The Grocery Retail Market Inquiry ("Inquiry") published its preliminary report on 29 May 2019. The broad finding of the Inquiry is that there is a combination of features in the South African grocery retail sector that may prevent, distort or restrict competition.
Three particular principal areas of concern have been identified in the report that warrants remedial action, namely:
- Long term exclusive lease agreements and buyer power.
- Competitiveness of small and independent retailers.
- The regulatory landscape.
The key preliminary findings and recommendations can be summarised as follows:
Finding 1: Long-term exclusive lease agreements reinforce market concentration, excluding challenger retailers and specialist stores
Recommendations: Promotion of new and sustainable entry into the shopping centres by requiring:
- The national chains to immediately cease enforcing exclusivity provisions against speciality stores, including restrictions on store location, size and product range.
- No new leases or lease extensions may include exclusivity provisions or restrictive clauses on competing retailers.
- Existing exclusivity against other supermarket chains must be phased out within three years after the final report has been published.
Finding 2: Buyer power by the national chains results in a rebate structure that discriminates against wholesalers and small retailers.
Recommendations: The dominant grocery business model is built around supplier rebates. These discriminate against smaller retailers, as wholesalers serving them are typically not eligible for many rebates and often face worse terms where they do qualify. As an entrenched business practice this is hard to change without commercial disruption, and therefore the Inquiry calls for further submissions on possible solutions. These may include:
- An immediate move to non-discrimination for rebates common across retail and wholesale customers.
- A gradual shift to either extending most rebate categories to wholesale channels or limiting the size of those categories for which wholesalers are not eligible.
Finding 3: Buyer power by the national chains results in smaller retailers bearing higher rental costs in shopping malls
Recommendations: The dominant business model for property developers is to secure national chains as anchor tenants, which gives them bargaining power to secure low rental rates, transferring more of the property costs to smaller retailers. This hinders the participation of competing small grocery retailers and specialist stores. As an entrenched business practice this is hard to change without commercial disruption, and therefore the Inquiry calls for further submissions on possible solutions.
Regarding the first three findings and recommendations, it is recommended that a single government department should be identified to implement the recommendations and that an Industry Code of Conduct, which may include an ombud process be established.
Finding 4: South African spaza shops have struggled to adapt to changing competitive dynamics in township areas
Recommendations: An incentive programme to provide seed finance for innovative commercial models or infrastructure that aims to offer the following support for spaza shops:
- Incorporate spaza shops into buyer groups to achieve economies of scale and scope in purchasing.
- Establish distribution centres in township areas to service spaza shops.
- To facilitate credit access to purchase stock.
- Provide business and financial management training.
Finding 5: The regulatory environment does not support the development of sustainable and competitive micro-enterprises
Recommendations: Establishment of an intergovernmental platform to coordinate government initiatives in addressing regulatory challenges facing small businesses. Some of the remedial actions recommended include:
- Municipalities must review trading time by-laws and regulations with the view to establish same, except for liquor trade.
- Municipalities must fast-track the approval of rezoning applications for spaza shops.
- Municipalities must proactively rezone business areas and establish supporting infrastructure for informal traders.
- Municipalities must develop and implement a framework for the registration of all informal businesses in their jurisdiction.
- Government must review and develop zoning processes which can be adopted by municipalities nationally.
- There is a need for increased coordination between law enforcement and government in order to facilitate proactive enforcement activity against counterfeit goods.
Stakeholders are entitled to submit comments thereto until 28 June 2019, following which it is anticipated that a final report would be released towards the end of September 2019.
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