Game keeping its edge in fresh food
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As long as Walmart-backed Massmart continued to focus on the product range of its existing chains — Makro and Game — without changing much, it seemed for the most part that its SA rivals weren’t too bothered by the presence of the world’s largest retailer. Since the arrival of the US retailer, it’s been business as usual in most ways for grocers such as Pick n Pay and Shoprite. For all the promise of an influx of cheaper goods through what must be the world’s largest supply chain, Massmart’s American muscle hasn’t triggered anything near a price war among SA retailers. But that is now changing.
Massmart has caught on to something that may change the face of what has long been its underperforming chain, Game. To solve its woes, the company has decided to introduce a fresh food component in its stores. Unlike Makro stores, which are in large stand-alone store format, most Game outlets share retail space, mostly in shopping malls, with Pick n Pay, Shoprite and Woolworths.
Offering fresh food suddenly brings them into direct competition. Instead of competing, Shoprite and Pick n Pay have chosen to re-examine the fine print in the lease agreements signed with mall owners. As anchor tenants — which they are in most cases — they were assured there wouldn’t be a competitor of a similar scale in these malls. Adding a food component to a Game store arguably contravenes that contract. Shoprite was the first retailer to look at its contract and managed to get a court interdict prohibiting Game from introducing fresh produce.
Taking confidence from Whitey Basson’s success, Pick n Pay has now sought to stop Game from increasing its offering in 20 stores that share the same address as its own flagship stores. When Basson was asked in a results presentation a few years back whether Shoprite had felt the impact of the Walmart-backed Massmart in its operations, he was rather dismissive. It’s certainly no longer the case.
It’s quite evident why Pick n Pay, which is trying to boost its flagging fortunes and halt a slide in its market share to its long-time rivals such as Woolworths and Spar, would want to keep a competitor out. But is this fair to consumers? The contracts might be legally valid but on the face of it they are also anticompetitive. Assuming the lease agreements are binding, the route to having them overturned does not lie in the courts, which are naturally obliged to uphold the contracts. The route lies definitively with the competition authorities, which need to jump in here — and quickly. The mall owners will doubtless argue that their hands are tied. Beyond the legal aspects of the dispute, the supermarkets will probably argue that without an anchor tenant, malls would not get built, to the detriment of consumers.
This argument has some validity, but it is also self-serving. Anchor tenants are fearful that the foot traffic they bring into malls through their television, radio and catalogue advertising will now benefit a rival in the form of Game. But there’s nothing to say that two fresh food offerings won’t bring in a higher volume of shoppers. And if it’s Game’s strategy to piggyback on the advertising of its rivals, it doesn’t strike us as too smart a strategy. It will need to ramp up the advertising as well, returning the favour, as it were. The stores should compete on prices and on their service, with something as simple as getting their tellers to smile and not speak among themselves while serving shoppers, for example. Instead, Shoprite and, to a larger degree, Pick n Pay, are effectively choosing the easier route, which is not beneficial for customers.
The competition commission, which was well respected after its probe of the bread cartel, has to emerge and be seen to be clamping down on deals that are against the spirit of competition. Its first examination of the issue seems to us inadequate. One of the many criticisms of SA’s business community is that it has a “boys’ club” mentality that serves as a protective shield for some of the majors. These lease agreements — signed to secure anchor tenants — are just another example.