Supermarkets that are privately owned and controlled by historically disadvantaged persons (“HDP Supermarkets”) can immediately access letting space in all shopping centres where a Pick n Pay store has exclusivity provisions in its lease agreement.
The abovementioned HDP Supermarkets can be single or multiple store operations as long as they are privately owned and controlled by historically disadvantaged persons, including individual franchisees or buyer group members of other national retail brands but excluding corporate stores of those brands.
This forms part of the terms of a consent agreement entered into between the Competition Commission (“the Commission”) and Pick n Pay Retailers (Pty) Ltd (“Pick n Pay”), which has now been confirmed as an order of the Tribunal.
In addition to the abovementioned HDP Supermarkets, the following two categories of retail stores will also no longer be restricted from letting space in shopping centres where any Pick n Pay store has exclusivity provisions in its long-term lease agreement:
- Small or medium-sized businesses (SMMEs) (as defined in the Competition Act); and
- Specialty and limited line retail stores – stores within the grocery retail sector that focus on a specific product category such as butcheries, bakeries, delicatessens, liquor stores and greengrocers, or which stock and sell 15 or less product lines.
In terms of the consent agreement, Pick n Pay will with immediate effect cease enforcing any exclusivity provisions, or provisions that have a substantially similar effect, in its long-term exclusive lease agreements against the above three categories of retail stores.
All landlords and administrators of shopping centres in South Africa should take note of this consent agreement, the earlier consent agreement between the Commission and Shoprite Checkers (Pty) Ltd (“Shoprite”) as confirmed by the Tribunal in October 2020, as well as the recommendations of the Grocery Retail Market Inquiry (GRMI).
In terms of Pick n Pay’s consent agreement, it must provide a copy of the consent agreement to all landlords of Pick n Pay retail stores in South Africa within 30 days of confirmation of the agreement by the Tribunal.
In respect of Pick n Pay’s franchisees, its undertakings include to propose an addendum to the franchise agreement which seeks to incorporate the provisions of the consent agreement relating to HDP Supermarkets, SMMEs and specialty and limited line stores (as described above); and to ensure that new franchisees do not conclude leases which include exclusivity provisions.
Regarding stores dedicated to the retail sale of groceries and household goods and which stock more than 15 product lines (“Supermarkets”), Pick n Pay undertakes to not incorporate exclusivity provisions, or provisions that have substantially the same effect, into any new leases in shopping centres other than in respect of renewals of existing leases. This means that the consent agreement precludes Pick n Pay, with immediate effect, from entering into new lease agreements (as opposed to renewal agreements) which include exclusivity provisions.
Furthermore, exclusivity provisions against other Supermarkets contained in existing leases or in renewals of existing leases cannot be enforced after 31 December 2026.
The above means that any leases containing exclusivity provisions which are renewed before 31 December 2026, will only operate as against corporate owned stores of the major supermarket groups and not in respect of HDP Supermarkets, SMMEs and specialty and limited line stores, and then only until 31 December 2026.
Although Pick n Pay has settled the matter with the Commission, it does not admit to any contraventions of the Competition Act.
A public version of Pick n Pay’s consent agreement will be available on the Tribunal’s website and will be accessible here: https://bit.ly/3x0uGFu
Details on the Shoprite consent agreement can be accessed here: https://bit.ly/2TVhHGN
A common feature between the Pick n Pay and Shoprite consent agreements is they both contain undertakings to, with immediate effect, cease enforcing exclusivity provisions against SMMEs and specialty and limited line stores.
The Pick n Pay consent agreement is however distinguishable from that of Shoprite in that Pick n Pay has adopted an approach of waiving exclusivity insofar as it relates to HDP privately owned supermarkets, as explained above.
Instead of the HDP Supermarket provisions, the Shoprite undertakings relate to not enforcing exclusivity provisions against any other supermarket in shopping centres located in non-urban areas. These areas include peri-urban areas (locations adjoining an urban area between suburbs and the countryside); townships (less formal and underdeveloped urban areas that were set aside during the period of apartheid for black population groups); and rural areas (areas that are located outside towns and cities and without access to ordinary public services such as water and sanitation, especially areas of predominant agricultural production).
Grocery Retail Market Inquiry
This consent agreement follows the release of the GRMI Report in November 2019.
The GRMI did not focus on an individual firm, or group of firms, but was intended to understand how the grocery retail sector operates because there was reason to believe that there exist features in that sector, or a combination of features, that had the capacity to prevent, distort or restrict competition. Amongst others, the Commission identified the impact of long-term exclusive lease agreements (which sometimes have a duration of up to 25 years), and the role of financiers in these agreements, on local competition in the grocery retail sector as an objective of the GRMI. These long-term exclusive lease agreements entered into between property developers and supermarket chains include provisions that restrict the landlord from letting premises in the same shopping centre to potential competing grocery and other retailers, including specialty stores.
The GRMI report found, among others, that long-term exclusive lease agreements are widely prevalent in the grocery retail sector and that the foreclosure of competing retailers, particularly small and independent retailers as well as emerging challenger retailers, is sustained over significantly long periods.
The GRMI concluded that there were no compelling justifications to substantiate the continued unfettered presence of long-term exclusive lease agreements. It recommended remedial action i.e., that the Commission must seek to secure voluntary compliance by the national supermarket chains with its recommendations concerning long-term exclusive lease agreements.
Shoprite was the first national retailer to conclude a consent agreement with the Commission concerning the recommendations of the GRMI. The Tribunal confirmed the consent agreement in October 2020.
Pick n Pay is the second national retailer to settle the issue of exclusivity in lease agreements with the Commission. It participated in the work of the GRMI and subsequently reached an agreement with the Commission. The Tribunal has confirmed the consent agreement after proposing certain changes to be made to it, which the parties complied with.