Reena das Nair: New entrants struggling to break into South Africa's retail industry

Litha Mpondwana

Multiple barriers to entry need to be looked at to make it easier for new entrants to break into South Africa's retail industry.

This is according to a study by the Centre for Competition, Regulation and Economic Development (CCRED) at the University of Johannesburg, which finds that the country's big and long-established retail chains hold over 70% of the country's retail market share.

"If you look at the experiences of new entrants such as Fruit & Veg City, the entry of these triggers brings about huge benefits for suppliers into the supermarket value chain, as well as for consumers."

— Reena das Nair, Senior Researcher at the Centre for Competition, Regulation and Economic Development at the University of Johannesburg (UJ)

Reena das Nair, Senior Researcher at the CCRED, says that newer businesses such as Fruit & Veg have shown the value a new entrant can have in the country's retail industry for both suppliers and consumers, but still face obstacles which appear to be to the benefit of bigger retail chains.

"Historically in South Africa, the conduct where your incumbent supermarkets, your powerful supermarkets that have been around for a really long time, history the conduct is that they enter into leases with property developers or property owners, and these leases contain exclusive clauses, and these clauses which specifically stipulate that new entrants cannot locate in the same shopping mall or the same shopping centre for a given amount of time. Usually that amount of time is the duration of the lease".

— Reena das Nair, Senior Researcher at the Centre for Competition, Regulation and Economic Development at UJ
Das Nair says that new entrants face economic and systematic barriers to entry in the local retail space.

She says that it is wasteful to simply give new entrants finances to startup without working out how to overcome these barriers to entry.

"It is very important when we're looking at participation in the economy, that we look at it holistically. We don't just throw money at new entrants, because just giving them finance, we're not trying to address other barriers to entry such as exclusive clauses."

— Reena das Nair, Senior Researcher at the Centre for Competition, Regulation and Economic Development at UJ

This article is available here.