planning and by-laws on small and
independent retailers in townships, peri-
urban and rural areas and the informal
economy.
competition commission
south africa
SUMMARY OF THE FINAL FINDINGS AND
RECOMMENDATIONS OF THE GROCERY
RETAIL MARKET INQUIRY
3
SUMMARY OF THE FINAL FINDINGS AND RECOMMENDATIONS GROCERY RETAIL MARKET INQUIRY2
4.5 Objective 5: The impact of buyer
groups and buyer power of the national
retail chains on small and independent
retailers in townships, peri-urban and
rural areas and the informal economy.
4.6 Objective 6: The impact of certain
identified value chains on the operations
of small and independent retailers in
townships, peri-urban and rural areas
and the informal economy.
5. In conducting this Inquiry due regard was
given to ensuring that the processes followed
were both thorough and fair. The Inquiry
reached out to numerous stakeholders
operating at different levels of the grocery
retail value chain across South Africa and
received both written and oral submissions.
The stakeholders that participated included
the national supermarket chains, small
and independent retailers, spaza shop
owners, FMCG suppliers, consumers,
local authorities, provincial and national
government departments, and industry
regulators. The Inquiry received more than
500 submissions from the main parties, held
over 80 round-table discussions as well
as public hearings in the Western Cape,
KwaZulu Natal, and Gauteng. These public
hearings were supplemented with six mini-
public hearings in Limpopo, Mpumalanga,
the Northern Cape, the Eastern Cape and
the North West. In addition, the Inquiry also
conducted site visits to spaza shop owners,
grocery retailers, wholesalers and other
stakeholders at a number of sites in towns
and cities where local grocery retailing
issues had been brought to its attention.
6. On the basis of these submissions, the
Inquiry published its Preliminary Report on
29 May 2019 setting out its initial findings
and proposed recommendations, and
invited stakeholders to make submissions
in response. Having considered the views
and submissions from stakeholders arising
from the Preliminary Report, this report
reflects the Inquiry’s final findings and
recommendations (“the Final Report”).
reflects the Inquiry’s final findings and
recommendations (“the Final Report”).
7. The Inquiry received numerous submissions
from stakeholders in response to its
Preliminary Report. These included various
national and provincial government
departments, industry regulators, industry
associations, the national supermarket
chains and emerging challenger retailers,
small and independent retailers, buyer
groups, property owners or developers
and managers, banking institutions, FMCG
suppliers, spaza shop owners, and academic
research institutions. These submissions
and comments added to the substantial
body of information, evidence and data
gathered in the period leading to the
publication of the Preliminary Report. The
combination of these submissions provides
the basis for the Inquiry’s final findings and
recommendations as set out in this Final
Report.
8. Broadly, the Inquiry found that a
combination of features in the grocery
retail sector may prevent, distort or restrict
competition. In particular, three principal
areas of concern warrant remedial action:
long-term exclusive lease agreements and
buyer power; competitiveness of small and
independent retailers; and the regulatory
landscape.
Market structure and the Inquiry’s scope of analysis
9. By way of context, the grocery retail sector
is characterised by low levels of economic
regulation and openness of markets.
The openness of the sector has enabled
the increased expansion of corporate
retailers to the displacement of small and
independent businesses. This displacement
has been further exacerbated by the ease
of entry in the informal segment, leading to
the replacement of small and independent
retailers, which were primarily family
operated and mainly serviced rural and
non-urban communities, before the boom
of shopping malls in these areas. It is within
this context that the Inquiry has considered
the competitive dynamics in the grocery
retail sector.
10. There are low barriers to starting survivalist
retail sector.
10. There are low barriers to starting survivalist
informal spaza shops. However, there are
significant challenges to building them
into thriving, competitive businesses that
can enter the higher value segments within
grocery retail, such as tenancy in formal
shopping malls. The Inquiry believes that
there is a need to remove impediments to
the increased and effective participation of
SMMEs and operations owned by HDIs in
the grocery retail sector. Making markets
more inclusive, as anticipated by the
provisions on the purpose of the Act, not
only addresses social imperatives but also
provides a platform for more competitive
markets, which benefit consumers.
11. The Inquiry considered the market structure
of the grocery retail sector, and found
that it is complex, consisting of numerous
players including manufacturers or
suppliers of grocery retail products, buyer
groups and distributors, wholesalers,
hybrid wholesalers (i.e. wholesalers that
also have retail supermarket offerings),
national supermarket chains, speciality
stores, emerging challenger retailers,
independent retailers (formal and informal)
and consumers.
12. At the supplier level, there are a number of
firms who manufacture and supply various
FMCG products to different retail platforms.
These suppliers are of varying size, with a
limited number of large multi-product firms.
Similarly, the wholesale level comprises a
number of formal players such as buyer
groups and cash and carries, who primarily
supply the independent and informal
retailers such as spaza shops.
13. The retail level of the value chain is
segmented between the formal and
informal channels. The formal retail
segment is characterised by the presence
of the incumbent national supermarket
chains, speciality stores and the emerging
challenger retailers, while the informal
segment mostly has an active presence of
small and independent retailers including
general dealers and spaza shops. The sale
small and independent retailers including
general dealers and spaza shops. The sale
of grocery products takes place through
both the formal and informal retail channels.
The formal channel is the larger and more
important distribution segment. Within
the formal channel, a large proportion
of grocery product sales takes place in
shopping centres which are primarily
occupied by national supermarket chains as
the anchor tenants.
14. Following the publication of the Preliminary
Report, stakeholders submitted that in order
for the Inquiry to conduct a competition
assessment and make findings, it must define
relevant product and geographic markets,
in accordance with international standards
and previous decisions of the Competition
Tribunal (“Tribunal”). Stakeholders also
submitted that the Inquiry was inconsistent
and contradictory in the use of its ‘market
definition’ in that in some instances it
considered a broad national grocery retail
market, and in others a narrower segment,
for formal retailers.
15. The Inquiry sets out below its responses
to these stakeholder submissions and
sets out a legal framework for the conduct
of this market inquiry and the approach
adopted in respect of market definition and
the appropriate framework to consider in
defining the grocery retail market.
16. All the stakeholders that raised concerns
regarding the issue of market definition
appear to have conflated Chapter 2
and Chapter 4A of the Act. An aspect
of importance in making a distinction
between the Commission embarking on
an investigation that is conducted under
Chapter 2 of the Act and conducting a market
inquiry, in terms of Chapter 4A, is noting that
the Inquiry is much more widely focused. The
former is only concerned with prohibited
conduct by an individual firm (or group of
firms) while the latter is much broader in
its reach and is concerned with features
of markets that may hinder competition,
consumer choice or effective participation,
often not ascribed to a single firm.
consumer choice or effective participation,
often not ascribed to a single firm.
17. Section 43B of the Act, which deals with the
initiation of market inquiries, contemplates
that some notion of a market is relevant in the
conduct of a market inquiry. However, this is
not in the context of establishing dominance
for Section 2 abuse of dominance cases.
5
SUMMARY OF THE FINAL FINDINGS AND RECOMMENDATIONS GROCERY RETAIL MARKET INQUIRY4
a single product range but typically with
complementary products. These specialist
stores will also interact competitively with
the supermarket and convenience stores in
various ways.
