CARREFOUR OFFICIAL JEAN YVES GENIES (RIGHT) WITH CUSTOMERS DURING CELEBRATIONS TO MARK THEIR FIRST ANNIVERSARY IN KENYA IN MAY 2017. PHOTO | SALATON NJAU
Majid Al Futtaim, the Carrefour franchise holder in Kenya, had sought to bar its landlord at Two Rivers from leasing out space to any new retailers, arguing that it needed the exclusivity to protect its capital investment.
But the authority in a November 30 decision seen by the Business Daily, rejected the application by Two Rivers and Carrefour to be exempted from provisions of the law that prohibit such exclusivity agreements.
The CAK said that Carrefour and Two Rivers had failed to demonstrate that there was no room for additional supermarkets at the mall and that exclusivity was “indispensable” for the retailer to recover its investment.
French retailer Carrefour has suffered its first regulatory setback since entering the Kenyan market with the rejection of its application for exclusive occupancy of Nairobi’s Two Rivers Mall.
The Competition Authority of Kenya (CAK) rejected the move, arguing that such a move would harm competition and that there is enough room for more retailers in the shopping complex.
Majid Al Futtaim, the Carrefour franchise holder in Kenya, had sought to bar its landlord at Two Rivers from leasing out space to any new retailers, arguing that it needed the exclusivity to protect its capital investment.
But the authority in a November 30 decision seen by the Business Daily, rejected the application by Two Rivers and Carrefour to be exempted from provisions of the law that prohibit such exclusivity agreements.
The CAK said that Carrefour and Two Rivers had failed to demonstrate that there was no room for additional supermarkets at the mall and that exclusivity was “indispensable” for the retailer to recover its investment.
“[Two Rivers] is currently the largest mall in Kenya by size and capital outlay and as such has capacity to accommodate more choices of retail stores and enable recoupment of the capital and spread of risk of non-recoupment,” said the CAK.
Carrefour declined to comment on the matter, saying the matter had not been concluded.
But the CAK confirmed that it had rejected Carrefour and Two Rivers’ application even as it declined to provide more details. Under the proposed deal, Chandarana, which already has space at Two Rivers, would have been restricted from expanding within the mall without the consent of Carrefour.
The restrictions would also have stopped butcheries and greengrocers from setting up at Two Rivers. Carrefour has also recently sought similar protection for its occupancy at the Hub Karen and the CAK’s Two Rivers decision is clear indication of how the second application may be processed.
Significant investment
The French retailer had argued that it had already invested significantly at Two Rivers and as one of the first tenants in a green field site, it would need to put in even more money to draw in customers.
While anchor tenants in malls usually help in securing development financing and as a consequence may gain rights to negotiate exclusive contracts, the CAK argues that the applicants in this case had also failed to demonstrate that Carrefour had guaranteed Two Rivers for “financing purposes”.
The CAK cited the experience of Botswana where similar exclusivity agreements have “significantly heightened” barriers for entry into the retail sector.
Ultimately, the authority argues, consumers stand to lose out as they will be denied “increased choice and quality, and competition”.
Carrefour country manager Franck Moreau said at a recent Press conference that the exclusivity agreements were a key part of their risk assessment in Kenya.
Mr Moreau suggested that failing to get the exclusivity waivers would see Carrefour slow down its expansion plans in Kenya.
He added that the agreements would be mutually binding -- while new supermarkets would be barred from occupying the malls, Carrefour could also not open any outlets close to the malls where they already have a presence.
Five hypermarkets
Carrefour opened its first outlet in Kenya in 2016 with a plan to open five hypermarkets within the space of five years.
However, upheavals in the retail sector with the near-collapse of Nakumatt have upset these plans and pushed the retailer on a rushed expansion journey.
Carrefour has recently opened an outlet at the Thika Road Mall, taking a space that was previously occupied by Nakumatt. There are also plans to set up at the Junction, stepping once more into a former Nakumatt outlet.
But the retailer will face competition in this expansion bid. Local supermarkets Tuskys and Naivas also seem to be hungry for new territory while South Africa’s Game and Botswana’s Choppies have also planned to open new outlets.
