Reading between the aisles: the bigger picture on leases in grocery retail

By Lebogang Nleya

The grocery retail industry has over the years seen extensive growth of the major South African retail groups into the rest of the continent. Shoprite has over 1500 stores in 16 African countries, of which 153 are supermarkets outside of South Africa.[1] Pick n Pay operates in seven African countries outside of South Africa, with 937 outlets in South Africa and 104 stores in other countries.[2] Woolworths Holdings Ltd has 365 Woolworths Food Stores in South Africa and neighbouring countries.[3] Massmart Holdings Ltd has a combination of wholesale and retail chains with 335 stores in South Africa and 39 stores in other countries in sub-Saharan Africa.[4]

Both the Competition Authority of Botswana and the Competition Commission of South Africa have recently concluded their investigations into exclusive lease agreements between retail grocery anchors (usually the large chains mentioned above) and landlords. Both complaints related to the fact that the lease agreements contained restrictive clauses which prohibited landlords from introducing part-line stores such as liquor stores, butcheries and fruit and vegetable stores, as well as other full-line grocery stores, into their malls. This was alleged to raise the costs of rivals in entering malls in order to compete with anchor tenants, foreclosing them from attractive retail space and ultimately preventing consumers from enjoying the benefits of increased choice and quality, and price competition between retailers.

The investigations in Botswana reached the conclusion that barriers to entry were significantly heightened by exclusive lease agreements. The Authority was able to reach an agreement with the major retail group at the centre where the complaint arose that they would remove the offending clauses from the lease.[5] The Authority also advised that it would launch a market inquiry into what it considered to be an industry-wide practice.

In South Africa on the other hand, the Commission found that there was insufficient evidence to refer the matter to the Competition Tribunal as a practice with demonstrable anti-competitive effects.[6] The Commission has therefore adopted an advocacy strategy in which landlords and grocery retail groups will be approached to consider removing offending clauses from long-term lease agreements. The authority also noted that it would advocate against the use of these agreements unless they are justified by the investments made by the supermarket in the particular centre and that the length of the agreements should be related to the length of financing agreements or the period required to recoup the initial investment. Lastly, the Banking Association of South Africa confirmed that the major banks no longer require an exclusive agreement between developers and anchor tenants.

So what does this all mean?

Exclusive dealing cases in the grocery retail market are generally difficult to prosecute. The experience in the UK and  Australia has shown that there is value in trying to resolve these cases by means other than prosecution. In both cases the authorities pursued advocacy-led approaches, coupled with the use of statutory powers to issue guidelines to the market on exclusive lease agreements. Although statutory powers may differ across jurisdictions, taking action against exclusive leases becoming “the norm” is important in order to prevent established large firms from unfairly raising barriers to entry and reducing competition. This is particularly important in an African context, given the policy objectives of increasing economic participation and inclusive growth. Interventions of this nature fulfil several roles in this regard.

Firstly, they open up the space for new entrant firms into the grocery retail market. Following the resolution of the matter in Botswana the authority has reported evidence of new, independent entry into the affected shopping centre. This reflects a demand for access to the best retail space as a critical input to grocery retail. It also reflects the fact that independent retailers, especially part-line stores, have previously been unable to on their own overcome the barrier to entry imposed by exclusive lease agreements. Although some entrant retailers can overcome this constraint by seeking out alternative ‘second best’ retail spaces, this will often be at a significant cost to those retailers. In this way, rivals’ costs are raised by exclusive dealing. In the case of Botswana, the fact that a number of foreign (South African) firms were involved in imposing these restrictive clauses means that the entry of independent, indigenous rivals may already have been stifled over time.

Secondly, having access to the economy also speaks to the ability of consumers to access goods and services from competitive markets at competitive prices. In the case of retail markets, these goods invariably include essential food items where it is widely accepted that poor consumers will tend to spend the largest proportion of their incomes. Shoprite’s CEO recently argued that the Group does not depend on competition from other retailers to lower its prices and its prices are the same in all Shoprite stores with or without exclusive lease agreements.[7] What this fails to account for is that market power or dominance is defined in exactly this way: as the ability of a firm to behave independently of (and make decisions that are relatively insensitive to) the reactions of consumers, customers, and competitors.[8] The expectation is that with more entry and in the presence of competitive discipline from independent rivals, the market behaviour of firms with high levels of market power (such as that granted by an exclusive lease agreement in a particular local market) may result in even lower prices and even greater competition on quality and choice.

Thirdly, strategic barriers to entry such as exclusive lease agreements have an impact on local economic development and the establishment of local value chains. Large retail groups largely source from known large-scale suppliers and will often import goods into the new market in which they operate. This is precisely the concern globally, including in South Africa for instance, regarding the entry of Walmart into developing countries. As governments around the continent seek to develop rural and peri-urban markets, and as new retail nodes develop in underdeveloped areas, there may be a role for competition authorities and policy makers in pre-emptively making sure that these markets remain open for independent, new, local entrants to these value chains. This will depend on the specific provisions regarding public interest issues in each country.

In the case of grocery retail, the problem in South Africa has been that exclusive lease agreements are legacy arrangements unreasonably maintained even beyond the duration for which they could still be justified by arguments around investment risk. In some cases these agreements last for up to forty years when investments in a supermarket can be paid off in a fraction of the time. Authorities have a role to play in monitoring the industry and advocating with landlords and retail groups for removing these provisions in lease agreements. Government policy makers may also have a role to play in issuing directives or guidelines on these issues in partnership with industry stakeholders. In this way, authorities can avoid fighting drawn-out, expensive cases in court a few years down the line.

This last point is important with regards to proactive competition policy enforcement. Both the cases in Botswana and South Africa have shown that exclusive lease cases are difficult to prosecute ex-post, even if they can be shown to raise barriers to entry and stifle the ability of competing retail chains to grow and compete with the major groups. 


Exclusive lease cases in grocery retail need to be seen in the context of inclusive growth and the broader debate around (localised) economic development. Although anti-competitive effects can be difficult for competition authorities to prove ex-post, it is clear that independent, local entrants to retail value chains cannot hope to enter and expand as effective competitors if they cannot access the best retail space. While there may be efficiency justifications for exclusive leases, consumers are within their rights to demand cheaper prices and better choice and quality.

As large retail groups expand their footprint into the continent, it will be important to make sure that markets will remain open for access by indigenous, independent retailers. While this may not be achieved through the findings of the courts in a contested enforcement case, it could be achieved through cooperation and advocacy involving key agents such as banking industry associations, groupings of property developers, and government policy makers, as demonstrated in Botswana, and to a lesser extent South Africa. This may also lead to significant savings in time and resources.

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1. Shoprite Holdings Limited Integrated Annual Report 2013,  and company website.

2. Pick n Pay Holdings Limited Annual Report 2013.

3. Woolworths Holdings Limited Integrated Annual Report 2013.

4. Massmart Holdings Limited Integrated Annual Report 2013, and company website

5. Competition Authority of Botswana Media Statement (24 January 2014), titled ‘Anti-competitive lease agreements in shopping malls’. Competition Authority – Botswana Facebook Page.

6. Competition Commission of South Africa Media Release.  ‘Commission non-refers supermarkets investigation’ (24 January 2014).

7. Hedley, N. ‘Shoprite granted interdict to stop Massmart’s food offering’ (23 October 2013).

8. Judgment of the European Court of Justice (14 February 1978). United Brands Company and United Brands Continentaal BV v Commission of the European Communities. Case No. 27/76.