submission by unitrade management services (ums) to the

UMSSubmissiontotheGroceryRetailMarketInquiryJuly21,2016

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SubmissionbyUnitradeManagementServices(UMS)

totheGroceryRetailMarketInquiry

Contact:PeterDraper

ManagingDirector

TutwaConsultingGroup

[email protected]


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Contents

1. Introduction/Background.....................................................................................................................1

2. BackgroundtotheUMSbusiness.........................................................................................................3

3. UMSissues/observations.....................................................................................................................7

4. RecommendationstotheInquiry.......................................................................................................10

AnnexureA:KeyFindingsfromtheUKandAustralianInquiries...............................................................13


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1. Introduction/Background

The grocery retail sector is a key contributor for economic growth both internationally as well as

domestically.Asaresult,authoritiesacrossvariousjurisdictionshaveplacedmuchattentiononensuring

anefficientandwell-functioninggroceryretailsector.

The issues sought to be canvassed in the current Inquiry are not exclusive to South Africa and in

particular,competitionauthoritiesinternationallyhavealsofocussedresourcesontacklingimpediments

to competition in the grocery retail sector. Notably, the United Kingdom Competition Commission

(UKCC)andtheAustralianConsumerandCompetitionCommission(ACCC)have ledsimilar Inquiry’s in

theirrespectivejurisdictions.1

South Africa has not been immune to issues in the grocery retail sector and so the Competition

CommissionSA(Commission)hasoverthelastdecade,beenrequiredtoassessnumerouscomplaintsin

relation to it.2 The issues in this sector are wide ranging, with the provision of exclusivity clauses in

mall/shopping centre lease agreements receiving the most attention. The Commission, having

previously considered these issues, found that there is insufficient evidence of any anticompetitive

harm.TheCommissiondid,however,takecognisanceoftheissuesarisingfromexclusiveleaseswhich

prompted an advocacy program to raise public awareness of the issue. This has led to a string of

complaintsbeinglodgedattheCommission.3

Given the preponderance of issues in a key growth sector, and the potential for entrepreneurial

opportunities in the sector, on the 13th of May, 2015, the Minister of Economic Development

announcedthataformalmarketInquirywouldlookintotenancyagreementsinmallsaswellasissues

affecting the growth of township businesses such as spaza shops. More recently Minister Patel has

highlighted the importance of the Competition Act as a lever for promoting inclusive growth in the

economy4,inlightofwhichthecurrentInquiryprovidesanopportunitytobreakdownthe(perceived)

barriersinthegroceryretailsectortherebyenablingagreaterspreadofownershipandparticipationby

1SeeAnnexureAforasummarynoteontheUnitedKingdomandAustralianInquiries.2InJune2009theCompetitionCommissioninitiatedacomplaintagainstthemajorsupermarketchainsandwholesaler-retailers:PicknPay,Spar,ShopriteCheckers,Woolworths,MassmartandMassCashforallegedcontraventionsofsections4(1)(a),5(1),8(c)and8(d)(i)oftheAct.3Seehttp://www.compcom.co.za/wp-content/uploads/2015/03/Competition-Commision-January-Newsletter-WEB.pdf4Seehttp://www.gov.za/speeches/minister-ebrahim-patel-economic-development-dept-budget-vote-201617-21-apr-2016-0000


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SouthAfricansinthewidereconomy.Broadly,theInquiryseekstounderstandandassessthenatureof

competitioninthegroceryretailsector,withaviewtopromotinginclusivegrowth.