25. The Inquiry believes that what is most
relevant is that there is likely to be a greater
closeness of competition between stores
located within the same shopping mall for
the same product lines. It is less inconvenient
for a consumer to purchase some products
at one store then move to another store in
the same mall for some additional items,
than the alternative of visiting numerous
different locations. In the same way, shops
within a strip mall would also compete more
closely if they sold the same product. The
rationale here is also convenience.
26. This conclusion has relevance to both
grocery competition and to the interaction
with speciality stores. The use of exclusivity
provisions to keep out specialist stores which
only compete with certain product lines, is a
recognition that supermarkets do interact
competitively with these in a mall and would
impact on sales of their own product lines.
In considering the importance of shopping
malls as destinations for consumers,
access to such malls also impacts on other
objectives of the Act such as participation in
the economy.
27. From a geographic market perspective,
the most common approach is to consider
localised markets because consumers
tend to shop within the vicinity of where
they live or work, or on the route to and
from work. This focus is reinforced by the
fact that shopping malls and strip malls
consider the catchment area around their
location when determining what their likely
footfall will be. However, as much as there
is product differentiation, there is also
spatial differentiation which impacts on the
closeness of competition and competitive
constraints imposed by different outlets.
28. The local nature of markets does not
constraints imposed by different outlets.
28. The local nature of markets does not
eliminate the fact that there are several
competitive variables which may be set
nationally due to head office purchasing
deals. For example, products may be listed
nationally, have common retail prices
within the supermarket groups, and have
coordinated promotions due to national
advertising policy. However, some (if not
most) aspects of competition are also
determined locally. The size of the store, its
product range, local promotions and range
selection, and store layout are all likely to be
impacted by local competition dynamics.
While these may not always relate to price
(except through promotions), they go to
other demand-related variables which affect
consumer welfare such as product range,
variety and innovation, as well as the overall
shopping experience.
29. The Inquiry is of the view that both local and
national competition is important. While
many aspects of grocery retailing markets
may be localised, the nature of the issues
under consideration (such as exclusive
leases and buyer power) are replicated
across the country and thus create a
national phenomenon which provides a
further reason for the Inquiry’s assessment
to be conducted on the basis of the broader
retailing of grocery products, taking into
account the possible narrower markets that
may exist. The adoption of such a broad
approach to its assessment, has also allowed
the Inquiry to assess the multifaceted
nature of the competition dynamics that
underscore the issues raised in the ToRs.
Market concentration
30. Following the publication of the Preliminary
Report, the national supermarket chains
submitted that the Inquiry had over-
estimated their market shares and the
resultant levels of concentration in the
grocery retailing sector. They attributed this
mistake to the inclusion of revenue realised
from the sales of non-grocery products and
out of country sales.
31. The Inquiry accepted the submissions by
out of country sales.
31. The Inquiry accepted the submissions by
the national supermarket chains and revised
its concentration ratio estimate for grocery
retailing. It is important to note that, as in
the Preliminary Report, the concentration
ratio estimate relied upon by the Inquiry
18. It is important to note that the use of the word
‘features’ in the wording of this provision
allows for a consideration and inclusion
of factors that may or may not warrant a
market definition. By way of example, the
identification of regulatory constraints as a
feature that hinders or distorts competition
does not, in and of itself, warrant the definition
of a market in respect of that issue. It is for
this reason that the Inquiry, in its Preliminary
Report, identified grocery retailing as the
scope for its analysis. This broad approach to
its analytical framework allowed the Inquiry
to engage with the issues or features within
the grocery sector that may have an impact
on competition.
19. It is also open for the Inquiry to define a
product market with certain features, even
if this product market is characterised by
numerous local markets, as is the case
in grocery retail. It is our view that where
a feature of the product market, such as
exclusive leases, repeats itself across these
local geographic markets, it is valid to
consider such a feature broadly, and not
local market by local market.
20. The second aspect of section 43B is that the
basis for the Commission to embark on a
market inquiry is to achieve the purposes of
the Act which are more broadly defined than
pure price competition. This is of relevance
to this Inquiry in general, and exclusive leases
in particular. The purposes of the Act are
also emphasized in the preamble to the Act
which states that the Act exists to “provide for
markets in which consumers have access to,
and can freely select, the quality and variety
of goods and services they desire” .
21. A market inquiry investigating market
of goods and services they desire” .
21. A market inquiry investigating market
features which impact on the purposes of
the Act clearly is broader in scope than
simply abuse of dominance provisions under
section 2. Even within a market inquiry, certain
market features may be assessed from the
perspective of multiple purposes of the Act.
For instance, exclusive leases may be viewed
from a hindering of competition perspective
(noting this is a lesser test to those in section
2 of the Act), a consumer choice perspective
and a participation of SMMEs and historically
disadvantaged individuals’ perspective. It
is thus the view of the Inquiry, that for the
legislature not only to employ different
tests, but also to distinguish the nature of
the conduct that these two processes are
concerned with, points to the clear intention
by the legislature to have these processes
distinguished from each other.
22. The Inquiry believes that the point of defining
markets is to allow for the identification of
competitive constraints on specific firms,
and to be able to estimate the size and
position of a firm in a specific market. The
market definition process is essentially an
analytical tool which assists in identifying
these constraints and thus is used where
appropriate. The Inquiry further believes
that what is more telling in the conduct of
a competition analysis is the presence and
level of competitive constraints that firms
face. Developments in economic literature
show that in instances of differentiated
product and service markets, such as we
have in retail markets, a strict and traditional
approach to market definition is not always
possible due to the difficulty of determining
how close a potential substitute must be in
order to be included in the market.
23. Research and legal precedent show that the
broad grocery retail market is differentiated
between supermarkets and convenience
shopping which are differentiated by the
type of shopping expedition they primarily
shopping which are differentiated by the
type of shopping expedition they primarily
seek to service or target, and which is
reflected in the size, and range of products
on offer. These are not necessarily perfect
market boundaries and there will be a
competitive overlap between the two. Large
supermarkets, which are mainly in malls, may
still be conveniently located, and shopping
malls in general also attract daily shoppers.
Convenience stores come in various sizes,
with some having a fairly extensive range
that caters for a larger weekly shop. Similarly,
large weekly shopping may obviate the need
for some top up convenience shopping, and
competitive convenience store pricing may
result in some items falling off the weekly list.
24. Alongside these two broad types are
the specialist stores. These stores stock
7
SUMMARY OF THE FINAL FINDINGS AND RECOMMENDATIONS GROCERY RETAIL MARKET INQUIRY6
Long-term exclusive lease agreements, buyer
power and their distortions on competition
between grocery retailers
39. First, when viewed within a bargaining
framework, there appears to be a sustained
pattern of behaviour by the national
supermarket chains and their counterparts
(whether property developers or suppliers
of FMCG products) that:
39.1 enables or results in the exercise
of market power by the national
supermarket chains to the exclusion of
smaller, independent stores as well as
emerging challenger retailers such as
OBC, Choppies, Fruit and Veg and Food
Lovers Market; and
39.2 creates a conducive environment for
the exercise of buyer power, with its
concomitant distortion of competition
between the national supermarket
chains, wholesalers and independent
retailers.
