Shoprite Checkers given more time to phase out exclusivity provisions in its lease agreements

The Competition Tribunal has granted Shoprite Checkers a partial variation to the terms of its consent agreement to relinquish long-term exclusive lease agreements, but it has dismissed most of the amendments sought by the retailer.

Shoprite was the first national supermarket chain to voluntarily conclude a consent agreement with the Competition Commission following the release of the Grocery Retail Market Inquiry report in late 2019 which found that long-term lease agreements that entrench exclusivity by major retailers “fundamentally undermined the objectives of the [Competition] Act and broader national economic policies aimed at facilitating transformation and economic inclusion”. The report also recommended that the Commission enter into discussions with retailers to voluntarily stop this practice.

Shoprite’s consent agreement was confirmed as an order by the Tribunal in October 2020 which was followed by Pick n Pay’s consent agreement in mid-2021. Shoprite subsequently asked the Tribunal to amend its agreement due to, among others, alleged material differences between its agreement and that of Pick n Pay which Shoprite alleges creates a market distortion between the two large retailers.

The differences between the Shoprite and Pick n Pay consent agreements

Non-urban areas versus HDP supermarkets:

Shoprite agreed to immediately stop enforcing exclusivity provisions against any other supermarkets in shopping centres in specified non-urban areas (including townships and areas outside of towns and cities).

Pick n Pay agreed to stop enforcing exclusivity provisions in respect of HDP supermarkets (defined as privately owned single or multiple store operations owned and controlled by historically disadvantaged persons as per section 3(2) of the Competition Act, including individual franchisees or buyer group members of other national retail brands but excluding corporate stores of those brands).

Renewal of existing leases:

Shoprite agreed that it would not incorporate exclusivity provisions into any new supermarket leases in shopping centres or when it renews existing leases.

The Pick ‘n Pay consent agreement also puts an end to exclusivity in new leases but allows Pick n Pay to incorporate exclusivity provisions when it renews existing leases (other than in relation to SMME’s, speciality and limited line stores and HDP supermarkets).

No exclusivity after December 2024 versus December 2026:

Shoprite agreed to phase out the enforcement of exclusivity provisions against other supermarkets within five years from December 2019 i.e., by December 2024.

Pick n Pay agreed to phase out the enforcement of exclusivity provisions against other supermarkets by the 31st of December 2026.

Amendments not granted

Non-urban areas versus HDP supermarkets:

The Tribunal found that Shoprite did not make a convincing case for good cause to amend its consent agreement to mirror that of Pick n Pay in relation to the non-urban versus HDP issue – and that it would not be in the public interest to do so.

This is because Shoprite has a relatively larger retail footprint in non-urban areas where consumers, especially low-income consumers, have less choice. Making entry possible in retail shopping centres in non-urban areas therefore impacts the most vulnerable consumers. In comparison to Shoprite, Pick n Pay has a relatively smaller presence and therefore a smaller number of stores with leases containing exclusivity provisions in non-urban areas. To apply the non-urban areas approach to Pick n Pay would not have achieved the objectives of removing barriers to entry into the retail market to the same extent as the national HDP provision contained in the Pick n Pay consent agreement.

The Tribunal further noted evidence that there has been increased competition between supermarkets in non-urban areas following the Shoprite consent agreement and there is no cogent evidence of Shoprite being substantially worse off, given the two retailers’ different geographic footprint. The HDP provision that applies to Pick n Pay is geographically wider (i.e., national) than the specified non-urban areas that apply to Shoprite.

Exclusivity provisions in renewals of existing leases:

Shoprite submitted that it would like to enter numerous shopping centres, most in urban areas, but it is prevented from doing so because its competitors continue to enforce exclusivity provisions.

The Tribunal has concluded that Shoprite has not made a sufficient case for good cause to amend its consent agreement to allow it to retain exclusivity provisions when renewing existing leases.

Shoprite is not precluded from entering shopping centres where Pick n Pay has a presence, provided it does so with an individual HDP franchisee. This is in line with the objectives of the GRMI to enhance ownership transformation in the grocery retail sector. In addition, the evidence of entry by competitors in urban areas where Shoprite previously held exclusivity introduces further competition in the market but appears to not be of a scale that is likely to significantly distort competition between Shoprite and its national competitors.

Amendment granted

Shoprite has to phase out all exclusivity provisions by December 2024, while Pick n Pay has to do so by December 2026. The Tribunal has found that this difference cannot be justified and has granted Shoprite’s application to amend the clause, thereby giving it until the 31st of December 2026 to ultimately phase out all exclusivity provisions in its lease agreements.