On30October2015,theCommission-ledInquirygazettedthedrafttermsofreference(ToR)forthe

MarketInquiry.TheInquiryhasrequestedinterestedpartiestosubmittheirviewsundersixmainareas5

namely:

(1)Theimpactoftheexpansion,diversificationandconsolidationofnationalsupermarketchainsonsmallandindependentretailers;

(2)Theimpactoflongtermexclusiveleasesoncompetitioninthesector;

(3)Thedynamicsofcompetitionbetweenlocalandforeignownedsmallandindependentretailers;

(4)Theimpactofregulations,includinginteraliamunicipaltownplanningandby-lawsonsmallandindependentretailers;

(5)Theimpactofbuyergroupsonsmallandindependentretailers;and

(6)Theimpactofcertainidentifiedvaluechainsontheoperationsofsmallandindependentretailers.

Giventheinterlinkagesbetweenvariouslevelsofthevaluechain,thegroceryretailsectorissusceptible

to competition concerns. As noted prior, the issues that persist have been well documented by

competitionauthorities internationallyandtheresources thathavebeenexpended in rectifying these

concernsprovidesfurtherindicationthatthegroceryretailsectorisacriticalsectorforgrowthandits

impact on the broader economy as a whole (i.e. providing access to goods at reasonable prices,

entrepreneurialopportunitiesforSMME’setc.)

ItisagainstthisbackgroundthatUnitradeManagementServices(Pty)Ltd(UMS)makesitssubmissionto

theInquiry.Aswillbeevidencedinthefollowingsection,UMSisakeyplayerinthegroceryretailsector

andtheissuesasnotedintheToRhaveadirectimpactonourbusiness,aswellasaffectourmembers,

manyofwhomservicespazashopsandthetownshipeconomymorebroadly.UMShopesthatthrough

its submission it can assist the Inquiry in eradicating anti-competitive harm which UMS feels to be

restrictingtheabilityofsmallerplayers,includingourmembers,togrowandcompeteeffectivelyinthe

groceryretailsector.

5Seehttp://www.compcom.co.za/retail-market-inquiry/


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Therestofthereportisstructuredasfollows.Section2providesabackgroundtotheUMSbusinessas

wellasitsareasoffocus.Section3sharestheconcernsandissuesfromUMS’sexperienceinthesector,

including concerns expressed by some of our members. Section 4 offers recommendations to the

Inquiry.Section5concludes.

2. BackgroundtotheUMSbusiness

UMS is predominantly owned by previously disadvantaged individuals and is a voluntary buying

association. Since 2006 UMS has grown successfully and is a substantial player in the grocery retail

market,reflectedinpartbythe150storeownersthat,workingasmemberswithUMS,arenowableto

providegoodsandservicesaroundthecountry,andemploytotalstaffofapproximately10thousand.

Figure1overleafprovidesa roughschematic forhowthegrocery retail valuechainworks.To further

note,wehave subsumedUMSunder theheadingof buying group, even thoughwearenot abuying

groupperse–yetwedohaveabuyinggroupfunction.

Atypicalbuyinggroupmayofferthefollowingbusinessmodel:

• Tradingtermsbasedonvolumes

• Negotiationofdeals

• Verylimitedbusinesstobusinessactivity

• Verylimitedbusinesstoconsumeractivity

• Value:centralaccountandadministration

• Majorcapabilities:MOVINGVOLUME


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Figure1:GroceryRetailValueChain

Buying groups give independents (including hybrid, cash and carry, independent retailers and other

storeformats)criticalmass,andalsooffersmallspazashopsandstokvelstoresmorechoicesat lower

prices, since independentwholesalers and distributors generally sell at lowermargins than the large

chains.

UMS’sbusinessmodelissomewherebetweenafullFranchiseOperationandBuyingGroup.UMSoffers

ourmembers all of the advantages of franchisingwithout the associated costs; in shortwe consider

SUPPLIERS / MANUFACTURERS

(Unilever, Tiger Brands, Nestle etc.)

Buying Groups

(e.g. UMS, Shield)

Distribution Centres

Wholesalers

(e.g. Kit-Kat, J&E Wholesalers)

National Supermarket Chains

(e.g. Pick ‘n Pay, SPAR)

National and Independent stores

(Hybrids + Cash & Carry Stores + Independent

Independent Retailers

(Formal & informal, incl. spaza shops,

hawkers, etc.)