40. This pattern is demonstrated in long-term
exclusive leases in shopping centres and
the payment of rebates by suppliers to the
national supermarket chains, both of which
have the effect of:
40.1 reinforcing the levels of concentration in
the formal retail segment;
40.2 entrenching incumbency by the national
supermarket chains; and
40.3 raising barriers to entry for small and
independent retailers and thus removing
a crucial element for competition in the
retail ecosystem.
41. Cumulatively, the distortions to competition
arising from this pattern have resulted in
restricted consumer choice.
The impact of long-term exclusive lease
agreements on competition in the grocery retail
sector
42. The bargaining power possessed by the
national supermarket chains (as anchor
tenants) manifests itself in the requirement
for exclusivity in lease agreements. While
some of the national supermarket chains
alleged that the financiers of property
developments required such exclusivity, the
Inquiry established that this is not the case.
43. The Inquiry established that financiers
typically require property developers to
43. The Inquiry established that financiers
typically require property developers to
secure national supermarket chains as
anchor tenants that will remain operational
in the development for the duration of the
loan repayment period, which is usually ten
years, before they are willing to finance a
development.
44. The Inquiry finds that national supermarket
chains (as anchor tenants) took advantage
of this requirement by requiring exclusivity,
claiming that this is to protect their
investment and compensate them for
accepting the risk of paying rent for ten
years, irrespective of the success of the mall.
45. The Inquiry established that there is a pattern
of sustained use of long-term exclusive lease
agreements by the national supermarket
chains in shopping centres across South
Africa. The pattern of these long-term
exclusive lease agreements appears to
have persisted over long periods with the
initial lease period being generally 10 years.
When regard is given to the renewal clauses
in these lease agreements, some of these
contracts could endure for at least 30 years.
46. The Inquiry finds that given the high levels
of concentration in the formal retail channel,
primarily through national supermarket
chains, the foreclosure effects that arise as
a result are significant. Whilst the historic
focus of the effect of exclusive leases was on
competition between the national chains,
the Inquiry has focused on the effect of such
leases on the entry and expansion of smaller
challenger retail chains and independent
stores, including specialist retailers. The
Inquiry has found that exclusive leases have
substantially hindered the emergence of
challenger retail chains to the main four
national retailers and has also served to
prevent economic participation by small
independent retailers, including specialist
retailers.
only considered the formal grocery retail
segment, including specialist stores.
Informal stores are rightly excluded as they
segment, including specialist stores.
Informal stores are rightly excluded as they
do not exert a strong competitive constraint
on supermarket chains. Where there is
competitive interaction, it is asymmetric,
namely supermarkets on spaza shops. In
this regard, the Inquiry maintains its view
that the grocery retail sector is characterised
by high levels of concentration, with the top
five retailers accounting for approximately
64% of the market.
32. The levels of concentration in the formal
retail channel are reinforced by the high
levels of barriers to entry that seem to exist
at this level of the value chain. It is common
cause that entry at this level requires the
acquisition of land and buildings which
necessitates significant capital expenditure,
the realisation of significant economies
of scale and scope, the establishment of
an extensive distribution network in order
to be competitive, and compliance with
stringent regulatory requirements in order
to remain operational. The Inquiry also finds
that the formal segment is characterised by
high barriers to entry and expansion at the
supplier level of the value chain.
33. The Inquiry established that the national
supermarket chains are vertically integrated
in that they act as both distributor and
retailer of groceries. This vertical integration
appears to confer some competitive
advantage as there is recognition that
such strategies yield efficiencies in the
distribution system and savings for
suppliers. This vertical integration does not
appear unique to the national supermarket
chains as some buyer groups have also
adopted this strategy and established their
own central distribution centres while some
of the buyer groups have members who
also own distribution centres.
34. The above entry and competitive conditions
are applicable to all players that are active in
the formal retail channel.
35. It is the view of the Inquiry that the market
structure of the grocery retail sector
35. It is the view of the Inquiry that the market
structure of the grocery retail sector
creates a conducive environment for a
significantly altered bargaining framework
between the national supermarket chains
and their suppliers (whether suppliers of
FMCG products or property developers).
This altered bargaining framework leads
to distortions in competition between the
national supermarket chains, emerging
challenger retailers, specialist stores
and those firms that are serviced by
the wholesalers and buyer groups, i.e.
independent stores and spaza shops.
36. From a customer perspective, the
purchasing decisions (underpinned by
demand-side considerations) made by
consumers across LSM groups tend to
be informed by the same factors, namely
price, availability, convenience and quality.
Low income households, for example,
appear to rely on both spaza shops and
the national supermarket chains for
their grocery needs. For customers that
reside in non-urban areas, the national
supermarket chains and spaza shops serve
a useful substitutable and complementary
purpose. It seems that consumers shop at
spaza shops (where they generally spend
less than 40% of their budget) for the
convenience of location and trading hours,
mostly for day-to-day items, whilst they
shop at the national supermarket chains for
weekly and monthly shopping where price,
variety, quality and packaging size matter.
In non-urban areas, spaza shops serve a
useful convenience role (akin to that of
convenience stores in the garages located
in the urban areas).
37. This consumer dynamic is expected,
given that there is acknowledgement that
asymmetrical competition dynamics exist
between large national supermarket chains
and independent grocery retailers in the
informal retail channel. Consumers may find
that large national supermarket chains are
substitutes for independent grocery retailers
under certain conditions, particularly where
a large national supermarket chain is able to
under certain conditions, particularly where
a large national supermarket chain is able to
service the convenience aspect that spaza
shops have traditionally filled.
38. We now turn to the findings of the Inquiry in
light of its objectives.
9
SUMMARY OF THE FINAL FINDINGS AND RECOMMENDATIONS GROCERY RETAIL MARKET INQUIRY8
property developers once the national
supermarket chain decided to expand into
these carved out product markets. Some
of the limitations to the landlord’s right to
let included the requirement that property
developers must consult the national
supermarket chains on the tenant mix and
any future developments. The usage clauses
further stipulate the location and size of
potentially competing stores that could be
allowed in a shopping centre.
53. The national supermarket chains provided
a number of reasons in justification of long-
term exclusive lease agreements. These
justifications ranged from the view that
exclusivity is aimed at compensating the
national supermarket chains for having
committed to a long-term agreement with
its concomitant risk factors, to compensation
for the investments made.
54. The Inquiry finds that the justifications
provided by the national supermarket
chains are not compelling. Although
historically the national supermarket chains
did not possess sufficient information and
the tools to gauge the economic viability
of the areas which they were entering and
thus relied on exclusivity as a means of
protecting themselves, this is no longer the
case. With the proliferation of information
and the sophistication of research tools,
national supermarket chains are able to
assess realistically the viability of opening
a store in a particular location. Evidence
before the Inquiry indicated that a detailed
and intensive viability assessment is made
by these national supermarket chains before
entering into a lease agreement. Further,
risk is also reduced for these chains through
negotiating low rental rates and transferring
more of the development costs onto other
tenants, thereby reducing the need for
exclusivity clauses. Most importantly, all
businesses take on investment risk as part of
doing business and the ability of the national
businesses take on investment risk as part of
doing business and the ability of the national
retail chains to transfer this risk to property
developers and other tenants simply reflects
their considerable market power. Other
tenants are not able to mitigate such risks in
the same manner.
