This week the Competition Commission announced that it has concluded its investigation into exclusive lease agreements between major supermarket retailers' (Pick 'n Pay, Shoprite, Woolworths, Spar, Massmart and Masscash) and their shopping centre landlords. The exclusive leases mean that only the supermarkets have the right to trade as food retailers in a shopping mall. The leases also often prevent the landlord from letting premises to the non-supermarket tenants who compete with parts of the supermarkets' businesses, such as bakeries and butcheries.

The Commission started its supermarket investigation in 2009. It looked at a number of competition concerns in the grocery retail sector, including buyer power, category management, information exchange and long term exclusive lease agreements.

The first part of the investigation ended in 2011 but the Commission continued investigating long term exclusive lease agreements. The Commission's initial view was that these long term exclusive agreements could substantially reduce or stop competition or be an abuse of dominance.

Although it found that some of the retailers (Pick ' n Pay, Shoprite and Spar) were dominant in certain local markets, the Commission says it does not have enough evidence that the exclusive provisions are anticompetitive to support a complaint under the Competition Act. The Commission is still concerned that the exclusive leases raise barriers to entry in the grocery retailing sector, and may reduce competition. The Commission will address these concerns by engaging with key industry stakeholders including landlords and supermarket retailers. The Commission will recommend that any exclusivity be limited to the period needed to recoup investments made by the tenant. The Commission also welcomed the Banking Association's undertaking that the big five banks will no longer require exclusive lease agreements as a condition for loans.

Jennifer Finnigan, Partner and Competition Law Specialist

Contact: 031 575 7406 and finnigan@wylie.co.za

Sally Mashiane, Competition law

Contact: 031 575 7418 and mashiane@wylie.co.za