Struggling JSE-listed retailer and wholesaler Massmart is nearing R1.36 billion banking after the Competition Commission (Compcom) on Friday backed the group’s loss-making Cambridge and Rhino Chain (and related food business) sales to its much larger listed peers. Shop.
CompCom said in a statement that it had recommended to the Competition Tribunal that it approve the proposed acquisition of Shopprite Supermarket, but that the agreement does not contain any job loss “subject to competition and public interest conditions”.
Read: Massmart sells most food resources to Shopprite for R1.36bn
The deal, which was first announced in August last year, will unlock valuable funds for Massmart to invest in its turnaround strategy or reduce debt.
Retail, wholesale and much more
The merger will add 56 retail grocery stores and 43 retail liquor stores to a chain of more than 500 stores in the Shopright Supermarket (there are more than 1500 stores in the country under the broader Shoprite Group, Shoprite, Checkers, OK and other brands).
The agreement includes 10 wholesale (Rhino Cash & Carry) stores, two wholesale liquor stores, Massfresh (a meat processing and packing facility) and Fruitspot (a fresh fruit and vegetable processing facility).
According to CompCom, consolidation does not increase competition or public interest concerns in wholesale sales of groceries.
However, a “consensus established between the merging parties” is expected to address the concerns of the competition towards retail.
It includes a “public interest remediation package” promise that promises:
- There will be no job loss due to consolidation;
- Implement an employee share ownership project;
- Shoprite Checker invests significantly in local collection growth and skill development;
- Shopright checkers continue to collect “Target Business” (Cambridge and Rhino) suppliers; And
- Develop and support SMME (Small, Medium and Small Enterprises) and HDP (Historically Disadvantaged Persons) retailers, suppliers and other small businesses in their value chain.
Compcom said its investigation found that the Sprite Group’s national retail grocery chain competitors were other national chains, including “Target Business” (Cambridge and Rhino), Pick n Pay, Spar and Woolworth. The commission noted the lack of evidence pointing to direct competition between small / regional retailers and the national retail grocery chain.
According to the commission, the merger will increase the concentration of groceries in the retail supply through national grocery chains. This, according to CompCom, is targeted by a limited number of stores target business.
It said that in addition to the merged teams, there are only two other national players who target low-income customers based on their product range, location, price points and promotion. However, it was found that consolidation could increase national retail supply of groceries and competition concerns in certain local market areas.
“The commission found that although other bidders for the target business were absent from the consolidation, the target business was likely to close due to its financial performance,” it said.
“This will take the target business out of the retail grocery market and, among others, the target business will lose about 7,000 jobs.”
“Target business is considered non-core by Massmart, so Massmart decides to dispose of the target business entirely,” it added.
Nandumiso Lehutso is a moneyweb intern.