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If you hold property or retail shares you need to read this

by , 04 December 2019
If you hold property or retail shares you need to read this
If you hold property stocks, or one of the big four supermarket chains you need to listen up…

A major new finding by the Competition Commission is coming into effect, and it could have far reaching implications for these companies.

Let me show you in more detail.

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Supermarkets have been hiding behind ‘exclusivity clauses’ for years – but that’s over now
 
For years now supermarkets have been signing exclusivity clauses with shopping malls.
 
That meant that they got exclusivity as the only supermarket in a mall. Or that other retailers selling a specific similar product weren’t allowed to trade in the same mall.
 
Just think of butcheries… How many shopping malls can you think of with a Shoprite or Pick n Pay as well as an independent Butchery?
 
Not many I guess… That’s because meat has become quite a big money maker for supermarkets.
 
And keeping out specialty butchers from a mall means they make more money. People don’t want to drive around from shop to shop to find what they need.
 
So if there’s no other place than the supermarket to buy their meat – they tend to buy it there.
 
Even when the price is higher or the quality is lower than what they can get at an independent butcher down the road.
 
The Competition Commissions grocery market inquiry has ‘spoken’
 
Exclusivity clauses in leases that allow the big four national supermarket chains to operate within shopping malls without competition must come to an end.
 
This is one of the findings made by the Competition Commission’s Grocery Market Inquiry, which looked into the general state of competition within the grocery retail sector, where the participation of small and independent retailers has steadily diminished over the years.
 
Shoprite, Pick n Pay, Spar and Woolworths have been given six months to voluntarily agree to comply with the inquiry’s framework for eliminating these leases – or face more stringent regulations. 
 
The inquiry found “features in the South African grocery retail sector that may prevent, distort or restrict competition”, inquiry chairman Halton Cheadle said as the final 600-page report was unveiled on Monday.
 
Among those features are exclusive leases and tenant mix clauses negotiated by the major chains in shopping malls across the country to deny opportunities for specialist, emerging chains and small, medium and micro-enterprises (SMME) in areas where the majority of consumers do their weekly and monthly shopping.
 
“Of even greater concern, these agreements also systematically deny the opportunity for specialist stores and independent entrepreneurs to locate in the mall if they compete with any of the national chains’ product lines,” Cheadle said, quoting the report.
 
One such retailer was Walmart-owned Massmart, which in 2014 lodged a complaint about exclusive lease arrangements that it said were hampering its expansion into the fresh groceries sector.
 
The inquiry found that more than 70% of shopping malls, which account for about half of all grocery sales nationally, are subject to exclusive lease agreements.
 
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What this means for property and retail stocks
  
In the short term this is unlikely to have a massive effect on retail companies. Simply because the economy is stagnant and not a lot of new businesses are looking to go into competition with established brands.
 
But this will slowly change in the coming three to five years.
 
Increasingly there’ll be competition in the form of specialised retailers at shopping malls.
 
And that won’t be a great thing for the big four retailers who are already under immense pricing pressure. But competition is always good for consumers!
 
Property companies might also be faced with a further challenge – not being able to negotiate exclusivity they might have to forego income by charging anchor tenants less to keep them at malls. This could further affect the already under pressure property sector as well.
 
This is great news for emerging retailers like Food Lovers Market – as well as many independent stores. Keep that in mind when you next invest in the likes of Shoprite or Spar…
   
Here’s to unleashing real value,
Francois Joubert,
Editor, Red Hot Penny Shares
 


If you hold property or retail shares you need to read this
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