Competition authority 'is a hammer seeking a nail'
August 3, 2009
By Florence de Vries
A "hammer looking for a nail" was how the Consumer Goods Council of SA (CGCSA) described the Competition Commission with its investigation into possible anti-competitive behaviour of the country's five major retail groups, which formally began last week.
Mncane Mthunzi, the CGCSA's chief executive, asked for clarity on the catalyst for the investigation, saying the retailers - Massmart, Pick n Pay, Shoprite, Spar and Woolworths - had to be informed of the process before it happened. He also slammed the notion that research by the National Agricultural Marketing Council (NAMC) prompted the probe.
"The commission should substantiate the reasons for this investigation and tell us who all the role players are," Mthunzi added.
Grant Pattison, Massmart's chief executive, said the commission opted for the "behind closed doors approach" when there was also the option of a public process. Both Pattison and Wayne Hook, Spar's chief executive, said they were not contacted by the commission before it launched the probe with a press release.
However, the deputy commissioner of the Competition Commission, Thembinkosi Bonakele, said all the retailers had been contacted before the press alert and some had appointed lawyers in the interim.
He said several factors had led to the probe, including a complaint by the Milk Producers' Organisation and points made by the NAMC.
In May, the NAMC issued a report entitled "The Impact of Market Power and Dominance of Supermarkets on Agricultural Producers in South Africa", which highlighted concerns about nominal retail prices having increased more rapidly than farm gate prices. This increased the margin between the producer price and consumer price without adequate explanation.
"We also had our own preliminary investigation following an outcry about food prices," Bonakele said, adding that the investigation should afford supermarkets the opportunity to talk to customers in an effort to be as transparent as possible.
Pattison questioned the decision to probe certain aspects of retailing, such as long exclusive leases and information sharing.
"Most shopping centres would not consider borrowing money to operate if there was not a long lease with a major retailer involved," he said.
Bonakele maintained that long lease agreements appeared to increase barriers to entry and lessened competition. He said retailers insisted on category management by suppliers and the commission would have to test the anti-competitive effects of this conduct.
It had come to light that information sharing might be taking place indirectly via research firms such as AC Nielsen, but the commission wanted to find out whether this amounted to collusion.
"We want to know how the information is packaged and if there are any unintended consequences."
All the groups were contacted by the commission in the past week. Their chief executives confirmed they were in the process of setting up meetings with the commission
Bonakele said the process would be outlined to retailers, after which the commission would engage with suppliers and consumer groups to evaluate evidence presented to them.
Efficient Group's chief economist, Dawie Roodt, said the probe might distract retailers to the extent that it could lead to poor allocation of resources when they should be concentrating on making profits.
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