Competition, Barriers to Entry and Inclusive Growth: Case Study on Fruit and Veg City

Abstract

Located within a broader project on barriers to entry undertaken for National Treasury, this case study explores the typical challenges faced by new entrants in the supermarket industry in South Africa. It draws insights from the experiences of Fruit and Veg City Ltd. and Choppies Enterprises Ltd., successful entrants in the South African supermarket industry.Vibrant competition in the supermarket industry not only benefits consumers across all income groups, but also has a significant impact on farmers, producers and manufacturers that supply supermarkets, given that supermarkets are often a key source of demand and route to market. Supermarkets can therefore contribute to poverty alleviation and inclusive growth objectives, making it a particularly important sector in South Africa. The formal South African supermarket industry however remains concentrated, with large supermarket chains - Shoprite, Pick n Pay, SPAR and Woolworths - dominating particularly in grocery retail. Nevertheless, Fruit and Veg City, a relatively new entrant, has managed to make substantial inroads into the industry. Further, reversing the trend of South African supermarket chains expanding into the southern African region, Botswana-owned supermarket chain Choppies has recently entered South Africa and has grown significantly with a focus on low-income consumers.This case study highlights both the typical structural and strategic barriers to entry, including potential anti-competitive conduct by incumbent supermarkets, faced by new entrants in the supermarket industry in South Africa. In-depth understanding of the nature and extent of barriers to entry is important for policy makers to support the development of new players in order to generate more inclusive and shared growth outcomes in this sector