“We believe retailers shouldn’t be telling landlords who they can and cannot compete with, so we’re going to fight this case in the consumers’ interest,” Grant Pattison, chief executive officer of Massmart told CNBC Africa on Thursday.
This follows after an announcement on Wednesday that South Africa’s largest retailer, Shoprite, are suing Massmart over an exclusivity clause that exists in their lease with Cape Town based Cape Gate mall.
Massmart’s expansion strategy of adding a food category to all their existing Game stores across the country is conflicting with Shoprite’s exclusivity clause in its lease which is meant to prevent new food retail competition from renting space at the Cape Gate mall.
“It’s all about the addition of the food category. Our lease agreement with the landlord says we can sell it and Shoprite’s lease agreement with the landlord says we can’t,” said Pattison.
However, Pattison stated that he is not certain why Shoprite is suing Massmart as the issue should lie with Hyprop, the property company that owns Cape Gate mall that issued two conflicting rental lease agreements.
Another issue, he added, is that the case has been taken up with the High Court when it is an issue around competition law that should be dealt with by the Competition Commission of South Africa.
“The more important part of the story though is that this is really more a matter of competition law. It’s a competition matter and has to be dealt with by the Competition Commission and the Competition Tribunal rather than the high court,” explained Pattison.
He pointed out that the Competition Commission had already begun investigating the matter of exclusivity clauses and concluded that these clauses in lease agreements are unjustified and reduce competition, which ultimately affects the consumer economy.
“We believe that they [exclusivity clauses]are fundamentally flawed and shouldn’t have any place in the consumer economy,” Pattison added.
Shoprite, on the other hand, have argued that they will lose sales and suffer financial losses if Game is permitted to trade as a general supermarket and grocery store, as well as a liquor store at the centre.
“Shoprite has already admitted that opening the Game stores with FoodCo will reduce their sales and profitability so their own case is based on the fact that competition does hurt businesses,” said Pattison.
According to Pattison, the court case has potential to be precedent setting as exclusivity clauses exist all over South Africa and has already been brought to the attention of the Competition Commission as it hampers healthy competition.
“I think it’s enormously precedent setting. These exclusivity clauses exist all over the country in every mall and I think customers are quite surprised to find out that retailers are demanding that you can’t have competition in the mall, in particular supermarkets,” he explained.
“We’re hoping that a ruling will come out in the end that says that exclusivity clauses in leases have no place in South Africa, which is a plus for the consumers naturally.”