The Competition Commission has initiated an investigation into major South African supermarket chains for possible contraventions of the Competition Act, it said on Monday.
These chains included Pick n Pay, Shoprite-Checkers, Woolworths and Spar, the commission said in a statement.
Together, these groups comprise more than 60% of the market by turnover, the statement said.
The commission would also investigate major wholesaler-retailers Massmart and Metcash for alleged contraventions of sections 4(1)(a), 5(1) and 8(c) of the Competition Act.
According to the commission, the investigation had been prompted by concerns raised by various stakeholders and the public in general.
”Concerns raised fall within the food and agro-processing sector, which has been identified as a priority by the commission,” it said.
In a preliminary review of industry practices and structural characteristics, the commission identified several potential concerns, including the concentration of buyer power.
”This can be manifested in practices such as exclusive supply arrangements, listing fees, slotting allowances, payment policies, returns policies, promotional discounts and other rebates, potentially limiting upstream competition and making it difficult for small producers to gain and retain access to retailers’ shelves,” it said.
Another concern was long-term exclusive lease agreements.
”Property developers allegedly enter into exclusive anchor deals with major retailers for periods as long as 20 years.
”The retailers receive favourable rental rates, which can function as a barrier to entry and could have the effect of excluding competitors,” the commission said.
Category management was also a worry, the commission added.
”Category captains are appointed from the ranks of the largest manufacturer in a particular product category to manage all aspects of that category in the retail stores.
”In other words, one competitor is given the task to manage the placement, promotion and pricing of other competitors’ products on a category-wide basis.”
The commission said that through this conduct, category captains could gain access to sensitive information such as the sales volume data of all brands.
This could potentially minimise inter-brand competition, the commission said, adding that competitive exclusion could take place and the conduct could facilitate collusion.
”This has been the focus of extensive anti-trust concern in the United States,” the commission said.
The exchange of information was also a concern, it added.
”The commission is concerned that supermarkets could be exchanging price-sensitive information, which may have an impact on competition.
”As part of its investigation, the commission will engage with the respondents as well as the members of the public to get an in-depth understanding of competition in this market.”
The commission said it would decide at the end of its investigation whether there were sufficient grounds to refer the matter to the Competition Tribunal for adjudication.
”The commission has made several interventions along the food value chain, from production through to processing.
”This complaint initiation now aims to uncover if there are any possible competition concerns arising in the retail space, where consumers would most directly be impacted,” said Commissioner Shan Ramburuth.
‘Nothing to hide’
Spar, meanwhile, said it has ”nothing to hide.”
Group marketing director of Spar, Roelf Venter, told the South African Press Association the company welcomed the commission’s investigation.
”Retail is the most competitive sector in South Africa, so let the commission get this on the table for once and for all.
”Spar does not sit around tables with other retailers in discussions,” Venter added.
He criticised the commission’s mention of long-term lease arrangements.
”Show me any company in the world that spends R20-million on opening a store and then doesn’t have a long-term lease arrangement … It’s got nothing to do with anti-competitive behaviour.”
Venter said that while retailers obviously studied one another, there was no free flow of information between them.
”Food pricing is a sensitive issue at the moment and our margins are under tremendous pressure,” he said. — Sapa