55. The Inquiry received evidence of instances
in which the national supermarket chains
waived exclusivity provisions in order to
allow competitors (including other national
supermarket chains, speciality stores and in
limited instances, the emerging challenger
retailers) to access shopping centres.
Whilst some national supermarket chains
are becoming more lenient regarding the
enforcement of exclusivity against small
and specialist stores, the Inquiry remains
concerned that they still require limitations
on the size of these competing line tenants.
The Inquiry finds that the restrictions
on size have the effect that line tenants
cannot effectively compete and grow their
businesses beyond the required floor space
imposed by the landlords at the behest of
the national supermarket chains.
56. Similarly, while in some large shopping
centres there has been a relaxation of the
enforcement of exclusivity provisions, such
that competing anchor tenants may be
present, there is very limited evidence of
the emerging challenger retailers such as
OBC, Fruit and Veg City, Liquor City and
Choppies, being allowed to enter shopping
centres. This may be because they lack the
negotiating power to force entry into larger
malls in competition with the anchor tenant,
or a more deliberate strategy by the current
dominant chains to keep such emerging
challenger retailers by denying them
entry specifically. Entry by these emerging
challenger retailers into the formal grocery
retail sector has largely been outside
shopping centres, though very few, such as
Food Lovers Market and Fruit and Veg City,
have entered the shopping centres. The
Inquiry finds that this conduct effectively
have entered the shopping centres. The
Inquiry finds that this conduct effectively
maintains the incumbency of the national
supermarket chains in the shopping centres
and retail supermarket trade more generally
given the importance of shopping centres
for consumer shopping expeditions.
57. The national supermarket chains tendered
undertakings to the Inquiry proposing
to waive the enforcement of exclusivity
provisions in their lease agreements.
These waivers had conditions ranging from
47. The Inquiry established that the vast
majority of Shoprite and Spar leases, and
a majority of Pick n Pay leases, contain
exclusivity provisions. Woolworths
leases do not contain explicit exclusivity
provisions but have provisions which
impact on letting and usage. The
Inquiry finds that clauses which simply
provide a limited exclusion on the zone
area around the tenant in respect of
certain businesses which pose a risk of
undermining the maintenance of health
and safety standards of a tenant are not
objectionable. These clauses do not
restrict the entry of competing rivals in
shopping centres nor do they dictate
where in the shopping centre a rival tenant
can operate their business. However, the
Inquiry is of the view that these clauses
must have an objective justification and
must be reasonably related to such
justifications.
48. A number of small independent retailers
and the emerging challenger retailers
provided evidence of their inability to
access shopping centres across the country
as a result of the long-term exclusive lease
agreements. Property developers also
affirmed that these long-term exclusive
lease agreements prevent the would-
be entrants from entering the shopping
centre environment in competition with the
national supermarket chains.
49. Much has been made, by the national
supermarket chains, of the fact that the
emerging challenger retailers or small
specialist stores could and are able to
grow outside of the shopping centre
specialist stores could and are able to
grow outside of the shopping centre
environment. The Inquiry also established
that these emerging challenger retailers
and independent stores have been forced
to seek alternative avenues in order to
compete in the grocery retail sector.
The Inquiry finds it concerning that their
growth and competitive ability has been
substantially limited because of exclusion
from the shopping malls. Notably, the
Inquiry established that consumers
generally spend a significant portion of their
grocery expenditure in shopping centres
and that small and independent retailers
and the emerging challenger retailers are
deprived of this custom as a result of being
excluded from shopping centres.
50. The Inquiry is concerned that the observed
pattern of the use of long-term exclusive
lease agreements serves to sustain and
entrench incumbency and the current
levels of concentration in the grocery retail
sector. In essence, the current exclusive
leases prevent emerging chains from
developing to the point where they can
suitably play the anchor tenant role in new
developments, which means that the same
four retail chains are the only candidates,
thereby perpetuating and entrenching
their cumulatively dominant position.
Furthermore, given the slightly different
LSM or consumer targeting of these chains,
there would typically only be a few that
might be appropriate for any single new
development given location and target
market.
51. The Inquiry finds that the distortion of
competition arising from the use of
exclusive long-term lease agreements are
also aided and abetted by the presence of
usage clauses stipulating the purpose of the
space that is being leased and limitations
on the landlord’s right of letting the rental
space. The Inquiry established that the
usage clauses essentially stipulate not only
current business activities but also those
the national supermarket chains could
potentially engage in at the shopping centre
the national supermarket chains could
potentially engage in at the shopping centre
in future such as sale and hire of video
recorders and accessories, electronics and
communications.
52. The Inquiry finds that this conduct is akin
to the national supermarket chains carving
out potential product markets that they may
wish to enter in the future without explicitly
prohibiting property developers from
leasing out rental space to suppliers of these
particular products. The Inquiry was provided
with evidence of instances where retailers in
these carved out potential product markets
would be allowed to operate in the shopping
centre environment. However, their tenancy
would be immediately terminated by the
11
SUMMARY OF THE FINAL FINDINGS AND RECOMMENDATIONS GROCERY RETAIL MARKET INQUIRY10
the national supermarket chains, relative
to that of buyer groups and wholesalers
serving smaller retailers, had an effect on
competition at the grocery retail level of the
value chain.
64. The Inquiry finds that the structure
of the formal grocery retail segment
is characterised by factors that are
conducive to the existence of an unequal
bargaining framework between the
national supermarket chains and suppliers,
especially relative to wholesalers and buyer
groups. The Inquiry established that the
national supermarket chains are a critical
route to market for the suppliers of FMCG
products, based both on revenue and
volume contributions. With few exceptions,
there was evidence of the inability of FMCG
suppliers to walk away from negotiations
with national supermarket chains and
the rigidity of trading terms, particularly
related to the composition and quantum
of the terms. The national supermarket
chains are able to extract more favourable
trading terms than customers in the informal
segment.
65. The findings of the Inquiry suggest that in
some instances there is no clear rationale to
explain the difference in the quantum of the
rebates paid to the national supermarket
chains and to those obtained by those
customers in the informal segment, other
than simply differential buyer power. In
some instances, even where the national
supermarket chains were not the largest
customers, they were still able to extract
better and more favourable trading terms
than buyer groups, who were the larger
customers. This differential treatment is
indicative of the exercise of buyer power.
66. In particular, the national retail chains
have moved to demanding rebates to
cover the costs of certain retail store level
activities, such as merchandising, store
openings and refurbishment, advertising
and promotion, access to shelf space
and category management. The primary
and promotion, access to shelf space
and category management. The primary
discriminatory effect of these rebates
is that they are by their very nature not
made available to wholesalers and buying
groups servicing the independent retailers,
because the wholesalers do not serve
the retail store function given their lack of
vertical integration. The implication is that
independent retailers, which also incur these
self-same costs, do not benefit from similar
rebate categories and, therefore, are placed
at a material and competitive disadvantage
to the national supermarket chains.
67. The Inquiry is thus of the view that these
rebates are more favourably offered to the
national supermarket chains, which, as a
result reduces, their costs of offering FMCG
products, maintains their market positions
and provides an unfair competitive
advantage over the independent retailers.
