The Gauteng provincial government doesn’t have a problem with the existence of big grocery retailers in townships, but it is perturbed by their dominance, said the province’s MEC for Economic Development Lebogang Maile.
“It’s clear that the big companies are monopolistic and controlling the space, which is creating a lot of barriers to entry for small businesses,” he said at the Competition Commission’s inquiry into the grocery retail sector on Friday.
This was the first time that the government made submissions at the inquiry, which examines the general state of competition in the grocery retail sector.
Entrepreneurs told the inquiry last week that the “big four” grocery retailers have profited at their expense by entering into townships – resulting in spaza shops shutting down their operations and retrenching employees.
The big four in question are Shoprite, Pick n Pay, Spar and Massmart.
The government has been accused of being lax in protecting small business owners. However, Maile denied this, saying when his administration took over in 2014, government’s procurement spend on small business was sitting at R800 million – it has since swelled to R7 billion across 7 000 businesses.
By 2019, 30% of government’s procurement spend will go to townships from 12% in 2014. “Our worry is building sustainable businesses that are not dependent on government. Getting a government tender must be a consequence of your existence and not a business strategy.”
Pick n Pay criticised by SBA
The government has come under fire for supporting the four retailers that already dominate the township economy, which is estimated by Maile to be worth R100 billion.
Mphuthi Mphuthi, chairman of the Soweto Business Access (SBA), criticised government’s support of Pick n Pay’s new franchise system – to convert spaza shops into Pick n Pay outlets – in Soweto’s township of Diepkloof. Five similar shops across Gauteng are set to open in 2017.
“Pick n Pay already operates large stores in Soweto. Now the retailer is converting spaza shops into Pick n Pay stores, which is really painful,” said Mphuthi, who represents entrepreneurs in townships.
Maile defended Pick n Pay by stating that it was the only retailer that showed interest in its “township revitalisation programme”, which aims to rebuild the productive capacity of the township economy. “The shops are not owned by Pick n Pay, but are owned by shop owners, who are given capital by the government.”
The agreement, Maile argued, was for Pick n Pay to supply the converted spaza shop with 60% of goods and the remaining 40% could be sourced from township-based suppliers. “We need to bolster the manufacturing and production capacity of townships so that the number of products consumed can be manufactured in the townships.”
Trully Masinge, who has been the owner of Gross Corner Supermarket in Gauteng’s Sebokeng since 2002, said sales at his supermarket declined after Evaton Mall opened its doors with a Spar and Checkers (part of Shoprite) outlet five years ago. “We are on our way to closing the business as I can’t compete with big retailers,” he said. Since the shopping mall opened, Masinge was forced to reduce his staff complement from 12 to three.
Protecting spazas from retail monopolies
To grow small businesses, the focus will be on access to retail trading space, said Maile. In other words, the big four retailers would be limited on the number of stores they operate and plan to open in township areas.
The inquiry has heard that anchor grocery retail tenants block their smaller counterparts from trading at shopping malls.
Maile said conditions must be imposed by municipalities on land zoning for new shopping mall developments including regulations for communities to hold strategic stakes in shopping malls. “Malls are not operating in the best interest of the people. In some instances, big grocery retailers don’t hire local people. The broader community must benefit.
“If the commission finds big retailers guilty of anticompetitive behaviour, we urge that the fine imposed be used as equity to fund township businesses.”
The inquiry will start its KwaZulu-Natal leg of hearings in July.