Smiling all the way to the pay point

They have long insisted they are not doing anything wrong.

Pick n Pay says SA's four biggest supermarkets account for about 61% of food retailing.

In the UK, the four largest retailers make up 70% of retail sales and in Australia, where the company is at loggerheads with the regulator over market share as it tries to sell its Franklins unit, two chains account for 76%.

But the conclusion, confirmed by the commission last week, also fits others' observations.

"I think they're competitive," said Nick Vink, a professor of agricultural economics at Stellenbosch University, before the findings were known.

"The commission has yet to finalise the report detailing how it will proceed."

Question over leases

Competition commissioner Shan Ramburuth last week said it basically had cleared the retailers of colluding over prices, but questions remained about the conditions retailers demand when signing long-term leases with property owners, such as to ensure they are the only supermarket in a mall.

A 2009 Competition Tribunal hearing into Masscash's bid to buy Port Elizabeth wholesaler Finro Cash and Carry heard that the expansion of large retailers into the lower end of the market served by smaller stores was putting small players out of business.

In light of this, the commission's report is a concern, says consumer attorney Charles Abrahams.

Changing face of retail

"We don't have the kind of retailers we were seeing 10 years ago.

"These days, everyone's forced to shop at a Pick n Pay, Woolworths, Spar, etc.

"What does that suggest? Is that the outcome of normal competitive practices? Surely it suggests something more?

"But we cannot say unless we've had sight of the commission's report," he says.

Supermarkets vs. small retailers

Pioneer Food Group board member Jannie Mouton calls the concentration of supermarkets at the expense of smaller retailers "worrying", but says the big four supermarkets bring benefits.

"Your best partner is the competition between retailers, Shoprite, Pick n Pay, Spar.

"To a certain extent, we must leave them alone and let them fight competition," he says.

Expansion - formalizing the informal

With the commission unlikely to clip the supermarkets' wings, they are free to pursue opportunities across Africa.

Pick n Pay last year raised its stake in Zimbabwean chain TM supermarkets.

Shoprite opened its first store in Nigeria in 2005 and its second in June last year. It plans two more this year.

As they expand, SA's grocery chains are likely to regularise grocery markets supplied to such a great extent by informal traders and local markets.

Malawi, for example, informally imports more maize and maize products than through formal channels.

Mouton says 90% of food shopping in Angola is done through informal markets.

"Through informal markets you move to corner cafes, to supermarkets. At the end of the day, that is progress in life," he says.

Domino effect

As the supermarkets expand, they will not only change shopping behaviour, they will also change agriculture, which will develop to meet the supply opportunities provided by the new supermarkets.

"If you want a one-word description of the changes in agriculture in Africa over the last 15 years, that word is Shoprite," Prof Vink says.

Shoprite, with more than 150 stores across sub-Saharan Africa, has led the way ahead of its local peers and typifies the development to which Prof Vink alludes.

As incomes rise in Africa, demand for better-quality food is rising.

Export growth

This can already be seen in the way SA's food exports to the rest of Africa have grown faster than those to the rest of the world.

Between 1997 and 2009, the value of SA's food exports to Africa grew 8.3% to 1.9 billion.

To the rest of the world, they (maize, cane sugar, fruit) grew 6.6% to 5.6 billion.

Regional integration

While playing a role in carrying this produce north of Limpopo, supermarkets also play an unrecognised role in regional integration.

A modern supermarket will source as much product as it can locally.

This is cheapest and yields the freshest product. When it cannot do this, it will ship from the closest possible location.

But this then means supermarkets have to get to grips with local officials and local law to bring product across borders.

This, Prof Vink says, they do to great effect.

"They're actually doing more for regional integration than all of these aid agencies," he says.

Source: Business Day