Key findings of Competition Commission supermarkets probe

The Competition Commission in January cleared SA’s so-called Big Four – Pick n Pay, Shoprite Holdings, Woolworths and Spar – of price fixing and other antitrust issues, but it did express concerns about several other issues: long-term exclusive leases, information exchange, category management and concentration of buyer power.

“The investigation revealed that there was insufficient evidence to show contraventions in terms of the Competition Act pertaining to abuse of buyer power, category management and information exchange,” the commission said after concluding part of its investigation.

Wholesale retailer Massmart Holdings was also cleared for alleged contraventions of the Act.

The investigation followed the commission’s prioritisation of food markets in the context of public perception of high and rising grocery prices, increasing farm-to-retail price spreads, high market concentration, significant barriers to entry and high profit margins of the major retailers.

The watchdog also received a number of complaints from different parties related to the investigation, which, along with the commission’s initiation, formed the supermarkets investigation, which focused on the retail of key staple foods – poultry, bread, maize meal, milk, fats and oils and canned fish.

The key findings of its investigation were:

Exclusive lease agreements

– The commission found that the exclusive lease arrangements could result in anticompetitive effects.

– Independent and small retailers are excluded from entering certain shopping malls where the main supermarket chains are anchor tenants.

– Exclusive leases arise from an industry-wide practice and the commission has decided to engage all relevant stakeholders with a view to finding a constructive solution to this problem – an investigation of this issue will continue.

Information exchange

– The commission did not find evidence of exchange of information between the supermarkets chains.

– The commission noted that third parties like AC Nielsen and Synovate collect scanner data from supermarkets, which they disseminate to suppliers, and the dissemination of highly disaggregated information to suppliers may chill competition at this level of the industry.

– The investigation also revealed that suppliers receive detailed information about their performance and that of competitors per retail chain, per product category and by region.

– The commission is currently investigating allegations of information exchange in the maize and wheat, poultry, pelagic fish and vegetable oils industries.

Abuse of buyer power

– The commission is concerned about the entry of small suppliers to supermarkets. Smaller suppliers raised concerns with the difficulty of complying with a range of allowances and rebates demanded by retailers. They have also raised concerns regarding adverse payment terms and retrospective deductions from payments when retailers realise that they have offered deeper discounts to their competitors.

– The commission is concerned that these practices may place smaller suppliers at a disadvantage relative to the big suppliers and, in the long run, this may undermine the competitive process at this level of the supply chain.

Category management

– Category management refers to decisions on product placement, promotion and pricing executed by a “category captain” from the ranks of the largest manufacturers.

– The commission is concerned that the activities of category captains, combined with the potentially sensitive competitive information at their disposal, could facilitate collusion and/or competitive exclusion.

Download the document containing a summary of the Commission’s findings here

Source: TimesLive