Agents

(e.g. Smollans, Meridian)

END CONSUMER


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ourselves to be aVoluntary Trading Association,6 and not a BuyingGroup per se.We also offer the

benefits of a franchise to our suppliers, similar to the benefits onewould receive from full franchise

groups.WhilstUMSmaybeviewedasatypicalfranchisor,nofeesarechargedtotheindependentstore

owner(s).UMSmakesacleardistinctionbetween itselfand typicalbuyinggroups.Whereas the latter

solelyprovidesthebenefitofincreasedbuyerpower,UMSprovidesadditionalbenefitstoindependent

storesatnoadditionalcharge.Theseaddedbenefitsinclude:

• Skillsdevelopmentandtraining7• Marketingthatisuniquelytailoredtocommunitydynamics• Administrativesupportincludingabuyingteam• Creditfacilities• Salesandoperationalsupport• Storedevelopment• Privatelabelprogrammes• Businessdevelopmentplans• Customisedpromotionalplans

ForUMSitisnotjustaboutbuyingandrebates,ourbeliefisthatthemodelofabuyinggroupisshort

termandtoorestrictiveinthemain.Whichisnottosaythatthereisnoplaceforthesetypicalbuying

groupsinthefuture,ratherthatwebelieveinpartnerships(withbothsuppliersandmembers),through

providingbrands,training,supportstructures,andsustainability-essentiallybuildingabetterbusiness

forbothsuppliersandmembers.

The approach adopted byUMS is to ensure that the independent has access towholesale and retail

opportunities in the groceries sector. By creating an accessible platform, smaller store owners or

potentialentrantshavearelaxedenvironmentwithinwhichtooperateand,critically,obtaingoodsat

pricesthattheywouldnototherwisehaveaccessto.Memberscanparticipateatthewholesaleorretail

level,orahybridofthetwo,throughtheUMSbrands:Powertrade,FoodtownandBestBuy.

As a resultof theseefforts and initiatives,UMShasbeenable to grow significantlyover thepast ten

years,providingdirectopportunitiesformanyentrepreneurs.Thisisevenmorepronouncedwhenone

considers the importanceof thegrocery retail sector inprovidingaccess togoodsandservices to the

6TheSparGroupisanotherexampleofaVoluntaryTradingAssociation.7UMShasdevelopedandlaunchedastateoftheartclassroombasedtrainingfacilityattheUMSAcademy.Thisinitiativeaimstoaddressthelackofformal,focussedskillsdevelopmentinitiativesforindependentretailersandwholesalers,theirstaffandmanagement.TheUMSAcademyseeks,throughtrainingforbusinessgrowth,toupliftthecommunitythroughthedevelopmentofpeople.


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lower incomepopulationof the country.Organisations suchasUMS thatoperate at both themiddle

layer of the economy and at the bottom of the pyramid have fostered an approach that involves

partneringwith independentretailersandwholesalersto innovateandsustaindiversityofbusinesses.

Thisdiversityhelpstoensurehealthycompetition,andcreatesvalueforpoorconsumers.Thediversity

ofretailershelpstocreateamoreinclusivemarket-basedeconomyasopposedtoonecharacterisedby

thedominanceof themajor corporate retailers,who seem toengage inanti-competitivepractices. It

begs, in our view, the question as to howmuch greater the growth effectwould be if the perceived

distortionswerenotinplace.

WereiterateatthisjuncturethatindependentstypicallyhavelowercoststructuresandUMSassistsin

furtherloweringproductprocurementcosts.ThisisinadditiontothesupportservicesprovidedbyUMS

whichallowindependentstocompetewiththecorporatesupermarketchains.Inanutshellwefacilitate

entrepreneurship, allow for independence in business operations and contribute to sustainable,

inclusiveeconomicgrowth.

