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Spar Group To End Exclusive Lease Agreements After Tribunal Order

Published December 30, 2023
7 months ago

Following the conclusion of a consent agreement with South Africa's Competition Commission, the Spar Group has committed to ending its long-term exclusive lease agreements within the grocery retail sector. This decision, now confirmed as an order by the Competition Tribunal, marks a significant shift towards dismantling practices that have historically hampered competition and limited consumer choice in the market.

Exclusive lease agreements in the grocery retail sector have traditionally allowed large supermarket chains to secure sole rights to operate within certain shopping centers, effectively shutting out smaller and emerging retailers. Seen as anti-competitive, these agreements have been under scrutiny, especially after the Competition Commission's Grocery Retail Market Inquiry report released in December 2019. The report highlighted the negative impact these exclusive leases have on market concentration, innovation, and consumer welfare, urging the practice to be stopped voluntarily.

Spar has become the third major retailer in South Africa, after Shoprite Checkers and Pick n Pay, to agree to eliminate such lease terms. Under the Spar Group's agreement with the Commission, the company pledges to discontinue the enforcement of exclusivity on head-leases related to company-owned stores immediately. Additionally, the agreement spells out that the Spar Group will refrain from introducing such provisions in any future lease contracts for these stores.

Furthermore, Spar agrees to cease using exclusivity provisions against small, medium, and micro-enterprises (SMMEs), as well as specialty and limited line stores that are historically disadvantaged. This pledge, however, entails a transitional period of 12 months from the signing of the consent agreement, where certain exclusions apply, emphasizing the complexity and gradual process inherent in market reform.

The various categories of retail operations, from specialty stores focusing on particular product areas to emerging challenger retailers and national chains, each face different competitive landscapes which the Spar Group's commitment addresses. The full discontinuation of exclusivity in any remaining long-term leases is set to take effect by December 31, 2026.

It's noteworthy that while the Spar Group has consented to these significant changes, it has not admitted to any contraventions of competition law. This move signals a proactive approach to altering market dynamics in favor of greater competition and choice without necessarily conceding past legal wrongdoing.

The implications of this decision by the Spar Group and its predecessors could be far-reaching. Not only does the phase-out of exclusivity provisions promise to open up market opportunities for smaller and emerging retailers, but it fundamentally aims to increase choice for consumers. By removing barriers to entry, the landscape of the grocery retail sector in South Africa is positioned to become more dynamic, encouraging innovation and potentially leading to better pricing and service quality as a result of heightened competition.

The Competition Tribunal's endorsement of this agreement reinforces the state's stance on ensuring fair competition within essential market sectors. As legal frameworks align with the principles of open markets, consumers and entrepreneurs alike could stand to benefit from a more diversified and vibrant economy, a goal that the Competition Commission continues to push for within South Africa's varied industrious platforms.

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