The Competition Commission has launched an investigation into Pick ‘n Pay, Shoprite/Checkers, Woolworths and Spar, which comprise 94,5% of the retail food market. Massmart and Metcash are also included in the probe. This is because of possible antitrust breaches and concerns about alleged anti-competitive behaviour.
The commission’s decision was welcomed by consumers, who fear further food price hikes after announcements of hefty increases for both fuel and electricity. Meanwhile the Reserve Bank’s monetary policy committee announced its decision not to reduce the repo rate, currently at 7,5%.
Consumer Price Inflation (CPI) remained above the 3% to 6% target range at 8% in May, despite the state of the local economy. Food inflation, in particular, remained high despite falling commodity prices for products like maize and sugar.
Producers and consumer groups have repeatedly called for an investigation, but the probe seems to have been prompted by a National Agricultural Marketing Council (NAMC) report, which indicated a gap between producer and shelf prices in the four major supermarkets.
According to the Milk Producers’ Organisation (MPO), a study conducted by the dairy industry found supermarkets are forcing farmers to bear most of the risk by making them pay for shelf space and carry the cost of damaged and/or expired products. The report also highlighted some problematic “purchase practices” employed by retailers.
However, Pick ‘n Pay chairperson Raymond Ackerman slammed the report. He pointed to the group’s shrinking profit margins to prove it had not been involved in any collusion to push up prices.
After publishing the report, the NAMC asked the commission to launch an investigation into high food prices and possible anti-competitive behaviour by the major supermarkets. Prof Johann Kirsten, co-author and NAMC council member, said, “We’re satisfied the correct and lawful procedures will be employed to determine the true state of affairs. It’s possible the results of the investigation may lead to food pricing regulations.”
As part of its investigation, the commission will engage with the respondents, as well as members of the public, to get an in-depth understanding of competition in this market. The authority said it would decide after the probe whether to refer the supermarket chains to Competition Tribunal hearings. The tribunal will rule on antitrust issues.
“This complaint initiation now aims to uncover if there are any possible competition concerns arising in the retail space, where consumers would be affected most directly,” commissioner Shan Ramburuth said in a statement.
The commission will investigate several concerns, like the concentration of buyer power, manifested in practices such as exclusive supply arrangements, promotional discounts and other rebates, which make it difficult for small producers to get products on supermarket shelves.
Other concerns include long-term exclusive property lease agreements and category management. Property developers allegedly enter into exclusive anchor deals with major retailers for periods as long as 20 years. The retailers receive favourable rentals, which can be a barrier to entry and exclude competitors.
Category management practices involve retail stores appointing category captains from the ranks of the largest manufacturer in a particular product category, to manage that category entirely.
Therefore, one competitor is given the task to manage the placement, promotion and pricing of other competitors’ products. Through this, category captains may gain access to sensitive information like the sales volume data of all brands. This could potentially minimise inter-brand competition. The commission was also concerned that supermarket groups are exchanging price-sensitive information, which could hurt competition.
Investigation reaction positive
Supermarkets have reacted positively to the news of the investigation. “We will definitely cooperate with the commission and we’re confident there’s no reason for concern on our side,” said Wayne Hook, CEO of the Spar Group.
Nick Badminton, CEO of Pick ‘n Pay, also indicated that they welcome such an inquiry. – Denene Erasmus