The costs of the independent retailers,
owing to their lack of vertical integration
with wholesalers, are not reduced to the
same extent. The independent retailers
incur all of these costs with no rebates,
even in instances where they qualify for the
rebates as they conduct the same activities
of ultimately placing products on shelf.
This ultimately impedes these independent
retailers’ ability to compete and grow.
68. Furthermore, whilst some of these rebates
paid by FMCG suppliers appeared to be
underpinned by productive efficiencies (as
in the case of distribution allowances), there
were some which did not appear to have
any efficiency or beneficial justification,
they were simply a reflection of buyer
power by the national chains. Further, the
Inquiry found mixed evidence about the
pass-through of rebates to the final prices
paid by consumers. This is particularly
concerning since some suppliers factor in
the cost of these rebates to the price paid
by the national supermarket chains for the
products. This could potentially have a price-
raising effect on the cost of products to the
products. This could potentially have a price-
raising effect on the cost of products to the
detriment of consumer welfare where such
rebates are not passed through. Further,
there is a lack of transparency regarding
back-end margins.
69. The Inquiry has concluded that cumulatively,
the grocery retail sector possesses features
and characteristics that are conducive to
the exercise of buyer power. The indicative
the type of products sold (in the case of
speciality stores) to the size (both in terms
of revenue and lease space) and location of
the potential competitors. The Inquiry found
it challenging to establish a consensus
between the national supermarket chains in
respect of the conditionalities for the waiver
of exclusivity provisions.
58. In summary, the Inquiry finds that the
pattern of the sustained use of exclusive
long-term contracts has not only restricted
competition and given rise to consumer
harm, but that it also violates the purpose
of the Act which seek, amongst others,
to ensure that small and medium sized
enterprises are afforded an equitable
opportunity to participate in the economy.
The Inquiry is particularly concerned that
these practices have effectively excluded
widespread participation in the retail sector
where barriers to entry should be low, thus
fundamentally undermining the objectives
of the Act and broader national economic
policies aimed at facilitating transformation
and economic inclusion.
59. The Inquiry was made aware of allegations
that line tenants are not only affected by
exclusive lease agreement clauses but
by other terms enforced by property
developers such as high rental costs. It was
argued that property developers are forced
to transfer costs for managing the shopping
centre onto the line tenants to appease the
requirements of the anchor tenants for low
rental rates. The Inquiry is concerned that
the higher cost of rental for the smaller
tenants limits their ability to effectively
compete and to grow their businesses.
tenants limits their ability to effectively
compete and to grow their businesses.
This constraint applies to existing tenants
that are not direct competitors to the
national retail chains due to the exclusive
leases but would also apply to smaller
specialist stores or challenger chains in
the event that they gain entry in future. The
Inquiry is therefore concerned that simply
eliminating exclusive leases may still not
achieve greater levels of competition and
economic participation if these businesses
are faced with high rental costs relative to
the national chains.
60. The Inquiry finds that this conduct is
generally widespread as part of the
business model in the retail property leasing
environment. The practice is premised on
a number of justifications provided by the
property developers which include market
forces; size and position of the unit to be let;
visibility of the unit to be let; footfall likely
to be created by the tenant; depth of the
store; the cost of installing the tenant; and
trading densities. The Inquiry notes that the
bargaining dynamics between landlords
and the national supermarket chains
do appear to have an influence on the
differential treatment accorded to different
customer groupings. The Inquiry finds that
this conduct is akin to the waterbed effect.
61. The Inquiry acknowledges the complexity
associated with the determination of
applicable rental rates to different types of
customers. It is for this reason that the Inquiry
does not make any recommendations in this
regard. However, the Inquiry is cognizant of
the need to ensure that there is balanced
treatment of tenants, premised on the
principles of fairness and transparency.
Buyer power and its impact on competition in the
South African grocery retail sector
62. The Inquiry finds that the presence of
buyer groups in the grocery retail sector
has beneficial competition outcomes
for members (generally traditional and
hybrid wholesalers as well as independent
for members (generally traditional and
hybrid wholesalers as well as independent
grocery retailers), who largely operate
in the informal retail trade segment. In
particular, buyer groups enable wholesalers
and independent retailers that lack
scale economies to be able to pool their
purchasing power in bargaining with
suppliers of FMCG. The Inquiry established
that buyer groups play a pivotal role
in improving the competitiveness of
wholesalers and independent retailers.
63. It is against this finding that the Inquiry
assessed the bargaining dynamics between
the suppliers of FMCG and the national
supermarket chains as well as the buyer
groups. The Inquiry sought to determine
whether the exercise of buyer power by
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SUMMARY OF THE FINAL FINDINGS AND RECOMMENDATIONS GROCERY RETAIL MARKET INQUIRY12
which they have invested funds towards the
development of a diversified supply base.
This action is commendable and ought to
be developed further in order to optimise
the gains to competition that arise.
Shifts in the competitive landscape and the impact
on small and independent retailers
78. The Inquiry notes that spaza shops and
independent retailers in peri-urban areas
developed at a point in time where, as a
result of the apartheid regime’s spatial
policies and construction of the economic
landscape, there was no close competition
whether from national supermarket chains
or foreign nationals in the immediate vicinity.
Since 1994, this economic landscape has
changed dramatically.
79. The Inquiry has found that the entry of the
national supermarket chains into township
areas has shifted the competitive landscape
in those areas. The observed decline or exit
of spaza shops and independent retailers,
especially in the rural towns, can partly be
attributed to this change. The Inquiry also
finds that as spaza shops and independent
retailers in townships were grappling with
this changing competitive dynamic, there
was, simultaneously, increasing competitive
pressure from foreign-owned spaza shops
that have displaced, in some cases, local-
owned spaza shops.
80. The Inquiry found that spaza shops and
independent retailers serve a critical role
in the grocery retail ecosystem, particularly
for those residing in peri- and non-urban
areas. Despite the lower prices offered
by supermarket chains, spaza shops offer
convenience in terms of longer trading
hours, proximity of location and products in
smaller quantities making them affordable
to poor consumers who could not afford to
purchase bulk products from supermarket
chains. This convenience role is akin to the
smaller convenience stores of the national
chains and petrol station forecourts that have
proliferated in wealthier areas. As a result,
chains and petrol station forecourts that have
proliferated in wealthier areas. As a result,
there continues to be a role for spaza shops
despite the entry of supermarket chains into
these peri-urban and non-urban areas.
81. Further, and most importantly, the Inquiry
has concluded that spaza shops and
independent retailers are a crucial tool for
the realisation of the objectives of the Act.
Specifically, spaza shops and independent
retail operations are part of the suite of
avenues available for the achievement
of broader and inclusive economic
participation given the lower entry barriers
into these types of businesses, for example,
offering the potential to build one’s own
business and accumulate capital rather than
simply engage in salaried employment.
82. The Inquiry believes that the entry of national
supermarket chains into townships and rural
areas has had both negative and positive
effects. From a consumer perspective, their
entry has provided closer proximity to the
source of weekly and monthly shopping
activities and offered the range and lower
pricing of larger supermarket chains.
Historically consumers from township areas
would have travelled greater distances to
frequent these chains, incurring greater
costs in terms of time and transport.
83. From a small and independent business
perspective, the evidence is often mixed.
