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Botswana malls in the grip of cartels

Discussion in 'International Forum' started by BabuK, May 11, 2012.

  1. BabuK

    BabuK JF-Expert Member

    #1
    May 11, 2012
    Joined: Jul 30, 2008
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    Have you noticed that when you go shopping in most of the big up-market malls in Botswana like Game City, Riverwalk or Galo Centre in Francistown, you will almost never find an independent fruit and vegetable vendor, a butcher shop or an independent bakery?

    In fact if you want a bakery or a butcher shop, you have to go to the African Mall or its equivalent in other towns throughout Botswana. It is only in these older open malls that it is easy to operate. But prime customers do not shop at these malls and so if you have a business there, you are not as likely to have as wealthy or as many customers as in the modern malls.
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    The lease arrangements that exist between the mall owners and developers and supermarkets that are their 'anchor tenants' and commonly occupy a prime place in the new malls are not public so one can only speculate as to their content. However, a recent review of the lease arrangements between the shopping malls and their tenants by the South African Competition Commission revealed some startling facts about the long term leases with the mall owner, which last from 10 years and above but have renewal options of 40 years. The 'Use and Exclusiveness' provisions in the lease very often stop anyone competing with the large supermarkets. The South African Competition Commission concluded in its report that 'exclusive leases in these local markets are not justified and that they result in anti-competitive outcomes such as enabling supermarkets to maintain their position of market power. They further exclude independent and small retailers from entering certain shopping malls where the main supermarket chains are anchor tenants. In so doing, they may reduce competitive rivalry in different ways, including in terms of prices to consumers.
    "The extent and power of these large chain shops is often pervasive inside any given mall. Moreover, if you want to develop a new mall anywhere, one of the most basic requirements of your bankers will be that you must have an 'anchor tenant'. Otherwise no loan - 'no big name tenant, no money'. But the wonership of these supermarkets is highly concentrated and they simply will not open where a new mall is opening unless they themselves are not competing with their own existing outlets. If you want to develop a mall, you do not have many choices - you can use either Pick-n-Pay, Spar, Game or Woolworths as your anchor. Without them, you are relegated to the more down market anchors such as Choppies or Payless and immediately your bankers won't like it because they know that it will be more difficult for the property to attract the other brand names that make a mall financially succesful. If the supermarkets were owned by individuals who competed with each other, then there would be more malls. But the key anchors are owned by large groups. For example, Game is owned by Walmart in South Africa, and 19 of the 26 Spar shops in Botswana are owned by Derrick Brink and all the Woolworth shops in Botswana, are owned by the Handa Group. Have you also noticed just how boring and identical the shopping malls are? All are almost dominated by the same South African brand shops. This homogeneity is by commercial design, not by accident. Is this what the 'punter' i.e. you and I, really want? Your mall is deemd to be a commercial success if it is able to attract the same brand name shops and if you have too many independent shops without brand names, then you are heading for the bottom end of the market.If a mall is succesful, then the developer can easily sell it to an institutional buyer like a pension plan. Otherwise, the developer is stuck with a capital consuming albatros around his neck.The problem gets more complicated and the situation a lot less competitive when you consider the other franchise tenants in your mall. If you take Game City or Riverwalk for example, you will find many fast food outlets which are all competing to give you arteriosclerosis in exchange for your hard earned money. But when you look at who owns them, they are interrelated both at the franchise and retail ownership ends. One person may own three or four diffrents food outlets right next to each other. The large South African branding company 'Famous Brands' owns brands like Juicy Lucy, Milky Lane, Steers, O'Hagans, Mugg and Been, Deboniars and Wimpy. When you sign an agreement for a franchise, the franchisor often supplies you with the food you sell, tells you your menu, gives you your restauarant design and when to change it and often provides with management support. Companies like Famous Brands could be a real force for development in countries like Botswana where entrepeneurial skills are weak. But their business model of selling national franchises is unhelpful and inappropriate for a small country like Botswana.If you try to set up a franchise and find a good location, you may well find that the franchise owner owns 'all of Botswana'. So if you want to set up a restaurant in Lobatse or Maun, you will have to offer right of first refusal to the the franchise owner. The problem is that Famous Brands sells fanchises for the entire country, not for single outlets. But if you go to the Famous Brands website, you find that the food in these outlets, like bread, juices, minreal water, ice cream and meat all come from the same Famous Brand factories in Gauteng.So what, you say! This business model has major policy implications for Botwana's economic and commercial development. If Famous Brands insists that all bread has to come from its factories in Gauteng, then there is no way a local Botswana bakery will ever get any of the business. But the real consequence is the restraint in trade that these type of marketing arrangements create. The most common way up for young people in Botswana has been getting a job in the government or, if they are business minded, then it is usually in small retail, construction or farming. This has been the way up for many generations of aspiring business people all over the world. Increasingly, government is cashstrapped and there will be no great growth in government jobs in the years ahead. So where will the young people go if the retail sector is closed to them? Back to the village? Not very likely.Government could do several things to change this situation. First, it needs to make all shopping malls set aside a portion of their better areas for independent shops and create an area for small market stalls as is done at Riverwalk. Second, there is a need to reverse the anti-business zoning laws which forbid retail activities in residential areas. We should be doing the exact opposite, by helping to set up small suburban markets where sellers can be both helped to trade and be properly regulated. Third, selling franchises for the whole country in a small state like Botswana has to be restricted because it blocks competition and entry for more young people into the business world.*These are the views of Professor Roman Grynberg and not necessarily those of the Botswana Institure for Development Policy Analysis where he is employed.
     
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