More retail players accuse Spar of bullying tactics

(Photo: Waldo Swiegers / Bloomberg via Getty Images)

By Neesa Moodley

8 Dec 2022

A complaint to the Competition Commission by OBC Better Butchery, accusing Spar of enforcing exclusivity clauses in some malls, has led to other retailers stepping forward with similar complaints.

In a separate court case to that of OBC Better Butchery, a property-owning company called Vresthena also took Spar to the Pretoria High Court in November to complain about anti-competitive practices. This related to a particular head lease for the SuperSpar in Wierda Park, Centurion.

The head lease contains an exclusivity clause, and Vresthena has approached the High Court to stay the proceedings in order to refer to the validity of the exclusivity clause in the head lease for determination by the Competition Tribunal.

A 2019 Grocery Retail Market Inquiry (GRMI) by the commission found that long-term exclusive lease agreements were widely prevalent in the grocery retail sector and impeded competition – giving rise to consumer harm.

The GRMI report unequivocally states that national supermarket chains must stop enforcing exclusivity provisions – or provisions that have a substantially similar effect – in their lease agreements against SMMEs, speciality stores and other grocery retailers in shopping centres located in non-urban areas.

However, it was recommended that this should be achieved through voluntary compliance.

A Spar supermarket in the Die Wilgers suburb of Pretoria. (Photo: Waldo Swiegers / Bloomberg via Getty Images)

The three biggest supermarket groups in the country are Shoprite, Pick n Pay and Spar, all three of which are listed on the JSE. The 2019 Competition Commission inquiry established that the vast majority of Shoprite and Spar leases, and a majority of Pick n Pay leases, contained exclusivity provisions.

Competition Commission spokesperson Siyabulela Makunga confirmed the receipt of OBC’s complaint last month.

“Spar has failed to comply with the 2019 recommendation to end exclusive agreements. In contrast, Shoprite and Pick n Pay have come to agreements with the commission,” he says.

Spar instead chose to apply for a review in 2020, seeking to set aside the Competition Commission’s recommendations.

Essentially, it is looking for an order that says Spar is not required to cease enforcing exclusivity provisions. The review application is still pending.

Back to the Vresthena court case. Spar is seeking to renew the head lease contract. However, Vresthena has sought a stay on the grounds that the review application Spar has lodged against the Competition Commission’s recommendations should be finalised first.

If Spar’s application for review is unsuccessful, Vresthena says it “may be compelled to renew the head lease agreement on terms which are (potentially) unlawful”.

On 11 November, the Pretoria High Court granted the stay, and referred the matter to the Competition Tribunal.

In her ruling, Judge Neukircher said there was “indeed conduct which may contravene the [Competition] Act. This being so, I cannot find that the matter has been raised in a frivolous or vexatious manner.”

The two issues referred to the Competition Tribunal are the validity of the exclusivity provision and the validity of the head lease itself.

Tony Da Fonseca, managing director of OBC Better Butchery, lodged a complaint last month against Spar, saying the company has entered into lease agreements in which the landlord is prohibited from renting commercial retail space to competitors such as OBC.

“While attempting to conclude lease agreements for available space in various shopping centres where Spar is the anchor tenant, the landlord has openly communicated to us that they cannot conclude a lease agreement with us as Spar is enforcing their exclusivity clause,” he confirms. In all four cases, the landlord is Vukile Property Fund.

Vukile confirmed that there were some legacy lease agreements in place that contain exclusivity clauses. In a statement to DM168, the fund said: “We empathise with the position of both parties and continue to take the recommendations of the Competition Commission very seriously.

Read in Daily Maverick: “Specialist retailer accuses Spar of anti-competitive behaviour and ignoring Competition Commission recommendations”

“Until there is a ruling on this matter, we continue to act according to the rule of law and will honour lease agreements that are in place. We believe in giving our customers more choice and investing in the development of SMMEs, as this ultimately ensures the future sustainability of our shopping centres.”

Da Fonseca says Spar’s conduct restricts the landlord’s right to rent the available space to OBC.

“The landlords have told us they do not agree with this exclusionary practice or support it, but they are bound by the terms of the signed lease agreement. This exclusionary conduct prevents competition and the loss on average of 30 to 50 potential job opportunities per store in the area,” he adds.

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Da Fonseca says there are clear examples of anti-competitive behaviour in Hubyeni Shopping Centre in Limpopo, KwaMashu Shopping Centre in Durban, Gugulethu Square in Cape Town and Mandela Park Shopping Centre in Phuthaditjhaba in the Free State.

DM168 has a copy of the official complaint, which shows that OBC has been denied a lease agreement in all four shopping centres, on the grounds of an exclusionary clause in a Spar lease agreement.

Gugulethu SuperSpar has “staunchly refused the landlord [permission] to lease commercial retail property, citing the contractual exclusivity clause”.

“We won’t stand for these ‘blocking’ bullying tactics of these big players who flout Competition Commission rulings and have engaged in vertical agreements… with the intention of wiping out even the small challenger retailers like ourselves,” Da Fonseca says.

If the Competition Commission finds Spar guilty of anti-competitive behaviour, the consequences could include a fine equivalent to 10% of its turnover. For the year to September 2022, Spar Southern Africa posted an 8.4% jump in wholesale turnover to R88-billion. Group turnover including operations in Switzerland, Poland and Ireland, was R135.6-billion.

If the Competition Commission finds Spar guilty of anti-competitive behaviour, the consequences could include a fine equivalent to 10% of its turnover. (Photo: Waldo Swiegers / Bloomberg via Getty Images)

Gordon Pentecost, the group legal adviser to the Spar Group, said: “The Competition Commission issued a report in 2019 making recommendations in relation to exclusivity clauses being anti-competitive.

“Spar has taken the recommendations of the Competition Commission to the high court on review.

“In the interim, Spar has engaged in positive mediation with the Competition Commission to resolve the exclusivity recommendations. To date, Spar has received no formal complaint from the Competition Commission dealing with exclusivity.

“In respect of the matter before the Pretoria High Court, the issue related to exclusivity in the head and sub-leases being anti-competitive. The court determined it did not have jurisdiction to deal with the matter and referred it to the Competition Tribunal.

“Spar has agreed that, in respect of this lease, it was prepared to waive the exclusivity clause.” DM168

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