The more convenient location of the
national supermarket chains means that
some convenience shopping which would
have occurred at the spaza shops has now
shifted to the larger retail chains, negatively
affecting the spaza shops. The Inquiry
established that, overall, there has been a
decline in the number of small independent
grocery retailers operating in non-urban
areas following the entry of national
supermarket chains. However, the shorter
shopping hours, a single location on the
periphery of the peri-urban areas and big
box format means that these supermarket
chains have not displaced all convenience
box format means that these supermarket
chains have not displaced all convenience
shopping, especially for smaller daily top-
up shopping by commuters that may leave
and return outside of shopping hours or for
those located further from the supermarket
store.
84. This shift in the competitive landscape has
required that local spaza shops respond
by adapting their own business models
evidence obtained through the rebate
analysis attests to the exercise of such power
to the detriment of independent retailers
and smaller retail chains, and potentially
also to consumers.
70. Following further engagements with
stakeholders, the Inquiry did not receive any
evidence that challenged the existence of
buyer power by the national supermarket
chains. However, the Inquiry noted the
justifications proffered for the difference in
treatment between the national supermarket
chains and other customer segments
such wholesalers and independent
retailers, namely, the provision of efficient
distribution services and valuable data on
end-consumer purchases which suppliers
can use to improve their business strategies.
Wholesalers and independent retailers were
said to be unable to offer these services due
to their lack of vertical integration. The Inquiry
also received submissions, particularly from
the suppliers of FMCG products, indicating
that there is a recognition of the need for
a more balanced treatment of the different
customer segments.
71. The Inquiry engaged with stakeholders to
discuss possible recommendations to deal
with those instances of unreasonable and
unjustified differential treatment. The Inquiry
decided that a code of conduct premised on
the principles of fairness and transparency
would be an appropriate and proportionate
means of addressing the concerns raised.
72. While the suppliers of FMCG had differing
views regarding what should be contained
within such a code, and to whom it should
apply, the Inquiry found that, in the main,
suppliers supported the principles of
apply, the Inquiry found that, in the main,
suppliers supported the principles of
fairness and transparency.
73. The Inquiry has noted the direct entry and
diversification of Shoprite under its “Usave
e-Kasi” brand into the spaza shop segment.
Given the evidence and discussion of the
buyer power possessed by the national
supermarket chains, the Inquiry finds such
direct entry and competition to spaza
shops to be very concerning. Given the
asymmetric competition that exists between
the national supermarket chains and spaza
shops, as well as the massive buyer power
held by these retailers, such entry and
diversification, if allowed, can only have the
effect of obliterating ordinary spaza shops.
This conduct warrants action by policy
makers.
74. The Inquiry received submissions that
indicate how the high levels of concentration
in the formal grocery retail sector and
the position of the national supermarket
chains in the grocery value chain have
created disadvantages for smaller
suppliers (emergent, black and smallholder
producers), and effectively acts to exclude
these smaller producers from the agro-food
value chain. The Inquiry received evidence
indicating that the buyer power of national
supermarket chains, exercised in the context
of rebates, externalises the risks of national
supermarket chains and passes them up the
value chain towards farmers and producers
and also limits the ability of smaller suppliers
to access shelf space in the formal retail
segment, as these smaller suppliers cannot
afford the rebates required.
75. Some small suppliers believe that access
into the formal retail channel can be
promoted through supplier development
funds. The Inquiry was made aware of
the difficulties faced by small suppliers
in terms of qualifying for the existing
supplier development programmes and
substantively benefitting from them.
76. The Inquiry notes that concern over unfair
trading conditions in the food value chain, as
well as the impact on prices paid to smaller
trading conditions in the food value chain, as
well as the impact on prices paid to smaller
and historically disadvantaged suppliers,
has culminated in an amendment to the Act
in the form of (a new) section 8(4) directed
specifically at the abuse of buyer power by
dominant firms in designated sectors.
77. The Inquiry also notes that the national
supermarket chains recognise the need
to ensure and to increase access by
smaller suppliers to shelf space in the
formal retail segment. Each of the national
supermarket chains have established a
supplier development programme in
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SUMMARY OF THE FINAL FINDINGS AND RECOMMENDATIONS GROCERY RETAIL MARKET INQUIRY14
faced by small and independent retailers,
the Inquiry noted that local spaza shops
and independent retailers have struggled
to adapt to these changes in competition
dynamics. The Inquiry found that the
challenges facing spaza shops in particular,
and which are said to have contributed
to their difficulty to adapt to changes in
competition, include:
90.1 an inability to tap into the economies of
scale and scope in procurement offered
by buyer groups and larger wholesalers
due to the smaller and informal nature
of these retailers, relative to even
independent retail stores that make
use of buyer groups, and a lack of co-
operation amongst locally-owned spaza
shops which prevents them from taking
advantage of the opportunities for bulk
buying at more competitive prices;
90.2 an inability to tap into credit markets
due to again the small and informal
nature of these businesses. There is
typically a lack of verifiable performance
information and systems in place which
result in information asymmetries
with all potential providers of credit,
thereby limiting the ability to ensure
greater stock levels and variety to
meet the convenience requirements of
customers, which is reinforced by the
lack of social networks of cooperation;
90.3 the need for greater levels of
professionalisation and improved
business management skills in
the context of more sophisticated
competitors entering these areas of
operation, and the need to adapt the
businesses to such competition.
91. In addition, the Inquiry found that the
regulatory environment is not conducive to
supporting the sustainable competitiveness
of small and independent retailers, in
competition to supermarket chains, and in
many cases, actively undermines their ability
to respond to the changing competitive
environment.
92. The Inquiry found that local authorities
impose restrictive apartheid-era trading
92. The Inquiry found that local authorities
impose restrictive apartheid-era trading
times that are at odds with the convenience
role that spaza shops and independent
traders are best positioned to play. This is
especially important in the context of the
entry of supermarket chains as the spaza
shops need to position themselves firmly as
convenience options in order to survive and
thrive. It also creates an asymmetry between
those shops willing to ignore the trading
hours and to pay enforcement officials to
ignore the lack of compliance. Such shops
are able to gain an advantage in servicing
consumer demand to the detriment of those
that do comply, which also undermines their
transition from informal to formal enterprises.
93. Similarly, in relation to liquor regulation, the
Inquiry found differential treatment of small
and independent traders and the national
supermarket chains that are licensed
with longer trading hours. This difference
enables the national supermarket chains to
be able to service demand in those periods
in which the small and independent traders
are not able to trade, conferring upon the
national supermarkets a level of competitive
advantage.
94. In addition, the Inquiry found that the
regulatory processes for trading are
burdensome for small traders, particularly
in relation to zoning and land use. The
Inquiry found that the cost and time
constraints associated with rezoning of
property, depending on the location of
the land, are onerous for micro-enterprises
and could have a negative impact on
potential entrepreneurs. This is especially
so in a context where shop owners may
need to relocate in response to the entry of
supermarket chains and would require new
sites zoned for business use.
