Monday, January 24, 2022

Choppies buying group not benefitting public

The Competition Authority says that a buying group made up of Choppies Distribution Centre (Pty) Ltd, Payless Supermarket (Pty) Ltd and Woodblock (Pty) Ltd is not benefitting consumers in terms of “maintaining low prices, high quality or greater choice for consumers.”

A buying group is an arrangement through which similar independent businesses come together to leverage their combined purchasing power and in that way receive better pricing and terms on the products they buy. Up until this year, this was an unregulated business activity but in June, the Competition Authority announced that all buying groups would have to be exempted in terms of a provision in the Competition Act. In an interview with Sunday Standard around the time that this announcement was made, Duncan Morotsi, the Authority’s Director of Legal and Enforcement, did an interview with Sunday Standard to shed light on how buying groups operate.

He gave an example of four companies that buy different quantities of supplies from a distributor on a graduated scale, with one buying the largest quantity getting the highest discount. When these companies form a buying group, they are able to buy larger volumes as a group and obtain even more generous discounts. They divide up the purchase among themselves and on account of the discounts, are able to sell at lower prices. Morotsi said that under normal circumstances, these groups are formed to buy particular items – he gives an example of a group formed to buy macaroni.

Choppies, Payless and Woodblock applied for exemption but on Tuesday, the Authority’s Exemptions Review Committee rejected the application. The Authority’s decision says that the structure of the Choppies Buying Group “facilitates coordination with regard to prices and would likely lead to a collusive outcome in the relevant market in contravention of Section 25 of the Act.” That is the Competition Act which, at the quoted provision, prohibits commercial enterprises from entering into a horizontal agreements that involve “directly or indirectly fixing a purchase or selling price or any other trading conditions” and “dividing markets by allocating customers, suppliers, territories, or specific types of goods or services.”

In its decision the Authority says that it noted that “Choppies is already a dominant enterprise in the market for retailing of [Fast Moving Consumer Goods] or grocery retail market and the nature and features of the buying group would allow it to affect competition adversely.”

The application also failed because the applicants did not provide empirical evidence proved that the formation of their buying group would had any offsetting benefits for the public.

“Particularly, the parties failed to demonstrate through comprehensive economic and factual evidence that the formation of the Buying Group has, or would directly lead to the outcome of maintaining low prices, high quality or greater choice for consumers,” the decision reads.

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