Retailer probe 'long overdue'

Johannesburg - The Competition Commission's probe into anti-competitive behaviour by South Africa's leading supermarkets is long overdue.

So said Daryl Dingley, partner at law firm Webber Wentzel, who spoke to Chris Gibbons on Fin24.com's AM Stock Take podcast on Tuesday.

The commission announced on Monday it will investigate buyer power, lease agreements, category management and information exchange at Pick n Pay, Massmart, Woolworths, Spar and Shoprite.

"This probe is long overdue," said Dingley.

"Rising food prices combined with the uncovering of various cartels in the milling, dairy and poultry industries have increased suspicion of possibility of collusion in the entire value chain."

Dingley identified buying power and category management as pertinent focus areas for the Competition Commission's investigation.

Buying power occurs when retailers induce their suppliers to grant them advantages, based purely on their size and not any other objective justification. As a result, large retailers enjoy increasingly better terms while their smaller rivals can be forced out of the market.

"In the long run, this leads to increased prices due to the lowering of competitive pressures," said Dingley.

Controlling captains?

Suppliers are also at risk - procurement prices can fall beneath competitive levels and push smaller rivals out of the market place.

Dingley said the investigation into category management would also be valuable. This is the practice where the largest manufacturer of a particular product category, chocolate for example, elects a so-called category captain (a particular brand) to dominate in stores.

The category captains can often be privy to sales volume data and other sensitive information relating to competitive brands.

They can abuse their power by blocking the listing of competitors' products in retailers. The captains can also plan supermarket shelves to their advantage, where smaller brands' products are placed out of sight at the bottom shelves.

Dingley says he hopes the Competition Commission will investigate possible abuse of this information.

The retailing giants, which collectively make up more than 60% of market turnover, have all welcomed the investigation.

The Competition Commission said the move to look into the issue comes after a number of complaints from stakeholders and members of the public.

Complaints raised in the food and agro-processing sector have been identified as a priority by the commission.

- Fin24.com