Finally, GGAlcock in his book Kasinomics, has shed further light on the dynamics that existwith the

informaltownshipeconomy.OfparticularinteresttotheInquiryisthegrowthoftheinformaleconomy.

First, it is noted that informal retailers are on average 7% cheaper than the corporate supermarket

chains.SecondlyAlcockalludestofiguresfromanACNilsenstudywhichsuggestthat20%ofconsumer

spendingtakesplaceintheinformaleconomy-whichsellsgoodstothevalueofR46billion.

Alcock also highlights the growth of foreign owned spazas and attributes this growth trend to the

decline of the spaza business undertaken by South Africans, a gap which has been exploited by

foreigners. Over and above the price benefit that these foreign owned spazas bring, they allow for

interestfreecreditandextendedstorehours.Inessencecateringforthedemographicsinthetownships

has enabled this growth. FiguresbyACNilsen also indicate that the informal sector is growing at 7%

whilsttheformalsectorisgrowingat4%.

Ifoneconsiders thesedynamics itprovides furtherclarityas towhyweobserve thecorporatechains

nowenteringspacespreviouslyoccupiedbyinformaltradersandindependentretailers.


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3. UMSissues/observations

Asnotedinsection1,theconcernsinthegroceryretailsectorhavereceivedwidespreadattentionfrom

competitionauthoritiesinternationallyaswellasdomestically.UMS,asakeystakeholderinthesector,

hasnotbeen immune from these issues.However, it is important tonote that smallerplayers in the

market–bothmanufacturersandretailers–facethepossibilityofreprisals fromthebigretailersand

manufacturers,meaning thatprovidingactualevidenceofwrongdoingon the largeplayers’part isan

intimidatingproposition.Consequently,oursubmissionisbasedonouryearsofoperation/experiencein

the sector. In this light we have identified several impediments to competition. These concerns are

raisedinconjunctionwiththe6areastheInquiryseekstoassess.

UMScontendsthatthefollowingissuesimpactnegativelyonthesuccessofindependentsinthesector,

andthesectorasawhole:

3.1. The buying power of the big 58 supermarket chains has implications for independents which

manifestsitselfthroughthe“waterbedeffect”.9

3.2. Thereisalackofsupportbysuppliers/manufacturersforindependentsgenerally,andintermsof

loyaltyprogrammesspecifically,whereassuchsupportisprovidedtothebig5.

3.3. Thereisalackoffundingprovidedbymanufacturerstoindependentsfornewstoreopeningsor

storerefurbishments,whereassuchfundingismadeavailabletothebig5.

3.4. Onerous trading terms are being imposed on independents, with hurdles tomeet obligations

beingtoohighrelativetothoseprovidedtothebig5.

3.5. Some of the big manufacturers appoint exclusive agents/distributors to deal with the

independentsonpricingandothertradingterms,withtheseexclusiveagents/distributorshaving

the power to set these terms, whereas some of those agents also compete directly with the

independents they are supposed to service. (Mondelez and P&G are cases in point) Such

arrangementsarenotimposedonthebig5,rathermanufacturersdealdirectlywiththem.

3.6. Thebig5collectivelyconstitutesanunfairpercentageofmanufacturers’totaloutput,whichdoes

influencemanufacturerstradingterms,andotherpricingpolicies,withindependents.

8ThesearetheShopriteCheckers,Spar,PicknPay,WoolworthsandMassmart.9Subjecttolevelsofconcentrationamongstbuyersinamarket,certainbuyersmaypossessgreatermarketpowerover suppliers than their rivals and are able to exercise this in the formof obtainingmuch lower prices. Thesepricesmaybeexcessively lowsoastorenderthesupplierunprofitableoverthisportionofsales.Asameanstorecoupthemarginslosttothedominantbuyerthesupplierisforcedtoraisepricestosmallerbuyerstolevelsthatwouldnothavenecessarilyexistedabsenttheabuseofmarketpowerbythedominantbuyer(s).


