The SPAR Group reaches agreement with the Competition Commission to end long-term exclusive lease agreements

Image credit: The SPAR Group.

The Competition Commission and the SPAR Group have reached a consent agreement aimed at ending long-term exclusive lease agreements in SA’s grocery retail sector, following a mediation process conducted under the guidance of Honourable Judge Dennis Davis.

As part of the agreement, the SPAR Group has committed to end exclusive leases by December 2026 and to open opportunities to Small, Medium, and Micro-Enterprises (SMMEs) and Historically Disadvantaged Persons-owned (HDPs) supermarkets immediately.

The SPAR Group agreement is in response to recommendations made by the Grocery Retail Market Inquiry (GRMI), following similar consent agreements with Shoprite and Pick n Pay. Collectively, these cover all national chains that had exclusive agreements in place.

The exclusive lease agreements of Shoprite, Pick n Pay, and SPAR, covered close to 2 000 shopping malls and convenience centres nationally, and excluded any specialist or general grocery supermarkets from competing for consumers in those malls, preventing competition for most consumer purchases. According to the Competition Commission, these leases also contributed significantly to the exclusion of SMMEs and HDPs in the grocery sector, where they are under-represented relative to other countries.

The GRMI, initiated by the Commission, was established in accordance with 49D(1), read with section 58(1)(b) of the Competition Act No 89 of 1998 (as amended) to investigate and address features within the grocery retail sector that could hinder competition. One of the key issues identified was the impact of long-term exclusive lease agreements on local competition.

In its final report published on the 17th of December 2019, the GRMI concluded that long-term exclusive lease agreements limit consumer choice within shopping centres, sustain concentration levels, pose particular barriers to participation by SMMEs and HDPs, and hinder dynamism and innovation in the grocery retail sector. To address these concerns, it recommended that national supermarket chains voluntarily comply with specific measures to phase out exclusive leases within five years.

As a result of ongoing discussions between the Commission and the SPAR Group, a consent agreement has been reached that commits the SPAR Group to cease enforcing exclusivity provisions for company-owned stores with immediate effect and will not include such provisions in future lease agreements.

In respect of SPAR Group head leases for stores owned by SPAR retail members, the SPAR Group will cease enforcing exclusivity against SMMEs, HDP specialist stores and HDP supermarkets with immediate effect. This excludes franchisees of national chains in the first year but covers them thereafter.

The SPAR Group will not include exclusivity provisions in any new head leases and will cease to enforce exclusivity against all competitors by December 2026. The SPAR Group will also actively seek to persuade SPAR retail members to adhere to the agreement’s provisions within twelve months from the date of signature.

The consent agreement will be submitted to the Competition Tribunal for confirmation and “will ultimately pave the way for greater fairness and competition in South Africa’s grocery retail market to the benefit of consumers across the country,” said the Competition Commission.