For years Shoprite Checkers and Game were virtually neighbours in the Mthatha Plaza, two anchor tenants peacefully sharing the mall’s shoppers between them. But now these neighbours are squaring up against each other in court, with their landlord, Whirlprops, brought along for the ride.
Their dispute concerns the right, granted to Shoprite by Whirlprops in a 2005 lease, to be the mall’s sole supermarket. Their contract said no other part of the plaza would be used as a butchery, bakery or fruit and vegetable shop.
Then came FoodCo, Game’s in-house fresh-food offering and its great hope for improved profitability. Once Game began introducing FoodCo in selected stores, the Mthatha branch negotiated a new lease with Whirlprops. Their February 2016 agreement lifts all previous restrictions on Game’s merchandise mix: "The tenant shall use the premises for ... a Game retail business ... dealing in general merchandise of all types and food. [Game] may, in its sole discretion, determine what products it will sell."
In addition, Whirlprops warrants that "it has not granted and will not grant any other tenant ... rights that will prevent [Game] from exercising ... its right to use the premises as provided for in this agreement."
All of this sits rather oddly with the exclusive trading provision Whirlprops acknowledges it signed with Shoprite — hence Shoprite’s decision to litigate against Game and Whirlprops.
Interestingly, the landlord did not deny its exclusive-use contract with Shoprite. But it claimed Shoprite waived its right to exclusivity by not challenging "Game’s 2010 introduction of a FoodCo section into the store".
The court dismissed this argument: the supermarket component to which Shoprite objects has not yet been opened, renovations to house the new section are still under way and the new fridges and freezers are yet to be installed. Shoprite could therefore not have "agreed" to conduct by Game that did not exist at the relevant time. It’s a bit of egg on Whirlprops’ face not to know there is, as yet, no fresh fruit and food in the Game store on its premises.
But of more significance to consumers is the fact that this judgment, maintaining Shoprite’s exclusivity via an interim interdict against Game and Whirlprops, was delivered mid-July — in the same week as the competition commission posted its official terms of reference, its "statement of issues" in the current "market inquiry into the grocery retail sector".
This is the commission’s second examination of the sector, after a previous inquiry concluded it was not appropriate to charge anyone with anticompetitive behaviour.
The new document details the commission’s inquiry into several aspects of the nation’s grocers, including "the impact of long-term exclusive lease agreements entered into between property developers and national supermarket chains, and the role of financiers in these agreements on competition in the grocery retail sector".
The document notes that, since its last inquiry, the commission has been trying "advocacy" to change the practice of routine exclusive-lease agreements in new developments. "However, despite the commission’s efforts, the conduct persists" and so the new inquiry will again address this issue.
The investigating panel concedes there are positive and negative results from exclusive leases. It now wants input on a number of related issues, including the extent to which long-term exclusive-lease agreements benefit or harm consumers and smaller would-be competitors.
Against this background, the Shoprite case could prove telling: tucked into that original, exclusive lease between Shoprite and Whirlprops is an odd exception: no other "supermarket" may operate in the mall — except for Rhino Cash & Carry, part of Massmart’s retail division and thus a cousin of Game. If this is anything to go on, exclusive leases may turn out to be more complex and nuanced than they seem.