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Grocery Retail Market Inquiry Report Released

November 27, 2019

Competition Commission

27 November 2019

The Final Report of the Grocery Retail Market Inquiry has been launched.

The Competition Commission released the Final Report at a press conference in Pretoria.

The Inquiry got underway in 2015.

The Competition Commission initiated the Inquiry to understand the general state of competition in the retail sector.

It focused on:

• The structure of the industry;
• The renting of retail space in malls; and
• The impact that big retail chains have on competition, jobs and small business development.

Provisional findings and preliminary recommendations were published at the end of May 2019.

Speaking at the launch, professor Halton Cheadle, chairperson of the Inquiry, declared that the “Inquiry strongly believes that a less concentrated grocery retail sector, with a large ecosystem of small independent traders alongside national retail chains is in the best interests of the economy and the consumers”.

Final findings and recommendations focus on exclusive leases, fair trading practices and regulatory and competitiveness support.

The Inquiry calls for exclusive leases at shopping malls to end.

In order to achieve this, the enforcement of exclusivity clauses against specialist and SMME stores in shopping malls and all grocery retailers in non-urban areas needs to end; no exclusivity in new lease agreements or in lease renewals and all remaining exclusivity clauses to be phased out over a five-year period.

The proposal is that this is achieved through voluntary undertakings by national supermarket chains.

“The recommendation is that the Commission should, within 6 months from today, continue the Inquiry’s process and secure voluntary compliance with the recommendations, failing which legislation in the form of regulations or a code of practice should be introduced along the lines of the recommendations.”

As regards fair trading practices, the Inquiry also calls for equal treatment with regard to the granting of rebates by suppliers.

Suppliers of FMCG products must ensure that the trade terms are uniformly available to all retailers, wholesalers and buyer groups; the trade terms offered have an objective justification based on cost savings, efficiencies or sales promotions; the trade terms and conditions of qualification are communicated and applied uniformly; the rebate size is linked to the value provided, rather than simply the volume purchased; and they take measures to support qualification for rebates by wholesalers and buyer groups that supply the small and independent trade.

The Inquiry recommends that attempts be made over the next six months to secure voluntary commitments by FMCG suppliers to the recommendations.

“If this is not successful, then government should move to legislate this framework and provide for an Ombud to police it.”

The Inquiry also recommends that shopping mall owners must “use fair, transparent and commercially justifiable criteria to determine differences in rental rates, lease deposits and shop fitting allowances within a property and ensure that rental escalation formulae are uniform across customers unless there are commercially justifiable reasons for differences”.

The Inquiry also wants to see greater support provided to informal and township trading businesses at the local municipality level.

It calls for the removal of regulatory obstacles and steps taken to set up infrastructure in support of informal and township businesses and ensure that new developments provide space for “independent and historically disadvantaged retailers”.