Choppies Limited suffered another blow this week when the Competition Authority (CA) accused the Botswana Stock Exchange quoted retailer ÔÇô and its ‘competitor’ Payless Supermarket of price fixing and distortion of competition in the local retail sector.
The two retailers have also been accused ÔÇô by the CA of making false claims relating to a buying group that the two ‘competitors’ belongs to. Information first surfaced in 2014 that Choppies, Payless and another company – Woodblock are involved in a three-party buying group in which Choppies Distribution Centre is the main partner.
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. Buying Groups operate in most industry sectors at both the wholesale and retail levels.
In Botswana, up until 2014, the ‘buying group’ was an unregulated business activity but things changed in June 2014 when the Competition Authority put a halt to the arrangement. Choppies, Payless and Woodblock then applied for an exemption but the Authority’s Exemptions Review Committee rejected the application after it became evident that the benefits for the public offset the negative effects the Buying Group would have on the retail sector competition in the country.
Three years down the line, and following intensive investigations, the Competition Authority says it has discovered that the two retailers peddled a series of lies in order to maintain the buying group arrangement. Amongst others, the two companies are said to have claimed that the ejection of Payless from the buying group would result in job losses at the financially troubled retailer.
“With regard to employment, it is worth noting that initially when the application was made, the two stores claimed that Payless had been able to retain the same number of staff and even increased its staff complement. Upon scrutiny this claim was found to be untrue”, reads part of the Competition Authority ruling.
Throughout the investigations, the two stores are said to have failed to prove that the buying group agreement has any off-setting benefits in the form of maintenance or promotion of employment in the country as stated under section 32(1) (d) of the Competition Act. The Authority says, instead, the information shows that Payless has reduced its employees and the parties tried to mislead and provided false information to it.
The Competition Authority also says that the two stores hinged their application around the assertion that the agreement would yield public benefits that would off-set competition concerns. However, on closer examination of the alleged public benefits claims, the CA said, “It is clear that these are not supported by any documentary evidence”.
Investigators at Competition Authority also discovered that Choppies and Payless sell the same goods at similar prices especially during the month-end promotion period.
As a result, the Authority came to conclusion that granting of an exemption to the applicants would be in effect granting the Choppies and Payless the leeway to continue with their price fixing and distortion of competition.
“The Authority therefore directs the parties to dissolve the agreement because it has no substantial economic benefits for the public. The Parties are granted a period of three (3) months, from receipt of this determination, to have dissolved the agreement and in addition to, at the expiry of the three (3) months period report to the Authority that they indeed dissolved the agreement.”, reads part of the CA instruction.
Meanwhile the Botswana Stock Exchange (BSE) this week made its first warning that it could suspend and subsequently terminate the listing of Choppies Limited on its Domestic Companies Index (DCI).
The caution to the shareholders and capital markets participants comes after Choppies failed to publish its financial results for the period that ended in June 2018.
BSE’s listing requirements dictate that quoted entities publish their full year financial results within a space of three months. The full year reporting period for the cross border retailer which has a secondary listing at JSE ended in June 2018 ÔÇô which means it had up to September to publish the audited results.
Choppies has however to date failed to publish the results blaming it on the “change of auditors”. The grocer appointed a new auditor earlier this year after parting ways with KPMG, its long time auditor.
In a statement issued late last month, Choppies said that its board ÔÇô together with the new auditors have been working together to reassess the past accounting practices and policies.
Still at the time, Choppies explained that the reassessments are complex by nature, requiring careful analysis in order to determine the impact on prior and current periods. Furthermore, the retailer said its board of directors and its new auditors -PricewaterhouseCoopers (PWC), have uncovered number of matters relating to the current and earlier financial periods, which require independent verification and expert legal analysis before disclosures can be made.
[Competition Authority Findings]
Choppies and Payless had monthly promotions wherein they had the same goods on promotion at identical or similar prices and the pamphlets were an exact replica of each other.
The two stores had alleged that Choppies would not benefit from the arrangement. It however emerged that Choppies was benefiting, particularly given, the quantity of Choppies in house brands found in Payless stores. Payless did not have any in house brands, but instead sold a variety of Choppies goods in large volumes.
The Parties failed to prove that Payless’ financial stability in the last three years was solely based on it being a member of the Buying Group.