Africa-Press – South-Africa. Shoprite has applied to the Competition Tribunal to amend the retailer’s consent agreement involving the phasing out of exclusive lease agreements, saying it wanted it brought in line with the deal offered its rival, Pick n Pay, which it describes as far more favourable.
SA’s largest retailer also argued in an application before the tribunal on Thursday that disparities between the two different agreements that the Competition Commission had entered into with Pick n Pay and Shoprite effectively “punished” Shoprite for entering non-urban markets to “feed the nation”. The commission is opposing the application.
Shoprite said that as it now stood, Pick n Pay had been effectively protected from competition by it being granted a longer period – until the end of December 2026 – to phase out exclusive lease agreements.
Shoprite, which has to do away with its exclusive lease agreements by the end of 2024, also took issue with Pick n Pay being at liberty to expand into non-urban areas where Shoprite historically had a strong presence, while it said it was effectively blocked from entering into urban areas where Pick n Pay held a similar position.
According to Pick n Pay’s agreement with the commission it may also not enforce exclusive lease agreements against historically disadvantaged persons.
Controversial exclusive lease agreements signed with landlords and other property developers have historically allowed large national retailers to operate exclusively in shopping centres and restrict other smaller independents, including historically disadvantaged individuals, and rivals from entering the same properties.
A four-year probe by the Competition Commission’s Grocery Retail Market Inquiry culminated in the issuing of a report in November 2019 that found the practice was prevalent, anti-competitive and harmful to both consumers and smaller retailers. The commission opted to prioritise getting large retailers to cooperate in this regard rather than immediately choosing litigation to get them to comply.
Shoprite, which took part in the inquiry, was the first retailer to reach an agreement with the commission to voluntarily phase out its exclusivity agreements. It also agreed to immediately stop enforcing exclusivity provisions in long-term agreements with landlords against SMEs, speciality and limited line stores such as butcheries, liquor stores and spaza shops. Shoprite’s exclusive leases with their landlords would also immediately stop in non-urban areas and be phased out gradually in other urban areas.
Shoprite unhappy with Pick n Pay agreement
However, Shoprite has taken issue with the consent agreement the Competition Commission signed with Pick n Pay, both in terms of its scope and the length of time the second-biggest grocery retailer has to implement it.
Advocate Greta Engelbrecht (SC), acting on behalf of Shoprite, told the tribunal that the recommendations of the Grocery Market Retail Inquiry had been concerned with the market behaviour of national supermarket chains in general and had not focused on the specific conduct of individual players.
Therefore the “consent order agreement entered into pursuant” to the inquiry “could be expected to treat the members of the class the same and not to alter competitive dynamics”.
“What ought not to have eventuated was for the commission to hold Shoprite to the recommendations but then to agree to Pick n Pay that it was entitled to deviate substantially and favourably, notably, from the recommendations so as to create different circumstances of competition for the two biggest national supermarkets for a period of six years. The different behavioural remedies imposed on Shoprite and Pick n Pay in their respective consent agreements has impermissibly distorted market dynamics.”
Engelbrecht said it had created a situation where Shoprite was required to “relinquish” its exclusivity provisions in its lease agreements, enabling Pick n Pay to compete with it in “various local markets”. But she argued the Pick n Pay consent agreement “essentially preserves Pick n Pay’s long-term exclusive leases at shopping centres” until 31 December 2026, ensuring Pick n Pay was “insulated from the competition in the local markets where it operates”.
She said the commission’s justification for treating Pick n Pay differently was “essentially that the Covid-19 pandemic has affected Pick n Pay and Pick n Pay has not performed financially as well as Shoprite”.
“But this reason fails to explain why the second largest national supermarket chain (Pick n Pay) should be placed in a more favourable position than its largest competitor for a six year period.”
Level playing field
Engelbrecht said Shoprite was bringing the application to the tribunal to “ensure a levelling of the playing field”.
“This tribunal is asked to correct the skewed market dynamics that have arisen as a result of the different terms of the two consent agreements entered into, which was, let it be said, exacerbated by the effect of Covid-19 on the market and also the impact of the July 2021 looting and vandalism.”
She said the tribunal also had to bear in mind that competition law was not “intended to be used to protect one competitor at the expense of objective competition” between rivals.
Engelbrecht said Shoprite had shown good cause for having its consent agreement amended to “align with the behavioural conditions contained in the Pick n Pay consent agreement” so that no one firm is favoured over the other.
But Bukhosibakhe Majenge, the chief legal counsel for the Competition Commission, argued that it was not the intention of the regulator to favour Pick n Pay, saying that the grocery retail market structure in SA had evolved in such a way that Pick n Pay was mostly represented in urban areas and Shoprite in non-rural areas.
He said this was the “function of the evolution of the market” and that the reason for the focus of the commission on ensuring exclusivity agreements immediately fell away in non-urban areas was that there was so little competition in these areas and it wanted to encourage transformation in that sector.
Majenge said Shoprite was in effect asking the tribunal to “reverse the transformation” that has been secured through these consent agreements in non-urban areas.
“We make the point that if Shoprite wanted to contest the principle of the prioritisation of removing exclusivity in non-urban areas, it simply should have contested the principle at a stage when it entered into the consent agreement with the Competition Commission.”
Competition Commission says Pick n Pay differently placed
Yongama Njisane, economist for the Competition Commission, also told the tribunal that Pick n Pay was “differently placed to Shoprite and could not agree on the same terms”.
“The point here, chair, the question of parity has to take into account practical contextual realities. And these contextual realities, we have already talked about the fact that Pick n Pay had much less presence in non-urban areas versus Shoprite’s presence in these areas and that Pick n Pay was not strong financially, relative to Shoprite. If you look at the 2022 financial results, you will note chair that Pick n Pay is roughly half the size of Shoprite when you look at the revenues and margins.”
Njisane said that Pick n Pay had lost market share over time and was in the process of rebuilding its business, having prioritised investments to refurbish some of its existing stores, and that the “issue of Covid had come into play”.
“In our view chair and our understanding of these relative differences was this, that Pick n Pay was limited in its ability to take advantage of the opportunity that was presented by the waivers of Shoprite. In other words there was limited threat to Shoprite.”
However, in her closing arguments, Engelbrecht took issue with the arguments made around competition in non-urban areas, saying that Shoprite was effectively being “punished” because it went into those areas first.
She said Shoprite had through the years gone “into the non-urban areas to as it were feed the nation” and also taken the risk of going outside ordinary urban areas.
“It went and served those outside the traditional areas and now not only does it have to let go of its exclusivity but it will be blocked from entry from an additional period of two years by virtue of the agreement that favours Pick n Pay.”
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