It’s no secret that SA’s retail sector is in the doldrums, with few signs that fortunes may soon turn around.
The growth in consumer spending and confidence remains subdued as rising living costs and interest rates continue to erode disposable income.
This is not good news for retailers, whose retail sales are muddling along. Although retail sales rose by a better-than-expected 1.4% in September, third quarter figures decreased by 0.2%, according to Statistics SA.
To grow market share and margin (a key metric retailers use for profitability), grocery retailers have ramped the level of promotional activity, absorbed rising expenses and input costs to keep food prices low, and rolled out more retail space.
Others have found refuge in the archaic practice of exclusive leases – a long-term agreement between an anchor retailer and landlord, allowing it to be the only retailer in a centre selling specific goods to protect its turf.
Massmart vs Pick n Pay
The latest exclusive leases battle is between Walmart-owned Massmart and Pick n Pay, with both retailers slugging it out at the Constitutional Court.
The matter is about whether grocery retailer Pick n Pay is entitled to prevent Massmart’s Game store, through an interdict, from selling fresh foods at the Capegate Shopping Centre in Cape Town.
Pick n Pay and Checkers have an exclusive lease agreement with the mall’s owner JSE-listed Hyprop Investments.
However, nearly four years ago, Massmart expanded Game’s retail strategy, which traditionally operated as a general merchandise retailer, to incorporate food items as part of its offering under the brand Fresh. This didn’t sit well with Pick n Pay.
Pick n Pay initially went to the High Court on the basis that Game’s food offering was an unlawful interference in its exclusive lease agreement with Hyprop. The court ruled in Pick n Pay’s favour. An appeal at the Supreme Court of Appeal was launched by Massmart, which was dismissed.
On Friday, the Constitutional Court denied Pick n Pay an interdict to stop Game from selling fresh food at Capegate. This paves the way for Game to continue selling fresh food.
A total of 82 Game stores offered food under the Fresh brand as of June – a limited offering when compared with competitors Spar, Shoprite and Woolworths.
The judgement, mainly written by Justice Johan Froneman, has far-reaching consequences about the controversial use of exclusive lease agreements.
“Masstores’s [Game] trading as a general supermarket does not deprive Pick n Pay of its entitlement to continue trading as a supermarket in the shopping centre.
“There may have been a deprivation of part of Pick n Pay’s trading interest, namely its exclusivity, but… Masstores did not usurp any exclusive right of Pick n Pay and appropriate it as its own,” said Froneman.
Pick n Pay excluded Hyprop (the mall owner) from the dispute but pursued an interdict application against Massmart on the basis that it interfered with its contractual relations.
“Why should Pick n Pay not enforce the right at its origin in contact? Or at least be required to show that Hyprop breached the contract and that its breach could not be remedied by using ordinary contractual remedies.”
The court explored the possibility of developing a law regarding interference with contractual relations which is “a relatively undeveloped aspect of our law” – but it decided to not do so.
Froneman said the underlying purpose of the law is to protect free competition and not to undermine it by making it less free.
Exclusive lease agreements are also part of a probe by the Competition Commission in its on-going inquiry into the grocery retail market.
The inquiry, which was first announced in May 2015 by Economic Development Minister Ebrahim Patel in his budget vote, will examine the dynamics of the grocery retail sector and competition among retailers.
If the Competition Commission’s recommendations to Patel conclude that one retailer engaged in anti-competitive behaviour, then the commission in terms of the Competition Act can investigate and can refer the matter to the Competition Tribunal for further prosecution.
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