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3.7. Independents are being foreclosed entry into new mall developments, in essence offers are

rarelymadetoindependentstoparticipate.

As evidenced above, the issues raised by UMS are broadly in relation to market dominance, a

fragmentedindependentsector,a lackofequityandtheexistenceofunfaircompetitioninthesector.

WesetoutbelowfurthercontexttotheissuesraisedbyUMSinlinewiththepointsabove.

3.1. The Waterbed effect. This issue regards the relative volumes purchased by the big 5

supermarkets. UMS accepts this is a reflection of relative purchasing powerwhich in itself confers

someadvantagetothecorporategroups.However,wecontendthatthispurchasingpoweradvantage

is being abused by the larger corporates. In effect, given the downward pressure being placed on

prices by larger players, manufacturers may be forced to recoup lost margins through charging

independentshigherprices,orofferingthemsmallerpricediscounts–amountingtothesamething.

Some of UMS members have shared the concern that suppliers are being “bullied” by the larger

corporategroups. In some instances,aUMSmemberwould findemployeesof the largercorporate

groupswalkingthroughtheirstoresandnotingthepricesofmanyprimarylineitems.Pursuanttothis

UMSmembers receive calls from suppliers requesting that they cease advertising the specials they

wereaffordedbytherespectivesupplierandinsomecasesthepricesofthoseveryproductsarethen

reduceddrasticallybythelargercorporategroups.WhilstUMSacknowledgesthatlowerpricesareto

the benefit of the consumer, the reluctance of suppliers to offer preferable/lower prices to

independents (under the fear of reprisal from the corporate supermarket chains) creates further

distortionsinthegroceryretailsector.

Further to this is the differential distribution allowances that are offered to the larger corporate

groupsbysuppliers/manufacturers.Theseallowancesfavourthelargercorporategroupsviz-avizthe

independentsas itenablesthemto lowertheirpricesevenfurtheroralternativelyraisetherelative

priceatwhichindependentsareabletoselltheirgoods.

3.2.&3.3.Loyaltyprogrammesandnewstoreopenings/refurbishments.Manufacturershaveshown

little or no appetite to engagewith independents on either the creation of loyalty programmes or

funding new store openings and product lines. By contrast, larger corporates will charge

suppliers/manufacturers to participate in new store openings and product promotions, in effect

padding their profits at the manufacturers’ expense, whereas independents have to pay

suppliers/manufacturers for the same services. This places independents at a significant cost


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disadvantage, yet it is the independents that provide better access to stokvels and spaza shops,

avenues which the larger supermarkets may not necessarily reach. Furthermore, consumers in

townshipsandouterlyingregionswerehistoricallynotwellservicedbylargercorporategroupssothe

independent traders have positioned themselves to serve this end of the market. However, this

relative advantage appears to be under threat from the current practices of the larger corporate

groups.

Relatedly, we contend that the current manner in which these programmes are offered, i.e.,

manufacturerspayingthecorporatechainstopromoteproducts,isdiscriminatory.EvenifUMSwere

to be presented with such options, they will in no way receive the same cost benefit from the

manufacturer. To us these arrangements merely exacerbate the cost pressures we currently are

subjectedto.Overall,therefore,thesepracticesalsoprejudicethecompetitivenessoftownship-based

traders.

3.4.Oneroustradingterms.UMScontendsherethat it isextremelydifficult tomeettheobligations

setby suppliers/manufacturers. Thismaybea consequenceof the large corporate groupsdictating

thetradingtermsonwhichsuppliers/manufacturersdealwithindependents.Thelargersupermarket

groupswillpenalisesuppliersfornon-delivery,servicelevels,andstockavailabilityandinvirtuallyall

casessuppliers/manufacturersareliableforapenalty.Independentsareunabletoexercisethesame

levelofmarketpowerandthesupplierwouldrefusetosignsuchagreements,yetthisiswillinglydone

with the large corporate groups. Inotherwords, independentsby virtueof their size areunable to

exercise such market power and reach agreements such as those entered into between the large

corporategroupsandsuppliers.

