In the run-up to Black Friday, the Competition Commission (‘Commission’) finalised its report in the ‘Grocery Retail Market Inquiry’ (‘Inquiry’). The 600-page report, which consists of findings and recommendations, was published following a four-year inquiry into the state of competition in the grocery retail market. The purpose of the Inquiry was to get a deeper understanding of the grocery retail sector, and the features of this market that lead to increased concentration, and a lack of transformation.
Various stakeholders partook in the inquiry, including national supermarket chains, small and independent retailers, spaza shops, suppliers, consumers, government authorities and industry regulators. In the final report, three areas of concern were identified, being long term exclusive lease agreements and buyer power; competitiveness of small and independent retailers; and the regulatory landscape. In order to create a shift towards a pro-competitive environment, the Commission has drawn up a shopping list of recommendations to make the grocery retail market more competitive and inclusive.
The Commission found that exclusive leases limit consumer choice and prevent new and emerging retail chains from entering into and expanding in the grocery retail market. The Commission therefore made recommendations to phase out exclusive leases over a five-year period. The recommendations include a six-month voluntary compliance window for retailers to cease the enforcement of exclusive lease agreements, failing which, regulations will be introduced to prevent further exclusive leases agreements.
The Commission also found that the buyer power of national retail chains enables them to get more favourable treatment from suppliers (in the form of rebates) and landlords (in the form of rental rates) relative to smaller retailers and spaza shops. There has been a recent amendment to the Competition Act in respect of price discrimination, which partially addresses this concern, however, the Commission recommends transparent, fair and equal treatment by suppliers. This can be achieved through fair, uniform, and commercially justifiable trade terms with objective justification based on cost savings, efficiencies or sales promotions. The Commission recommends a voluntary compliance period of six months to achieve these trade terms before introducing regulations and an Ombud to police these fair-trading practices.
The Report also revealed that there were unequal regulatory and infrastructural environments offered to national chains relative to spaza shops in urban areas. For example, national chains are given prime locations compared to spaza shops, which are often far from transport hubs, and in crime-stricken areas which discourages storing stock or trading in the evenings. The Commission recommends the removal of regulatory obstacles, with the revision to trading times, the introduction of proactive zoning, enhanced law enforcement, improved infrastructure (including lighting and sanitation) and the registration of business to track informal activity.
The findings are summarised in the following quote by the chair of the Inquiry, Professor Halton Cheadle: “In conclusion, the Inquiry strongly believes that a less concentrated retail sector, with a large ecosystem of small independent traders alongside national retail chains is in the best interests of the economy and the consumers. Independent retailers provide important avenues for participation in the economy, provide support for smaller suppliers further up the value chain, whilst also offering consumers greater product choice. There is still a role for large supermarkets for the bulk shopping experience, but this should not be to the exclusion of others.”
We invite you to contact our Competition Law Team if you have any questions in relation to the Grocery Retail Market Inquiry, or any related matter.
Jac Marais | Partner
Mia de Jager | Associate
Njabulo Mazibuko | Candidate Attorney