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Consumers to benefit from greater variety, as exclusivity leases phase out

Speciality tenants such as butcheries, bakeries, greengrocers and delis may start opening in malls in coming years.

The impact of the Competition Commission’s call for exclusivity leases to be stopped with immediate effect will only really be felt after five years, because existing leases need to run their course. However, the result will be a more varied tenant mix in South Africa’s shopping centres to the benefit of consumers. 

Almost five years after it was established, the watchdog’s Grocery Retail Market Inquiry released its final report on Monday, where it made far-reaching recommendations on the food retail industry, including a call for the monopoly leases between landlords and the big four supermarket chains to come to an end.

Shoprite, Pick n Pay, Spar and Woolworths were named as the biggest culprits that use exclusivity clauses or clauses that restrict competition to a certain extent, to block smaller players and emerging supermarkets from entering shopping centres where most consumers shop. 

Change is coming

The South African Property Owners Association (Sapoa) – whose members own an estimated 90% of all commercial, retail, office and industrial property in South Africa – welcomed the move, saying it is necessary for the bigger players to make way for other entrants in the market.

“With the phasing out of exclusive leases, shopping centres will hopefully see a bigger tenant mix,” said Sapoa CEO Neil Gopal.

As for the recommendations actually translating into a change in the look and feel of malls, Gopal said this depends a lot on the retailers electing to voluntarily cancel exclusive clauses prior to the five-year phase-out period prescribed by the inquiry.

Dirk Prinsloo, MD of specialist research firm Urban Studies, said such changes are expected to happen after five years, and will occur gradually as vacancies occur. 

“We believe that more speciality tenants such as butchers, fisheries, bakeries, greengrocers and delis will start to emerge. It will create an open and free market and price manipulation will be limited, as new technology and distribution networks improve overall quality and efficiencies.” 

Barriers to entry

Food Lover’s Market has had its fair share of being hamstrung by exclusivity clauses in its attempts to enter shopping centres across the country. 

In its submissions to the inquiry the grocery retailer, which started out as Fruit and Veg City, detailed specific instances where it was either denied access or forced to limit its product offering due to one of the big four having exclusivity in those centres. 

Barriers to entry experienced by Food Lover’s Market

Source: Food Lover’s Market’s submission to the inquiry on May 31, 2017

For instance, when Food Lover’s Market wanted a presence in shopping centres in Richards Bay and Umhlanga, it could only do so as Fruit and Veg City, because Pick n Pay would not allow the stores to provide their full offering. It was only after years of negotiation – four and six respectively – that Pick n Pay waived its exclusivity. 

Needs have changed 

Prinsloo said exclusivity clauses served their purpose in the early development phases of shopping centres, but customer needs have changed and variety has increased. 

“Years ago shoppers mainly supported two different grocery stores per month, nowadays they support up to five. Shopping behaviour is continuously changing and the industry has to adapt to these changes and the much wider offering.”

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Was this really an issue? The big four, that sounds like enough competition for me thanks, unless they collude, which is something I would have rather investigated. Who are these “small players” that are going to jump into the malls?

It’s an absolute non-issue but someone in the CC wants to make a name for themselves and doesn’t really mind what the consequences are. Welcome to the ANC led SA.

This is really a huge non issue but important politically correct issue for the overpaid CC to justify their huge salaries.The exorbitant rental charged by the malls will keep any smaller players out. Have a look in any mall-no small private shops. They all killed by massive rentals and killer rental agreements.

The real issue around these malls is that the developer/landlord want tenants who can sustain the rental costs and take long leases. In many instances these Mom’s and Pop’s shop operate for a year and then fail and leave the landlord out of pocket for outstanding rents.

Yes, but why now?

Mall’s are under strain with the weak economy and the market dilution as te ever more and more Mall that were built..

so property owners want to fill empty spaces, now they can lease to smaller retailers and mom/pop shops.

The real issue is the rentals that are charged to small shops are unaffordably. Basically the rentals result in the malls taking all of the profits and the shop owners taking all of the risk. Also do not for a moment think that the large retailers pay the same rental as the small shops. Rental per square meter is much higher for the smaller guys simply because they do not have the same negotiating power that the Pick n Pays and Checkers have.

I agree.

We also need these smaller speciality shops as well. Over time shopping malls all seem to look the same (same when travelling in US or Europe, you sometimes could be right back in SA just the brands and colours change).

Also online shopping is going to change who they are prepared to lease to never mind the CC.

Tebogo is far from a retail expert. No charge is going to happen for the forseable future.

I’m not sure that consumers will benefit at all. Those large supermarkets chains carry upwards of a 150,000 different product lines per store (excl. the hypers with more lines). A smaller retailer won’t be able to carry the same number of product lines, thus they won’t get the economy of scale of big orders and therefore the price benefit won’t be passed to customers. So the customers will end up with less choice and higher prices.

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