Food retailers push to enforce exclusivity

Posted On Monday, 11 August 2014 10:32 Published by
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Pick n Pay intends to aggressively step up efforts to stop Massmart from expanding its food offering in Game stores across SA.

Pick n Pay

Pick n Pay, it seems, intends to aggressively step up efforts to stop Massmart from expanding its food offering in Game stores across SA, prompting JSE-listed mall owners to call on the competition commission to intervene.

Pick n Pay has issued letters of demand to the owners of at least 20 shopping centres around SA, including a number of listed property heavyweights. It insists that the malls enforce exclusivity clauses to stop Game from operating its Foodco business.

Pick n Pay is not the first grocery retailer to use exclusivity clauses to take on Massmart. In October last year, Shoprite was granted an interim interdict prohibiting Game from selling certain food products at Hyprop Investments' Cape Gate Mall in Cape Town.

Pick n Pay entered the fray earlier this year, instituting similar legal action against Game stores at both CapeGate and Liberty Group's Midlands Mall in Pietermaritzburg. Massmart took the matter to the competition commission, but the commission ruled in January that it was unable to find sufficient evidence to show that exclusivity clauses "meet the tests set out in the Competition Act for demonstrating anticompetitive effects".

Pick n Pay argues that the commission's ruling supports their right to seek to enforce the provisions set out in lease agreements which they believe are being breached. "Exclusive lease arrangements have long been a feature of the SA retail market. They are freely entered into by landlords and prospective anchor tenants.

"The landlord secures an anchor as a means of attracting other, quality businesses to the development while the tenant derives some security in terms of likely trade to justify their investment in the centre," says Pick n Pay head of corporate affairs and strategy David North, But the SA Reit Association, which represent the JSE's R250bn listed property sector, believes the practice should be abolished.

Dov Green, chairman of the association's legal committee, says the recent push by food retailers to enforce exclusivity clauses is to the detriment of SA consumers. "Retailers are unwilling to surrender this hold over their competition and are now taking aggressive advantage of exclusivity clauses in their fight for market share." Green says the commission should reconsider exclusivity clauses so that a "definitive decision can be made about whether they are anticompetitive or not".

Massmart's views are similar. Group corporate affairs executive Brian Leroni says: "Instead of competing squarely with new entrants in the battle to win consumers, Pick n Pay has, in effect, chosen to limit the scope for its customers to shop around." Justin Balkin, competition director at law firm ENS, who is acting for Massmart, says exclusive leases have not been declared "safe" from a competition law perspective.

The commission remains concerned about the potential dampening effects of exclusive leases on competition. "We are confident that evidence provided to the commission by Massmart will prove the anticompetitive harm of the exclusivity clauses employed by grocery retailers to hamper the roll-out of Massmart's fresh food strategy."

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