3.5. Purchasing power dominance. The larger corporate groups account for 70-80% of the total

grocery retail sector (per revenuemeasure), as such it is reasonable toassume that theyprocurea

largevolumeofasupplier/manufacturer’soutput.Furthermore,thelargecorporateshavetheirown

buyers’ groups which, in our view, is a direct conflict of interest. Considering the lofty positions

currentlyheldbycorporatesupermarketchains,havingtheirownbuyinggroupsprovidesthemwith

an additional avenue to control and manipulate market outcomes to their favour - which further

entrenches theirpositions.Given thiscountervailingpower that largecorporategroupspossessand

exercise, independents face undue pressures from the respective supplier/manufacturer, i.e. unfair

tradingterms.


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3.6.Exclusiveagents/distributors.Oneconcernhereistheadditionalmarginsthatareaddedonbythe

distributors; in effect introducing an extra layer increases costs. UMS members estimate that this

couldadduptoanadditional10%tocosts.This,incombinationwiththestricttradingterms,places

UMSmembersatafurtherpricedisadvantage.Furthermore,dealingwithadistributorthat isalsoa

competitorhasquiteobviousdisadvantages.UMScontendsthathavingtodealwiththedistributoris

unjustified given that efforts have beenmade to set up an efficient supply chain thereby reducing

distribution costs for the supplier/manufacturer. In addition to this UMS contends that stock

availabilityalwaysseemstofavourthelargesupermarkets.

3.7.Newmall developments.We contend that independents are rarelyofferedparticipation inany

malldevelopments.Takeninconjunctionwiththenotionthatthelargersupermarketgroupsarenow

enteringthegeographicspacestypicallyservicedbyindependents,notablytownships,andperipheral

urban areas, UMS members are being disadvantaged further. UMS members have in the past

attempted toengage innewmallsandshoppingcentredevelopmentsandweredeniedoutrighton

thepremisethatlargesupermarketgroupsbringgreaterfoottraffic.

4. RecommendationstotheInquiry

UMSoffersthefollowingrecommendationstotheInquirytoassistinassessingtheaforementioned

concerns.

3.1.TheInquiryshouldobtainpricinganddiscountschedulesofferedbythesuppliers/manufacturers

to the big 5. This would enable the Inquiry to assess if there is unfair price discrimination being

targetedagainstindependents.Inotherwords,forthesamelevelofpurchasesforexamplebyPickn’

Pay, are the same prices being charged by the supplier/manufacturer (holding all other factors

constant,i.e.transportcosts)?

Afurtheraspectistoassessthegeneralpricesthatareofferedtoindependentstoascertainifthereis

infactawaterbedeffectintheabsenceofanyclearvolumebaseddiscounts.

3.2. The Inquiry should look into the current terms on which loyalty programmes and store

promotionsetc.arebeingpremised.Isitsuchthattherequirementstoqualifyforloyaltyprogrammes

andstorepromotionsaresettoohighandmayneverbereachedbyanindependent?


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3.3.TheInquiryshouldseektounderstandtheroleofdistributorsinrelationtoindependents,andif

thereareanyefficiencyjustificationsbeingadvancedforthispractice.ItwouldalsoservetheInquiry

well to compare the pricing and other terms offered to the distributors and the prices that are

chargedbydistributorstoindependents.

3.4.Furthermore, the Inquiryshouldcomparethetradingtermsbeingofferedto largesupermarket

groupsandcomparetheseto thetermsbeingofferedto independents.Whatare therequirements

thatarebeingimposedonindependentsviz-a-vizthelargesupermarketgroups?Arethesedifferences

(ifidentified)justified?

