The Competition Commission has found that small and independent retailers are struggling to adapt to a changing competitive environment because of the dominance of national supermarket chains in non-urban areas.
The commission established the grocery retail market inquiry in 2015 to understand the state of competition in the grocery retail sector.
The purpose of the inquiry includes assessing the effects of the expansion, diversification and consolidation of national supermarket chains on small and independent retailers in townships, peri-urban and rural areas and the informal economy.
The commission said it had received more than 500 submissions and held more than 80 discussions, as well as public hearings in most provinces.
The inquiry outlined three areas of concern: the use of long-term, exclusive lease agreements and the exercise of buying power by the national supermarket chains; the inability of small and independent retailers, particularly spaza shops, to adapt to a changing competitive environment; and the dearth of pro-competitive regulations aligned with the convenience model associated with small retailers.
The commission said big retailers were able to compel property owners to give them long-term, exclusive lease agreements because of their bargaining power.
The inquiry said that the entry of national supermarkets, such as Pick n Pay and Shoprite, into non-urban markets has shifted the competitive landscape in relation to “price, product variety and consumer expectations”. The presence of these markets has resulted “in diversion of some of the customer demand previously serviced and the convenience factor offered by the small and independent retailers which have led to a decline in the number of small independent grocery retailers”.
These problems are “prohibitive to the realisation of the objectives of the Competition Act, which seek, among others, to realise inclusive economic participation”.
“This fundamentally undermines the objectives of the Competition Act and the broader national interest.”
The commission says changes need to be made to foster transformation: “The need for the facilitation of new and sustainable entry, particularly that of smaller players, is not only underscored by the broader public interest imperatives, it is also premised on the positive welfare enhancing outcomes such as consumer choice, convenience, innovation and competitive pricing, that accrue to the entry of such players.”
Tshegofatso Mathe is an Adamela Trust business reporter at the Mail & Guardian