95. More generally on zoning and trading
hours, submissions were made that
some municipalities used these laws to
push out informal traders in favour of the
national supermarket chains and formal
independent stores because these stores
national supermarket chains and formal
independent stores because these stores
contribute to municipal taxes. However, the
Inquiry notes that the informal businesses
and even locations within peri-urban areas
in order to continue to be relevant to
consumers in those areas. This adaption
may include longer opening hours or a
change in products stocked in order to fulfil
the convenience role more appropriately.
Location has also become more important.
It may involve moving further from the new
supermarket location, although the Inquiry
also found that those spaza shops and
independent retailers that are located closer
to the shopping centres have sometimes
benefitted from the increased foot traffic in
the area.
85. The challenges for local spaza shops from
a changed competitive environment due
to large supermarket chains entering
peri-urban areas are compounded by the
additional challenge of new entry by foreign
nationals into these same areas. The Inquiry
found that local spaza shops face competition
from a growing number of foreign-owned
spaza shops and independent retailers that
are generally perceived by consumers to
be cheaper than most local-owned spaza
shops. As a result, foreign-owned spaza
shops often perform better in comparison
to local-owned small businesses, especially
in the context of the broadening footprint of
national supermarket chain stores in areas
where changes to business models are
required.
86. The Inquiry found that there are numerous
factors that are perceived to contribute to
the success of foreign-owned spaza shops,
based on consumer surveys, targeted
engagements and public forum discussions.
These factors included efficiencies in the
procurement of goods from cooperative
arrangements (both horizontal and
vertical), greater convenience through
longer trading hours, stock diversity and
product packaging, but also greater price
competition from trading in counterfeit
goods.
87. The Inquiry established that foreign-owned
competition from trading in counterfeit
goods.
87. The Inquiry established that foreign-owned
spaza shops and independent retailers
in many instances employ horizontal
(operational ties) and vertical (spaza
shops linked to wholesalers) co-operative
strategies to compete. At a horizontal level,
the Inquiry established that separate but
allied retail outlets share opportunities for
bulk purchasing and synergizing deliveries
as well maintaining ‘multiple retail outlets’
under central control. From a vertical
perspective, the Inquiry found that foreign-
owned spaza shops may in some cases
be linked to specific wholesalers, some of
which are also foreign-owned, providing
these spaza shops with the opportunity
for preferential pricing. In contrast, most
local-owned spaza shops and small grocery
retailers are family owned and operate
on a standalone basis. This approach to
conducting business not only inhibits local-
owned businesses from raising capital
for expansion but also deprives them of
the ability to realise economies of scale in
respect of purchasing and transport costs.
88. In relation to stock diversity, product choice
and packaging, the Inquiry found that
foreign owned spaza shops offer customers
a wider variety of products and volumes
whilst local spaza shop owners admitted that
their shops have less stock in comparison.
This means that local-owned spaza shops
are not able to fully cater to the demand
from customers compared to the foreign-
owned spaza shops.
89. The Inquiry found that trade in counterfeit
goods confers some form of price advantage
to those that engage in the sale of such
goods. There are also broader negative
ramifications for the fiscus in terms of lost
tax revenue and the increased burden that is
likely to be placed on the public healthcare
sector. The Inquiry found that while
local-owned spaza shops also traded in
counterfeit products, the sale of such goods
appeared to be more prevalent in foreign-
owned spaza shops. This unfair competitive
appeared to be more prevalent in foreign-
owned spaza shops. This unfair competitive
advantage was also confirmed by the
observed trends in consumer preferences
as they appear to prefer foreign-owned
spaza shops due to, amongst others, lower
prices.
90. Having regard to the emerging competitive
pressures, from both the national
supermarket chains and foreign nationals,
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SUMMARY OF THE FINAL FINDINGS AND RECOMMENDATIONS GROCERY RETAIL MARKET INQUIRY16
determining differences in rental
rates across tenants;
98.6.2 ensure that escalation rates
across tenants are uniform unless
there are fair, transparent and
commercially justifiable reasons
for them to differ; and
98.6.3 ensure that lease deposits and
shop fitting allowances are
based on fair, transparent and
commercially justifiable criteria.
98.7 In order to continue with the work done
by the Inquiry, the Minister should
appoint a facilitator to seek to secure
voluntary compliance by landlords
and managers of shopping centres.
If the facilitator is unable to secure
voluntary compliance within six months
from the date of publication of this
Final Report, the Government should
introduce a legislative framework to
give effect to these recommendations
in the form of a code of good practice
and the establishment of an industry
Ombudsman to be financed by
landlords.
Buyer power
98.8 Suppliers of fast-moving consumer
goods must ensure -
98.8.1 that trade terms are uniformly
available to all retailers, wholesalers
and buyer groups;
98.8.2 that the trade terms offered have
an objective justification based
on cost savings, supply chain
efficiencies, efficient risk-sharing or
sales promotion. The supplier must
clearly stipulate and communicate
the link between the trade terms
offered and the efficiencies to all
retailers, wholesalers and buyer
groups;
98.8.3 that the available trade terms
and the conditions required to
qualify for those terms are clearly
communicated to all retailers,
wholesalers and buyer groups
and applied in a fair and uniform
manner;
98.8.4 that the percentage value
provided under each trade term to
different customers is reasonably
related to qualifying criteria and
value provided in respect of the
objective justification for the trade
term; and
98.8.5 that the volume purchased may
not form the basis for qualification
or relative percentage value
not form the basis for qualification
or relative percentage value
offered for any trade term to the
designated class of retailers or
wholesalers.
98.9 In order to address the challenge faced
by small suppliers in accessing the
shelf space of the national supermarket
chains and taking into account the recent
amendments and retailer initiatives
noted above, the Inquiry recommends
the following actions:
98.9.1 First, that the current draft
regulations designating agro-
processing and grocery
wholesale/retail, as well as the
draft enforcement guidelines
detailing specific practices as
unfair be confirmed in the final
regulations and guidelines. It is
also recommended that these
are widely publicised in order to
empower small and historically
disadvantaged suppliers in
negotiations with the large
national retail chains. In addition,
the Inquiry recommends that once
the regulations and guidelines
are finalised, the Commission
must engage the large national
retail chains on their procurement
practices to ensure that their
procurement practices are
aligned with the final enforcement
guidelines, failing which, it should
consider initiating an investigation
of these firms’ trading practices.
also contribute to municipal development
and the welfare of their residents in terms of
providing economic participation for their
owners and convenient shopping for their
customers. In addition, these businesses can
only be developed into formal tax-paying
operations if they are provided with the
necessary support from municipalities.
Recommended remedial action
96. The Inquiry recommends a number of
remedial actions designed to rectify the
identified features that have the effect of
preventing and distorting competition in
the grocery retail sector and inhibiting the
effective participation of South African spaza
shops and independent retailers in this sector.
97. Broadly, the required actions require a
suite of interventions including (i) changes
97. Broadly, the required actions require a
suite of interventions including (i) changes
in firm behaviour in order to ameliorate
the distortions in competition in relation to
long-term exclusive lease agreements and
buyer power; (ii) support mechanisms to
bolster the sustainable competitiveness of
small and independent retailers; and (iii)
modernisation of the regulatory landscape
in order to create a conducive environment
for the optimal functioning of competition.