3.5.TheInquiryshouldobtainalistofthetop5productsthataresoldandascertainwhichretailers

areresponsibleforthelargestpurchases.Ifitisthecasethatmanufacturerscouldexpandoutputand

servicemorepurchasersatfairterms,whyaren’tthey?Afurtherandrelatedaspecttothevolume

benefitthat largeretailersareobtaining iswhetherthecostsavingsarebeingpassedon inanyway,

absent which these benefits, albeit subject to further consideration, should be offered to smaller

players.Onepossiblesolutionwouldbetooffersimilardiscountstoallplayerswhereitisfoundthata

singleretailerisaccountablefor,say,30%(ormore)ofamanufacturersoutput.

3.6. On the aspect of exclusivity of shopping mall leases, the Inquiry should establish whether

exclusivity is justified and how so? If so, one remedial measure could be to require that major

developers should be at least 5kms from a large independent. In instances whereby a large

supermarketgrouphasmorethan35%marketshare inacertain locality, thesupermarketcouldbe

forcedtodivestorsellsoastoencouragediversityinthemarketplace.

3.7Further,whiletherationaleforhavingexclusiveleasesinnewmalldevelopmentsmight,incertain

instances, be justifiable (where without such leases a proposed development would not receive

financial backing from banks etc.), this practice is open to abuse and has indeed been abused as

evidencedbytheflurryofcomplaintsfiledwiththeCommissioninthelastfewyears.Toremedythis,

a complete phase out of exclusive leases in shoppingmallsmay be theway to go in South Africa.

However,due regardmustbe takenof theeconomicdynamics in this sectorwhichmaymake long

leases desirable in some cases. As such, independent economic analysis should be undertaken to

identify the period required by “anchor” tenants to recoup any investments in new mall

developmentsinSouthAfricaandatermlimitneedstobeimposedonexclusivity,forexample5years


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pertheUKcase(seeAnnexureA),toapplyincaseswhereexclusiveleasesaredesirable.Anyexclusive

leasesinalreadyexistingmallsshouldalsobesubjectedtoaphase-outperiod.

WefurtherproposethattheInquiryseektoassesstheimplementationofaquotasysteminorderto

govern the level of ownership in various localities and store formatsby the corporate supermarket

chains. InadditiontothisweimploretheInquirytoassessthepossiblecrossshareholdingsthatthe

corporate chainshave inother stores,which inour viewmayalsohavean influenceonaproperty

developers’ incentives to allow or disallow the presence of an independent retailer in a mall or

shoppingcentre.

3.8.Finally,itisourviewthatindependentretailersandwholesalersareanimportantcontributorto

theeconomy.Theyare theengineof the townshipeconomyas they service spazashops,andoffer

diversity. A retail sector that is dominated by large players is not healthy for competition and

inclusivity in the long run. Developing small and medium-sized businesses, and supporting the

townshipeconomy,aresomeofthemajorobjectivesofgovernmentaimedatboostinggrowth,and

makingitmoreinclusive.


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AnnexureA:KeyFindingsfromtheUKandAustralianInquiries

UnitedKingdomCompetitionCommission

In 2005, the UKCC led an inquiry into the grocery sector, considering amongst others, issues ofcoordinationbetweensupermarketsaswellascompetition issues inthegroceryretailsupplychain.Apreviousmarket investigationaswellastwopriormergernotifications inthegroceryretailsectorhadprompted theUKCC’smarket Inquiry.The issues traversedby theUKCC includedanunderstandingofpricing dynamics at various levels of the supply chain, and exclusive leaseswere considered under abarriertoentryorexpansionassessment.

The UKCC had also identified the potential for exclusive leases to cause harm, more so in certaingeographicareasthatwerefoundtobehighlyconcentratedamongstgroceryretailers.Specifically,theUKCC Inquiry identified 30 out of 384 stores wherein exclusive leases in highly concentrated localmarkets were found to be a barrier to entry. In remedying the issue, the UKCC imposed a 5-yearexclusivity limit on all new shopping centres being built, with the further abolishment of existingexclusiveclauses5yearsafterthepublicationoftheUKCCreport.

