Spar Group agrees to end long-term exclusive leases in malls

The Spar Group has entered a consent agreement with the Competition Commission to end long-term exclusive lease agreements in the grocery retail sector. The agreement was made in line with the Commission’s Grocery Retail Market Inquiry report.

Exclusive lease agreements in the grocery sector usually grant a tenant, such as a national supermarket chain, exclusive rights to operate in a specific shopping centre to the exclusion of any other grocery retailers.

The Commission concluded in its report about the Grocery Retail Market Inquiry that long-term exclusive lease agreements perpetuate concentration levels and impede participation by smaller and emerging retailers in shopping centres.

It also found that exclusive lease agreements limit consumer choice which harms consumers and deprives them of dynamism and innovation in the grocery retail sector. The inquiry recommended that the commission engage with retailers to voluntarily stop this practice.

Shoprite Checkers was the first national supermarket chain to voluntarily conclude a consent agreement with the Competition Commission and the Competition Tribunal confirmed it in October 2020. In June 2021, the tribunal also confirmed a consent agreement between the commission and Pick n Pay retailers.

ALSO READ: Shoprite will stop leases that freeze out spazas and small competitors

What does the consent agreement mean?

The consent agreement means that the Spar Group will immediately stop enforcing exclusivity provisions contained in headleases (lease agreements between the Spar Group, as the tenant and a landlord regarding the lease of premises located in a shopping centre) regarding company-owned stores and will not include exclusivity provisions in lease agreements for company-owned stores in the future. Company-owned stores are stores owned and controlled by the Spar Group.

In addition, the Spar Group will immediately stop enforcing exclusivity provisions or provisions that have a substantially similar effect in long-term exclusive lease agreements against:

• small or medium-sized businesses;
• speciality and limited line stores owned and controlled by historically disadvantaged people. A specialty and limited line store refer to a single or multiple store operation in the grocery retail sector that focuses on a specific product category, such as butcheries, bakeries, delicatessens, liquor stores and greengrocers, or that stocks and sells 15 or less product lines; and
• supermarkets owned and controlled by historically disadvantaged people.

However, this commitment excludes these businesses if they are franchisees or members of emerging challenger retailers or national chains for a period of twelve months.

Emerging challenger retailers are players that operate mid-sized and large grocery stores (where some only focus on particular product categories or regions), which may function in a similar way to the national chains and may operate on a franchise or corporate basis.

National chains are retailers that carry a full range of grocery products. These firms not only have a well-developed retail network comprising of corporate-owned, franchisees and affiliated stores but also an integrated wholesaling function.

ALSO READ: CompCom ends big supermarkets’ monopoly agreements in shopping malls

How it affects new supermarket leases

The Spar Group will also not incorporate exclusivity provisions or provisions that have the same substantial effect, into any new supermarket leases in shopping centres other than those in respect of renewals of existing leases.

According to the Commission, the Spar Group will not enforce any remaining exclusivity provisions or similar provisions in long-term exclusive lease agreements after 31 December 2026.    

As part of the agreement, the Spar Group will try to persuade Spar Retail Members to adhere to the provisions of clause 4 of the consent agreement within 12 months from the date of signature of the consent agreement and not to conclude lease agreements that include exclusivity provisions.

In an addendum to the consent agreement, the Commission reserves the right to investigate and prosecute any Spar Retail Member that continues to enforce exclusive provisions.

However, the Commission says, the Spar Group did not admit to contravening any competition law.