98. The Inquiry recommends that as of the date
of publication of this Final Report:
Long-term exclusive lease agreements
98.1 National supermarket chains must, with
immediate effect, cease from enforcing
exclusivity provisions, or provisions that
have a substantially similar effect, in their
lease agreements against:
98.1.1 SMME’s;
98.1.2 speciality stores; and
98.1.3 other grocery retailers (including
the emerging challenger retailers)
in shopping centres located in
non-urban areas.
98.2 No new leases or extensions to leases
by grocery retailers may incorporate
exclusivity clauses (or clauses that have
substantially the same effect) or clauses
that may serve to restrict the product
lines, store size and location of other
stores selling grocery items within the
shopping centre; and
98.3 Subject to 98.1, the enforcement of
exclusivity by the national supermarket
chains as against other grocery retailers
must be phased out by the next
extension of the lease or within five
years from the date of the publication of
this Final Report, whichever is earlier.
98.4 In order to continue the work of the
Inquiry, the Commission must seek to
secure voluntary compliance by the
national supermarket chains within six
months from the date of publication
of this Final Report. If the national
supermarket chains do not undertake to
give effect to these recommendations,
the Government should introduce
legislation, in the form of a statute,
regulations, or a code of practice to give
effect to these recommendations.
regulations, or a code of practice to give
effect to these recommendations.
98.5 Lastly, the above recommendations
do not preclude the Commission
from pursuing litigation in respect of
the existing complaints and evidence
gathered in this Inquiry. A final decision
on a referral to the Tribunal will have
regard to the response of each of the
national supermarket chains to the efforts
of the Commission in relation to the
procurement of voluntary compliance
with the above recommendations. The
Inquiry is of the view that the evidence
gathered in these proceedings may
establish a prima facie case for a referral
to the Tribunal. However, the Inquiry also
accepts that litigation is a protracted
process and the interests of consumers
may be best served by an immediate
and voluntary compliance by the
national supermarket chains.
Rental rates
98.6 Property owners and managers of
shopping centres must:
98.6.1 use fair, transparent and
commercially justifiable criteria in
19
SUMMARY OF THE FINAL FINDINGS AND RECOMMENDATIONS GROCERY RETAIL MARKET INQUIRY18
Relations Framework Act, 13 of
2005 to give effect to the following
recommendations:
98.13.1 organised local government
must seek to develop a common
approach for local government
in terms of section 3(3)(a) of the
Local Government: Municipal
Systems Act, 32 of 2000 to develop
uniform guidelines for by-laws and
regulations to give effect to these
recommendations;
98.13.2 provinces and municipalities
must coordinate and streamline
applications for liquor licenses
with applications for the rezoning
of premises;
98.13.3 municipalities must review the
trading times in by-laws and
regulations in relation to spaza
shops and street traders, with a
view to amending or abolishing
those by-laws and regulations
in accordance with the uniform
guidelines;
98.13.4 municipalities must fast-track the
processing of existing re-zoning
requests for spaza shops in
township areas;
98.13.5 municipalities must proactively
rezone areas to enable them
to carry on business in a more
effective and formalised manner
and in accordance with the uniform
guidelines;
98.13.6 municipalities must develop and
implement preferred zoning
processes and practices that
facilitate ease of entry for SMMEs
in non-urban areas including
imposing conditions on the
approval of shopping centre
developments to secure the
inclusion of SMME businesses in
and around shopping centres; and
98.13.7 municipalities must develop and
implement a simplified framework
for the registration of informal
businesses, particularly spaza
shops.
98.14 In so far as counterfeit goods are
concerned, it is recommended that-
98.14.1 law enforcement officers
appointed by municipalities are
given powers to enforce the
Counterfeit Goods Act, 37 of 1997
either under section 22 of that Act
or by way of declaration in terms
of section 334(1) of the Criminal
Procedure Act, 51 of 1977; and
98.14.2 there must be increased
coordination between the South
Procedure Act, 51 of 1977; and
98.14.2 there must be increased
coordination between the South
African Revenue Services, South
African Police Services and
municipalities to facilitate proactive
policing of counterfeit goods.
99. Given the multiplicity of issues that appear
to distort and impede competition in the
South African grocery retail sector, the
Inquiry recommends that government
should develop a legislative framework with
a statutory industry body for the regulation
of the retail sector in South Africa, taking
into account, among others, the findings
and recommendations of this Inquiry.
98.9.2 Second, the enterprise
development programmes
of the national retail chains
should be formalised and
strengthened. Accordingly, the
Inquiry recommends that the
national supermarket chains
commit to a formal ongoing
programme to develop small
and historically disadvantaged
suppliers. Furthermore, that such
a programme should establish
binding industry targets for a
proportion of turnover to be
supplied by SMMEs and historically
disadvantaged suppliers, as well
as a proportion of turnover to
be spent on the development
of new SMME and historically
disadvantaged suppliers. These
may initially be set in line with
current enterprise development
spend in order to entrench such
programmes. However, the formal
commitments should also entail
a gradual escalation of these
binding commitments over time.
This escalation should take into
account what is realistic and
achievable but should also be
ambitious in its efforts to address
concentration in the supply chain.
Given that it is also the government
department that oversees
the B-BEEE codes of practice
which incorporate an enterprise
development component, this
industry commitment may be
facilitated by the DTIC.
98.10 In order to continue with the work
of the Inquiry, the Minister should
appoint a facilitator to seek to secure
voluntary compliance by suppliers of
fast-moving consumer goods. If the
voluntary compliance by suppliers of
fast-moving consumer goods. If the
facilitator is unable to secure voluntary
compliance within six months from
the date of publication of this Final
Report, the Government should
introduce a legislative framework to
give effect to these recommendations
in the form of a code of good practice
and the establishment of an industry
Ombudsman financed by suppliers of
FMCG.
Competitiveness support for spaza shops and
small independent retailers
98.11 Government should facilitate the
establishment of distribution centres
to be located in peri- and non-urban
areas to service small and independent
retailers and wholesalers;
98.12 Government should establish an
incentive programme that will provide
seed finance for innovative commercial
models of private businesses that aim
to offer the following support for small
informal spaza shops:
98.12.1 the effective incorporation of
spaza shops into buyer groups
and larger wholesale operations
in order to assist them to realise
economies of scale and scope in
purchasing;
98.12.2 the generation of key information
on individual spaza shop
operations such that the risks of
extending credit finance to these
shops can be more accurately
assessed in order to facilitate
credit access for the purchase of
stock; and
98.12.3 the development of consumer
and business information to
assist in the improvement of such
businesses, including business
and financial management
training.
Removal of regulatory obstacles to meeting
competitive challenges
98.13 All three spheres of government
involved in the regulation of planning
and trade should cooperate with one
another to coordinate their activities
and legislation in accordance with
section 41(h)(iv) of the Constitution
and coordinate their actions in terms
of section 35 of the Intergovernmental
GROCERY RETAIL MARKET INQUIRY
20
competition commission
south africa
NOTES
competition commission
south africa
YEARS
Telephone Number:
+27 (012) 394-3200 | +27 (012) 394-3320
Fax Number :
+27 (012) 394 0166
Email Address:
ccsa@compcom.co.za
Physical address:
The DTI Campus, Mulayo (Block C),
77 Meintjies Street,
Sunnyside, Pretoria
Postal address:
Private Bag x23,
Lynwood Ridge,0040
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