Shoprite has asked the Competition Tribunal to modify its consent agreement regarding the phasing out of exclusive lease agreements citing that its competition, Pick n Pay's agreement was more favourable than theirs.
Shoprite had concluded the consent agreement following recommendations made by the Commission in the Grocery Retail Market Inquiry (GRMI) concerning long-term exclusive lease agreements with landlords of shopping centres.
In 2019, the Competition Commission’s Grocery Retail Market Inquiry released a report which stated that exclusivity lease agreements were prevalent, anti-competitive, and harmful to consumers and smaller retailers.
At the time, the Commission decided that large retailers should co-operate on their own rather than immediately choosing litigation to get them to comply.
According to the Tribunal, the long-term exclusive lease agreements, entered into between property developers and supermarkets, include provisions that restrict the landlord from letting premises in the same shopping centre to potentially competing grocery retailers and speciality stores (exclusivity provisions).
"The GRMI report noted that these types of agreements harm customers by limiting consumer choice in shopping centres. It concluded that there were no compelling justifications to substantiate the continued unfettered presence of long-term exclusive lease agreements," it said.
The Tribunal said the reasons advanced by Shoprite for the variation include: the different terms contained in the Shoprite consent order as against that of Pick n Pay whereby Shoprite has to, among others, remove exclusivity in its lease agreements by December 17, 2024.
"Pick n Pay has until December 31, 2026, to do so. In Shoprite’s view, the PnP consent agreement is more favourable despite stemming from the same GRMI report recommendations; circumstances occasioned by the Covid-19 pandemic; and the July 2021 civil unrest and looting," it said.
The Competition Commission is opposing Shoprite’s variation application.
Shoprite advocate Margaretha Engelbrecht submitted to the tribunal on Thursday that the disparity that has been created can be addressed without upsetting the confirmation of Pick n Pay's consent order agreement.
Engelbrecht said the reasons behind ending exclusive leases was to allow smaller retailers and historically disadvantaged stores to open in the same shopping centres, not to protect Pick n Pay from Checkers.
“It is not for the commission to benefit one national supermarket competitor over another."
The Commission had said that Pick n Pay was smaller and less profitable relative to Shoprite.
Engelbrecht said: "Pick n Pay in its 2021 financial year generated sales of R89.9 billion and a profit of 2.7bn, hardly leading to the conclusion that it is a small or struggling competitor, that the GRM envisioned to benefit from the recommendations".
Shoprite earned more than R187bn in revenue in its 2022 financial year ended July 3, with a profit of more than R8bn before tax.
According to Engelbrecht, 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.
However, the Competition Commission legal counsel Bukhosibakhe Majenge, said the grocery retail market structure in South Africa has changed as Pick n Pay was mostly represented in urban areas and Shoprite in non-rural areas. He said it was not intentional for the Commission to favour Pick n Pay.
The Competition Commission economist Yongama Njisane said the question of parity has to take into account practical contextual realities.
"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."
The Tribunal reserved the judgment.
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