Tuesday, October 20, 2020

Choppies exemption application reversed by Competition Authority

The Competition Authority has announced that they have reversed its decision to reject an exemption application that the Choppies Buying Group submitted in 2014. According to the CA, it has become evident that the benefits for the public offset the negative effects the Buying Group would have on competition. 

“Authority agreed to reconsider the application on grounds of public interest. At its 2nd Special Exemptions Review Committee Meeting held on 16th December 2014, the Competition Authority granted the exemption as it found that the benefits for the public in the form of maintaining employment in Payless Supermarket (Pty) Ltd and Woodblock (Pty) Ltd, had the effect of offsetting the negative effects the Choppies Buying Group would have on competition. Such benefits were seen by the Authority as being directly attributable to the Parties belonging to the Choppies Buying Group,” cites the CA in the newly published bulletin. 

The CA supports this decision by elucidating that in terms of section 32 of the Competition Act, the Competition Authority may grant exemptions in relation to certain agreements that may ordinarily infringe the Competition Act, if on assessment it can reasonably be expected that there will be offsetting benefits for the public directly attributable to such agreements. The exemption is granted until 30th November 2017. The CA describes that a Buying Group is when similar independent businesses come together to leverage their combined purchasing power to receive better pricing and terms on the products they buy. Buying Groups operate in most industry sectors at both the wholesale and retail levels. The Buying Group consists of Choppies Distribution Centre (Pty) Ltd, Payless Supermarket (Pty) Ltd and Woodblock (Pty) Ltd. 

Two years ago however, the CA appropriated its decision on the basis that the Exemption would likely lessen competition in the retailing of Fast Moving Consumer Goods (FMCG) or grocery retailing market where the parties operate in similar geographic markets, which is not proportionate to the benefits for the public. It seems now that the concern advanced by CA in 2014 of financial dependency on Choppies by its mentioned members does not hold weight. The CA ‘s concern stemmed from the report that Payless had insufficient capital or even credit facilities to purchase its stock in large volumes, which Choppies Buying Group had submitted as motivation to the CA to approve its application. In addition to that, the CA also expressed that the Group 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 consumer.”

In relation to employment in Payless Supermarket (Pty) Ltd and Woodblock (Pty) Ltd which contributed significantly to the recent reversal of the decision by CA, the rationale earlier provided in 2014 stated that “the Authority did not consider the adverse effects of the arrangement on competition to be proportionate to the benefits for the public in the grocery retailing market. Furthermore, the buying group was not considered to be the only remedy available for Payless in the long-term.” The CA arrived at the initial decision conscious of the possibility of job losses in the event that shareholders of Payless considered they could not profitably operate the business. 

However, it seems an inconsequential today that Choppies holds a dominant position which the CA previously argued that if the Buying Group was to be allowed it could adversely affect competition. The benefit of employment, as cited by the CA, is now considered to outweigh such adverse effects.

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