Inaddition,theUKCCintroducedaseriesofregulatoryreformswhichbroadlysoughttointroducemorestringentcompetitionmeasures into theplanningprocess fornewstoredevelopments; requiring thatgroceryretailersgiveupcontroloverlandsitesinhighlyconcentratedmarkets,tighteningtheprovisionsoftheSupermarketsCodeofPractice(whichwassubsequentlyreplacedbytheGrocerySupplyCodeofPracticeandfurtherobtaininglegallybindingcommitmentsfromretailers-commitmentswhichwouldbe further used in establishing anOmbudsman to oversee the Supermarket Code of Practice. In thisregard the UKCC adopted a voluntary approach by requesting that stakeholders provided bindingcommitments to enable the formulation of an Ombudsman. However, the UKCC’s efforts wereunsuccessful in reaching a binding agreementwith supermarkets on the respective commitments. InAugust 2009, the UKCC engaged with government, advocating for the Ombudsman to function on astatutorybasis.AsitcurrentlystandstheroleoftheOmbudsmanhasbeenincorporatedintoinvariousBillswith thebroadaimofensuring theproper functioningof thesupermarket sectorandpreventingfurther abuses of power. To further note as at May 2012, the Groceries Code Adjudicator Bill wasintroducedintheHouseofLordsandreceivedRoyalAssenton25April2013.

ThroughtheintroductionofthevariousregulatoryreformstheUKCChasbeenprovidedwithaplatformtoassesscomplianceinthegroceryretailsector.

TheAustralianConsumerandCompetitionCommission

In2008,followingconcernsofhighlevelsofconcentrationinthegroceryretailsector,aswellasrapidlyrisinggrocery foodpricesprecipitated inpartby theglobal foodprice rises that year, theACCC ledamarketInquirytoassessthestateofcompetitioninthegroceryretailsector.TheACCC-ledInquirywasbroadinscopeandconsideredamongstothers:thestateofcompetitionamongstsupermarkets,supplychainissues,buyerpowerandrestrictiveconstraints.TheACCCapproachentailedconstructingseveralprice indices, then testing andmeasuring the effect of several causal factors on those prices.Whenconducting the price analyses the ACCC was able to determine whether competition diminished inrelationtotheseveralfactorsaswellasexclusiveleaseagreements.

Similar to the UKCC, the ACCC found that exclusive leases, through their restrictive nature, createdbarriers toentry in local areaswhichwereentrenchedby thedominanceof largerplayers. TheACCCfurtherstatedthattheseoutcomesmustbeconsideredwithcaution,andthatthefindingsmayonlybe


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applicable in certain instances, i.e. where supermarket concentration issues persisted in certainlocalities.Interestingly,theACCCfurthernotedthatexclusiveleasesarenotalwaysnecessarytoinduceinvestment (whichwas the premise for exclusivity stated by incumbent supermarkets),with the onlyplausiblereasonbeingtorestrictentry.Nonetheless,theACCCdidnotprohibitexclusiveleasesoutrightas these arrangements in their view may have both pro-competitive and anticompetitive effects.Specifically, the ACCC found that exclusivity provisionsmay be justified in the regionswhere growthpotential has been identified, whilst conversely in metropolitan areas exclusive leases are notpermissible.

Pursuant to their findings the ACCC adopted an advocacy programme approach by engaging withvariousrelevantstakeholders.Ultimatelyanagreementwasreachedbetweenthevariousstakeholders,whereby incumbent supermarkets agreed to phase out all exclusivity clauses in existing leaseagreementstotheeffectthatallnewleaseagreementswouldnolongerhaveexclusivityclauses.

submission by unitrade management services (ums) to the

Documents